<PAGE>
REGISTRATION NOS. 33-50049, 33-50049-01
33-19226, 33-19226-01
FILED PURSUANT TO RULE 424 (b)(2)
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 3, 1995) [LOGO]
$500,000,000
U S WEST CAPITAL FUNDING, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM,
IF ANY, AND INTEREST, BY
U S WEST, INC.
------------
U S WEST Capital Funding, Inc. ("Capital Funding") may offer from time to
time up to $500,000,000 aggregate initial offering price, or the equivalent
thereof in one or more foreign or composite currencies, of its Medium-Term Notes
Due Nine Months or More from Date of Issue (the "Notes"). Such aggregate initial
offering price is subject to reduction as a result of the sale by Capital
Funding of other Debt Securities described in the accompanying Prospectus. Each
Note will be unconditionally guaranteed (the "Guarantees") as to payment of
principal, premium, if any, and interest by Capital Funding's corporate parent,
U S WEST, Inc. ("U S WEST"). Each Note will mature on any day nine months or
more from the date of issue, as specified in the applicable pricing supplement
hereto (each, a "Pricing Supplement"), and may be subject to redemption at the
option of Capital Funding or repayment at the option of the Holder thereof, in
each case, in whole or in part, prior to its Stated Maturity Date, as specified
in the applicable Pricing Supplement. In addition, each Note may be denominated
and/or payable in United States dollars or a foreign or composite currency, as
specified in the applicable Pricing Supplement. The Notes, other than Foreign
Currency Notes, will be issued in minimum denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement, while Foreign Currency Notes will be issued in the minimum
denominations specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will bear interest at fixed rates ("Fixed Rate Notes") or at floating rates
("Floating Rate Notes"). The applicable Pricing Supplement will specify whether
a Floating Rate Note is a Regular Floating Rate Note, a Floating Rate/Fixed Rate
Note or an Inverse Floating Rate Note and whether the rate of interest thereon
is determined by reference to one or more of the CD Rate, the CMT Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an "Interest Rate
Basis"), or any other interest rate basis or formula, as adjusted by any Spread
and/or Spread Multiplier. Interest on each Floating Rate Note will accrue from
its date of issue and, unless otherwise specified in the applicable Pricing
Supplement, will be payable monthly, quarterly, semiannually or annually in
arrears, as specified in the applicable Pricing Supplement, and on the Maturity
Date. Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually, as set forth therein and specified in the
applicable Pricing Supplement. Interest on each Fixed Rate Note will accrue from
its date of issue and, unless otherwise specified in the applicable Pricing
Supplement, will be payable semiannually in arrears on May 15 and November 15 of
each year and on the Maturity Date. The Notes may also be issued with original
issue discount, and such Notes may or may not pay any interest. See "Description
of Notes."
The interest rate, or formula for the determination of the interest rate,
applicable to each Note and the other variable terms thereof will be established
by Capital Funding on the date of issue of such Note and will be specified in
the applicable Pricing Supplement. Interest rates or formulae and other terms of
Notes are subject to change by Capital Funding, but no change will affect any
Note already issued or as to which an offer to purchase has been accepted by
Capital Funding.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or in certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners).
---------------------------
SEE "RISK FACTORS" ON PAGE S-2 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
AGENTS' DISCOUNTS AND
PRICE TO PUBLIC (1) COMMISSIONS (1)(2) PROCEEDS TO COMPANY (1)(3)
<S> <C> <C> <C>
Per Note............................ 100% .125% - .75% 99.875% - 99.25%
Total (4)........................... $500,000,000 $625,000 - $3,750,000 $499,375,000 - $496,250,000
<FN>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Goldman, Sachs & Co., Lehman Brothers, Lehman Brothers Inc., Morgan Stanley
& Co. Incorporated and Salomon Brothers Inc (each, an "Agent" and,
collectively, the "Agents") will purchase the Notes, as principal, from
Capital Funding, for resale to investors and other purchasers at varying
prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent, or, if so specified in the applicable
Pricing Supplement, for resale at a fixed offering price. Unless otherwise
specified in the applicable Pricing Supplement, any Note sold to an Agent
as principal will be purchased by such Agent at a price equal to 100% of
the principal amount thereof less a percentage of the principal amount
equal to the commission applicable to an agency sale (as described below)
of a Note of identical maturity. If agreed to by Capital Funding and the
applicable Agent, such Agent may utilize its reasonable efforts on an
agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. Capital Funding will pay a commission to each Agent,
ranging from .125% to .75% of the principal amount of a Note, depending
upon its stated maturity, sold through such Agent. Commissions with respect
to Notes with stated maturities in excess of 40 years that are sold through
an Agent will be negotiated between Capital Funding and such Agent at the
time of such sale. See "Plan of Distribution."
(2) Capital Funding and U S WEST have agreed to indemnify the Agents against,
and to provide contribution with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution."
(3) Before deducting expenses payable by Capital Funding estimated at $250,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
</TABLE>
The Notes are being offered on a continuous basis by Capital Funding to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange and there
can be no assurance that the Notes offered hereby will be sold or that there
will be a secondary market for the Notes. Capital Funding reserves the right to
cancel or modify the offer made hereby without notice. Capital Funding or an
Agent, if it solicits the offer on an agency basis, may reject any offer to
purchase Notes in whole or in part. See "Plan of Distribution."
---------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
-------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 13, 1995.
<PAGE>
IN CONNECTION WITH THE OFFERING OF NOTES PURCHASED BY AN AGENT AS PRINCIPAL
ON A FIXED PRICE BASIS, SUCH AGENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
------------------------
THE FOLLOWING INFORMATION CONCERNING U S WEST, CAPITAL FUNDING, THE NOTES
AND THE GUARANTEES SUPPLEMENTS, AND SHOULD BE READ IN CONJUNCTION WITH, THE
INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS. CAPITALIZED TERMS USED IN
THIS PROSPECTUS SUPPLEMENT HAVE THE SAME MEANINGS AS IN THE ACCOMPANYING
PROSPECTUS.
RISK FACTORS
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL OF THE RISKS OF AN
INVESTMENT IN NOTES THAT RESULT FROM SUCH NOTES BEING DENOMINATED OR PAYABLE IN
OR DETERMINED BY REFERENCE TO A CURRENCY OR COMPOSITE CURRENCY OTHER THAN UNITED
STATES DOLLARS OR TO ONE OR MORE INTEREST RATE, CURRENCY OR OTHER INDICES OR
FORMULAS. CAPITAL FUNDING, U S WEST AND THE AGENTS DISCLAIM ANY RESPONSIBILITY
TO ADVISE PROSPECTIVE INVESTORS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS THEY CHANGE FROM TIME TO TIME. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED
BY AN INVESTMENT IN SUCH NOTES. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS
OR TRANSACTIONS INVOLVING THE APPLICABLE INTEREST RATE, CURRENCY OR OTHER
INDICES OR FORMULAS.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, to one or more currencies or composite currencies (including exchange
rates and swap indices between currencies or composite currencies), commodities,
interest rates or other indices, either directly or inversely, entails
significant risks that are not associated with similar investments in a
conventional fixed rate or floating rate debt security. Such risks include,
without limitation, the possibility that such index or indices may be subject to
significant changes, that the resulting interest rate will be less than that
payable on a conventional fixed rate or floating rate debt security issued by
Capital Funding at the same time, that the repayment of principal and/or
premium, if any, can occur at times other than that expected by the investor,
and that the investor could lose all or a substantial portion of principal
and/or premium, if any, payable on the Maturity Date (as defined under
"Description of Notes -- General"). Such risks depend on a number of
interrelated factors, including economic, financial and political events, over
which Capital Funding has no control. Additionally, if the formula used to
determine the amount of principal, premium, if any, and/or interest payable with
respect to such Notes contains a multiplier or leverage factor, the effect of
any change in the applicable index or indices will be magnified. In recent
years, values of certain indices have been highly volatile and such volatility
may be expected to continue in the future. Fluctuations in the value of any
particular index that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future.
Any optional redemption feature of the Notes might affect the market value
of such Notes. Since Capital Funding may be expected to redeem such Notes when
prevailing interest rates are relatively low, an investor might not be able to
reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the continued
liquidity of such market if one develops. See "Plan of Distribution."
The secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of Capital Funding and the value of the
applicable index or indices, including the complexity and volatility of such
index or indices, the method of calculating the principal, premium, if any,
and/or interest in respect of such Notes, the time remaining to the maturity of
such Notes, the outstanding amount of such Notes, any redemption features of
such Notes, the amount of other debt securities linked to such index or indices
and the level, direction and volatility of market interest rates generally. Such
factors also will
S-2
<PAGE>
affect the market value of such Notes. In addition, certain Notes may be
designed for specific investment objectives or strategies and, therefore, may
have a more limited secondary market and experience more price volatility than
conventional debt securities. Investors may not be able to sell such Notes
readily or at prices that will enable investors to realize their anticipated
yield. No investor should purchase Notes unless such investor understands and is
able to bear the risk that such Notes may not be readily saleable, that the
value of Notes will fluctuate over time and that such fluctuations may be
significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined under "Description of
Notes -- General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the United States dollar and the
applicable foreign currency or composite currency and the possibility of the
imposition or modification of exchange controls by the applicable governments or
monetary authorities. Such risks generally depend on factors over which Capital
Funding has no control, such as economic, financial and political events and the
supply and demand for the applicable currencies or composite currencies. In
addition, if the formula used to determine the amount of principal, premium, if
any, and/or interest payable with respect to Foreign Currency Notes contains a
multiplier or leverage factor, the effect of any change in the applicable
currencies or composite currencies will be magnified. In recent years, rates of
exchange between the United States dollar and foreign or composite currencies
have been highly volatile and such volatility may be expected in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations that may occur in the
future. Depreciation of the foreign or composite currency in which a Foreign
Currency Note is payable against the United States dollar would result in a
decrease in the United States dollar-equivalent yield of such Foreign Currency
Note, in the United States dollar-equivalent value of the principal and premium,
if any, payable on the Maturity Date of such Foreign Currency Note, and,
generally, in the United States dollar-equivalent market value of such Foreign
Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of or premium, if any, or interest on, a Foreign
Currency Note is due, which could affect exchange rates as well as the
availability of the foreign or composite currency in which such payment is to be
made on such date. Even if there are no exchange controls, it is possible that
the foreign or composite currency in which a payment in respect of any
particular Foreign Currency Note is to be made would not be available on the
applicable payment date due to other circumstances beyond the control of Capital
Funding. In that event, Capital Funding will be entitled to satisfy its
obligations in respect of such Foreign Currency Note in United States dollars.
See "Special Provisions Relating to Foreign Currency Notes -- Payment Currency."
CREDIT RATINGS
Any credit ratings assigned to Capital Funding's medium-term note program
may not reflect the potential impact of all risks related to structure and other
factors on the market value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of such Notes in light of
their particular circumstances.
FUTURE ACQUISITIONS
In connection with the Media Group's growth strategy, U S WEST from time to
time engages in discussions regarding acquisitions. U S WEST may fund any such
acquisitions, if consummated, with internally generated funds, debt or equity.
The incurrence of indebtedness to fund such acquisitions and/or the assumption
of indebtedness in connection with such acquisitions could result in a
downgrading of U S WEST's credit rating and, as a result, have an adverse effect
upon the market value of the Notes.
S-3
<PAGE>
RECENT DEVELOPMENTS
THE RECAPITALIZATION PLAN. U S WEST has announced a plan (the
"Recapitalization Plan") to create two classes of common stock that are intended
to reflect separately the performance of the Communications Group and the Media
Group and to change the state of incorporation of U S WEST from Colorado to
Delaware. Under the Recapitalization Plan, each outstanding share of Common
Stock of U S WEST will be converted into one share of U S WEST Communications
Group Common Stock, which is intended to reflect separately the performance of
the Communications Group, and one share of U S WEST Media Group Common Stock,
which is intended to reflect separately the performance of the Media Group.
The Recapitalization Plan would enable U S WEST to report the results of the
Media Group separately from the results of the Communications Group and thereby
give stockholders a better understanding of these businesses without diminishing
the benefits of remaining a single corporation. Investors would be afforded the
ability to invest in either or both stocks depending upon their investment
objectives. The Recapitalization Plan will require the approval of U S WEST's
shareholders. U S WEST expects to seek such approval at a special meeting of
shareholders to be held in the fall of 1995. The Recapitalization Plan will not
affect the offer and sale of the Notes or the ability of U S WEST to issue the
Guarantees. In addition, the Recapitalization Plan will not result in the
transfer of any assets from U S WEST or any of its subsidiaries or alter the
legal nature of U S WEST's obligations to its creditors, including its
obligations under the Guarantees. Creditors of U S WEST, including the holders
of Notes, will continue to benefit from the cash flow of the subsidiaries
comprising both the Communications Group and the Media Group, subject to the
satisfaction of obligations by such subsidiaries. The Recapitalization Plan is
not expected to have any adverse impact on U S WEST's credit rating.
CABLE ACQUISITION. On December 6, 1994, U S WEST acquired Wometco Cable
Corp. and the assets of Atlanta Cable Partners, L.P. and Georgia Cable Partners
(the "Atlanta Cable Properties") for approximately $1.2 billion. Together, the
Atlanta Cable Properties serve approximately 65% of the cable customers in the
Atlanta, Georgia metropolitan area. U S WEST expects that it will offer local
exchange services as well as multimedia services in the Atlanta area as a result
of this acquisition. The Atlanta Cable Properties are included in the Media
Group.
WIRELESS JOINT VENTURES. On July 25, 1994, AirTouch Communications
("AirTouch") and U S WEST announced an agreement to combine their domestic
cellular operations. This joint venture will have a presence in 9 of the top 20
cellular markets in the country and will form the third largest cellular company
in the United States, with more than 54 million potential customers ("POPs").
The transaction closed in early October of 1995. By combining their domestic
cellular operations, U S WEST and AirTouch will create opportunities for new
cost efficiencies in equipment purchasing, information systems, distribution,
marketing and advertising. Upon closing, each company's cellular operations
initially will continue to operate as separately owned entities, but will report
to a wireless management company, which will oversee both companies' domestic
cellular operations and provide management and support services on a contract
basis. The wireless management company will be managed by a committee comprised
of the president and chief operating officer of AirTouch, three other AirTouch
representatives, three representatives of U S WEST and one mutually agreed upon
independent representative. AirTouch's initial equity ownership of this
partnership will be approximately 70% and U S WEST's will be 30%. A merger of
the two companies' domestic cellular operations will take place upon the earlier
of July 25, 1998, the lifting of certain restrictions imposed on U S WEST in
connection with the divestiture by AT&T Corp. of its local telephone businesses,
or at any time at AirTouch's option. The agreement gives U S WEST strategic
flexibility, including the right to exchange its interest in the joint venture
for up to 19.9% of AirTouch common stock, with any excess amounts to be received
in the form of AirTouch non-voting preferred stock. AirTouch and U S WEST also
formed an equally owned partnership to bid on personal communications services
("PCS") licenses.
In October 1994, a partnership between AirTouch and U S WEST and a
partnership between Bell Atlantic Corporation ("Bell Atlantic") and NYNEX
Corporation ("NYNEX") formed PCS Primeco, L.P. ("PCS Primeco") for the purpose
of bidding on PCS licenses being auctioned by the Federal Communications
Commission (the "FCC"). The objective of PCS Primeco is to build and operate PCS
networks where
S-4
<PAGE>
its partners do not operate cellular networks, thus enabling them to establish a
national wireless network. In the FCC auction, which concluded in March 1995,
PCS Primeco was awarded PCS licenses in 11 markets covering 57 million POPs,
including licenses in Chicago, Dallas, Tampa, Houston, Miami and New Orleans.
PCS Primeco will be governed by an executive committee made up of three Bell
Atlantic-NYNEX representatives and three AirTouch-U S WEST representatives. The
four companies also formed a partnership to develop a national branding and
marketing strategy and a common "look and feel" for wireless customers. The
cellular properties of AirTouch and U S WEST will not be merged with those of
Bell Atlantic and NYNEX. U S WEST's wireless interests are included in the Media
Group.
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of April 15, 1988, as amended or supplemented from time to time (the
"Indenture"), among U S WEST, Capital Funding and First National Bank of Santa
Fe, as trustee (the "Trustee"). The Indenture is subject to, and governed by,
the Trust Indenture Act of 1939, as amended. The following summary of certain
provisions of the Notes and the Indenture does not purport to be complete and is
qualified in its entirety by reference to the actual provisions of the Notes and
the Indenture. Capitalized terms used but not defined herein shall have the
meanings given to them in the accompanying Prospectus, the Notes or the
Indenture, as the case may be. The term "Debt Securities," as used in this
Prospectus Supplement, refers to all debt securities, including the Notes,
issued and issuable from time to time under the Indenture. The following
description of Notes will apply to each Note offered hereby unless otherwise
specified in the applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be unsecured general obligations of Capital Funding and will rank
PARI PASSU with all other unsecured and unsubordinated indebtedness of Capital
Funding from time to time outstanding. For a description of the status of the
Guarantees, see "Description of Debt Securities and Guarantees -- Guarantees" in
the accompanying Prospectus. The Indenture does not limit the aggregate initial
offering price of Debt Securities that may be issued thereunder and Debt
Securities may be issued thereunder from time to time in one or more series up
to the aggregate initial offering price from time to time authorized by Capital
Funding for each series. As of the date of this Prospectus Supplement,
$515,000,000 aggregate principal amount of Debt Securities has been issued under
the Indenture and $465,000,000 aggregate principal amount of such Debt
Securities remains outstanding. Capital Funding may, from time to time, without
the consent of the Holders of the Notes, provide for the issuance of Notes or
other Debt Securities under the Indenture in addition to the $500,000,000
aggregate initial offering price of Notes offered hereby.
The Notes are currently limited to $500,000,000 aggregate initial offering
price, or the equivalent thereof in one or more foreign or composite currencies.
The Notes will be offered on a continuous basis and will mature on any day nine
months or more from their dates of issue (each, a "Stated Maturity Date"), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, interest-bearing Notes will be either Fixed
Rate Notes or Floating Rate Notes, as specified in the applicable Pricing
Supplement. The Notes may also be issued with original issue discount ("Original
Issue Discount Notes") and may or may not bear any interest.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest will be made in, United States dollars. The Notes also may be
denominated in, and payments of principal, premium, if any, and/or interest may
be made in, composite currencies or currencies other than United States dollars
("Foreign Currency Notes"). See "Special Provisions Relating to Foreign Currency
Notes -- Payments of Principal, Premium, if any, and Interest." The currency or
composite currency in which a Note is denominated, whether United States dollars
or otherwise, is herein referred to as the "Specified Currency." References
herein to "United States dollars," "U.S. dollars" or "$" are to the lawful
currency of the United States of America (the "United States").
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Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currency. At the
present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign currencies or composite
currencies and vice versa, and commercial banks do not generally offer
non-United States dollar checking or savings account facilities in the United
States. The Agents are prepared to arrange for the conversion of United States
dollars into the applicable Specified Currency to enable the purchaser to pay
for the related Foreign Currency Note, provided that a request is made to the
applicable Agent on or prior to the fifth Business Day (as hereinafter defined)
preceding the date of delivery of such Foreign Currency Note, or by such other
day as determined by such Agent. Each such conversion will be made by the
applicable Agent on such terms and subject to such conditions, limitations and
charges as such Agent may from time to time establish in accordance with its
regular foreign exchange practices. All costs of exchange will be borne by the
purchaser of each such Foreign Currency Note. See "Special Provisions Relating
to Foreign Currency Notes."
Interest rates offered by Capital Funding with respect to the Notes may
differ depending upon, among other things, the aggregate principal amount of
Notes purchased in any single transaction. Interest rates or formulae and other
terms of Notes are subject to change by Capital Funding from time to time, but
no such change will affect any Note already issued or as to which an offer to
purchase has been accepted by Capital Funding.
Each Note will be issued in fully registered form as a Book-Entry Note or a
Certificated Note. The authorized denominations of each Note other than a
Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the authorized
denominations of each Foreign Currency Note will be specified in the applicable
Pricing Supplement.
Citibank, N.A. through its corporate trust office in the Borough of
Manhattan in The City of New York (the "Paying Agent") will act as Capital
Funding's paying agent with respect to the Notes. Payments of principal of, and
premium, if any, and interest on, Book-Entry Notes will be made by Capital
Funding through the Paying Agent to the Depositary. See "-- Book-Entry Notes."
In the case of Certificated Notes, payment of principal and premium, if any, due
on the Stated Maturity Date or any prior date on which the principal, or an
installment of principal, of each Certificated Note becomes due and payable,
whether by the declaration of acceleration, call for redemption at the option of
Capital Funding, repayment at the option of the Holder or otherwise (the Stated
Maturity Date or such prior date, as the case may be, is herein referred to as
the "Maturity Date" with respect to the principal repayable on such date) will
be made in immediately available funds upon presentation and surrender thereof
at the office or agency maintained by Capital Funding for such purpose in the
Borough of Manhattan, The City of New York (or, in the case of any repayment on
an Optional Repayment Date, upon presentation of such Certificated Note and a
duly completed election form in accordance with the provisions described below),
currently the corporate trust office of the Paying Agent located at 111 Wall
Street, New York, New York 10043. Payment of interest due on the Maturity Date
of each Certificated Note will be made to the person to whom payment of the
principal and premium, if any, shall be made. Payment of interest due on each
Certificated Note on any Interest Payment Date (as hereinafter defined) other
than the Maturity Date will be made at the office or agency referred to above
maintained by Capital Funding for such purpose or, at the option of Capital
Funding, may be made by check mailed to the address of the Holder entitled
thereto as such address shall appear in the Debt Securities Register of Capital
Funding. Notwithstanding the foregoing, a Holder of $10,000,000 (or, if the
applicable Specified Currency is other than United States dollars, the
equivalent thereof in such Specified Currency) or more in aggregate principal
amount of Notes (whether having identical or different terms and provisions)
will be entitled to receive interest payments on any Interest Payment Date other
than the Maturity Date by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Paying Agent not less than 15 calendar days prior to such Interest Payment Date.
Any such wire transfer instructions received by the Paying Agent shall remain in
effect until revoked by such Holder. For special payment terms applicable to
Foreign Currency Notes, see "Special Provisions Relating to Foreign Currency
Notes -- Payments of Principal, Premium, if any, and Interest."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive
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order to close in The City of New York; provided, however, that, with respect to
Foreign Currency Notes the payment of which is to be made in a currency or
composite currency other than United States dollars, such day is also not a day
on which banking institutions are authorized or required by law, regulation or
executive order to close in the Principal Financial Center (as hereinafter
defined) of the country issuing such currency or composite currency (or, in the
case of the European Currency Unit ("ECU"), is not a day that appears as an ECU
non-settlement day on the display designated as "ISDE" on the Reuter Monitor
Money Rates Service (or a day so designated by the ECU Banking Association) or,
if ECU non-settlement days do not appear on that page (and are not so
designated), is not a day on which payments in ECU cannot be settled in the
international interbank market); provided, further, that, with respect to Notes
as to which LIBOR is an applicable Interest Rate Basis, such day is also a
London Business Day (as hereinafter defined). "London Business Day" means any
day (i) if the Index Currency (as hereinafter defined) is other than ECU, on
which dealings in such Index Currency are transacted in the London interbank
market or (ii) if the Index Currency is ECU, that is not designated as an ECU
non-settlement day on the display designated as "ISDE" on the Reuter Monitor
Money Rates Service (or a day so designated by the ECU Banking Association) or,
if ECU non-settlement days do not appear on that page (and are not so
designated), is not a day on which payments in ECU cannot be settled in the
international interbank market.
"Principal Financial Center" means the capital city of the country issuing
the currency or composite currency in which any payment in respect of the
related Notes is to be made or, solely with respect to the calculation of LIBOR,
the Index Currency, except that with respect to United States dollars,
Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs
and ECUs, the Principal Financial Center shall be The City of New York, Sydney,
Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "-- Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by Capital
Funding for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the Paying Agent located at 111 Wall
Street, New York, New York 10043. No service charge will be made by Capital
Funding or the Paying Agent for any such registration of transfer or exchange of
Notes, but Capital Funding may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith
(other than exchanges pursuant to the Indenture not involving any transfer).
REDEMPTION AT THE OPTION OF CAPITAL FUNDING
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of Capital Funding prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of Capital
Funding on any date on and after the applicable Initial Redemption Date in whole
or from time to time in part in increments of $1,000 or such other minimum
denomination specified in such Pricing Supplement (provided that any remaining
principal amount thereof shall be at least $1,000 or such minimum denomination),
at the applicable Redemption Price (as hereinafter defined), together with
unpaid interest accrued thereon to the date of redemption, on notice given not
more than 90 nor less than 30 calendar days prior to the date of redemption and
in accordance with the provisions of the Indenture. "Redemption Price," with
respect to a Note, means an amount equal to the Initial Redemption Percentage
specified in the applicable Pricing Supplement (as adjusted by the Annual
Redemption Percentage Reduction, if applicable) multiplied by the unpaid
principal amount to be redeemed. The Initial Redemption Percentage, if any,
applicable to a Note shall decline at each anniversary of the Initial Redemption
Date by an amount equal to the applicable Annual Redemption Percentage
Reduction, if any, until the Redemption Price is equal to 100% of the unpaid
principal amount to be redeemed. See also "-- Original Issue Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by Capital Funding at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the Holder thereof on
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any Optional Repayment Date in whole or from time to time in part in increments
of $1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued thereon to the date of repayment. For any Note to be repaid, such Note
must be received, together with the form thereon entitled "Option to Elect
Repayment" duly completed, by the Paying Agent at its corporate trust office (or
such other address of which Capital Funding shall from time to time notify the
Holders) not more than 60 nor less than 20 calendar days prior to the date of
repayment. Exercise of such repayment option by the Holder will be irrevocable.
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any portion
of the Book-Entry Notes represented by such Global Securities repaid must direct
the Participant (as hereinafter defined) through which they own their interest
to direct the Depositary to exercise the repayment option on their behalf by
delivering the related Global Security and duly completed election form to the
Paying Agent as aforesaid. In order to ensure that such Global Security and
election form are received by the Paying Agent on a particular day, the
applicable Beneficial Owner must so direct the Participant through which it owns
its interest before such Participant's deadline for accepting instructions for
that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants by
Beneficial Owners of Global Securities relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Paying Agent. See "-- Book-Entry Notes."
If applicable, Capital Funding will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any other securities laws or regulations in connection with any such
repayment.
Capital Funding may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by Capital Funding may, at the
discretion of Capital Funding, be held, resold or surrendered to the Trustee for
cancellation.
INTEREST
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will equal the amount of interest accrued from and including the
immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment with
respect to the applicable Note) to but excluding the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as hereinafter defined)
and the related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified in the applicable Pricing
Supplement, a "Record Date" shall be the fifteenth calendar day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
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FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable on May 15 and November 15 of each year (each,
an "Interest Payment Date") and on the Maturity Date. Unless otherwise specified
in the applicable Pricing Supplement, interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, the required payment of principal, premium,
if any, and/or interest will be made on the next succeeding Business Day as if
made on the date such payment was due, and no interest will accrue on such
payment for the period from and after such Interest Payment Date or the Maturity
Date, as the case may be, to the date of such payment on the next succeeding
Business Day.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. The applicable Pricing Supplement
will specify certain terms with respect to which each Floating Rate Note is
being delivered, including: whether such Floating Rate Note is a "Regular
Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating
Rate Note," the Fixed Rate Commencement Date, if applicable, Fixed Interest
Rate, if applicable, Interest Rate Basis or Bases, Initial Interest Rate, if
any, Interest Reset Period and Dates, Record Dates, Interest Payment Period and
Dates, Index Maturity, Maximum Interest Rate and/or Minimum Interest Rate, if
any, and Spread and/or Spread Multiplier, if any, as such terms are defined
below. If one or more of the applicable Interest Rate Bases is LIBOR or the CMT
Rate, the applicable Pricing Supplement will specify the Index Currency and
Designated LIBOR Page or the Designated CMT Maturity Index and Designated CMT
Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," an "Inverse Floating Rate Note" or as having an
Addendum attached, such Floating Rate Note will be designated as a "Regular
Floating Rate Note" and, except as described below or in the applicable
Pricing Supplement, will bear interest at the rate determined by reference
to the applicable Interest Rate Basis or Bases (a) plus or minus the
applicable Spread, if any, and/or (b) multiplied by the applicable Spread
Multiplier, if any. Commencing on the first Interest Reset Date, the rate at
which interest on such Regular Floating Rate Note shall be payable shall be
reset as of each Interest Reset Date; provided, however, that the interest
rate in effect for the period, if any, from the date of issue to the first
Interest Reset Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest Reset
Date, the rate at which interest on such Floating Rate/Fixed Rate Note shall
be payable shall be reset as of each Interest Reset Date; provided, however,
that (y) the interest rate in effect for the period, if any, from the date
of issue to the first Interest Reset Date will be the Initial Interest Rate
and (z) the interest rate in effect for the period from the Fixed Rate
Commencement Date to the Maturity Date will be the Fixed Interest Rate, if
such rate is specified in the applicable Pricing Supplement or, if no such
Fixed Interest Rate is so specified, the interest rate in effect thereon on
the day immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed Interest
Rate minus the rate determined by reference to the applicable Interest Rate
Basis or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any; provided, however,
that, unless otherwise specified in the applicable Pricing Supplement, the
interest rate thereon will not be less than zero. Commencing on the first
Interest Reset Date,
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the rate at which interest on such Inverse Floating Rate Note shall be
payable shall be reset as of each Interest Reset Date; provided, however,
that the interest rate in effect for the period, if any, from the date of
issue to the first Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points (each basis point being one
hundredth of one percent) to be added to or subtracted from the related Interest
Rate Basis or Bases in determining the applicable interest rate on such Floating
Rate Note. The "Spread Multiplier" is the percentage by which the related
Interest Rate Basis or Bases will be multiplied in determining the applicable
interest rate on such Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the related
Interest Rate Basis or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the rate
corresponding to each Interest Rate Basis will be determined in accordance with
the applicable provisions below. Except as set forth above or in the applicable
Pricing Supplement, the interest rate in effect on each day shall be (i) if such
day is an Interest Reset Date, the interest rate determined as of the Interest
Determination Date (as hereinafter defined) immediately preceding such Interest
Reset Date or (ii) if such day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately preceding the most
recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement; provided, however, that the interest rate in
effect on a Floating Rate Note for the period, if any, from the date of issue to
the first Interest Reset Date will be the Initial Interest Rate; provided,
further, that with respect to a Floating Rate/Fixed Rate Note, the interest in
effect for the period from the Fixed Rate Commencement Date to the Maturity Date
will be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is specified, the interest
rate in effect thereon on the day immediately preceding the Fixed Rate
Commencement Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided, however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Business Day, such Interest Reset Date will be postponed to the next
succeeding day that is a Business Day, except that in the case of a Floating
Rate Note as to which LIBOR is an applicable Interest Rate Basis and such
Business Day falls in the next succeeding calendar month, such Interest Reset
Date will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the Calculation Date (as hereinafter
defined). The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will
be the second
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Business Day immediately preceding the applicable Interest Reset Date; the
"Interest Determination Date" with respect to the Eleventh District Cost of
Funds Rate will be the last working day of the month immediately preceding the
applicable Interest Reset Date on which the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco") publishes the Index (as hereinafter
defined); and the "Interest Determination Date" with respect to LIBOR will be
the second London Business Day immediately preceding the applicable Interest
Reset Date, unless the Index Currency is British pounds sterling, in which case
the "Interest Determination Date" will be the applicable Interest Reset Date.
With respect to the Treasury Rate, the "Interest Determination Date" will be the
day in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as hereinafter defined) are normally auctioned (Treasury Bills
are normally sold at an auction held on Monday of each week, unless that day is
a legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the Interest Determination Date
will be such preceding Friday; and provided, further, that if an auction falls
on the applicable Interest Reset Date, then the Interest Reset Date will instead
be the first Business Day following such auction. The "Interest Determination
Date" pertaining to a Floating Rate Note the interest rate of which is
determined by reference to two or more Interest Rate Bases will be the most
recent Business Day which is at least two Business Days prior to the applicable
Interest Reset Date for such Floating Rate Note on which each Interest Rate
Basis is determinable. Each Interest Rate Basis will be determined as of such
date, and the applicable interest rate will take effect on the applicable
Interest Reset Date.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any Interest Period (a "Maximum Interest Rate") and (ii) a minimum
numerical limitation, or floor, on the rate at which interest may accrue during
any Interest Period (a "Minimum Interest Rate"). In addition to any Maximum
Interest Rate that may be applicable to any Floating Rate Note, the interest
rate on Floating Rate Notes will in no event be higher than the maximum rate
permitted by New York law, as the same may be modified by United States law of
general application. Under present New York law, the maximum rate of interest is
25% per annum on a simple interest basis. This limit does not apply to Floating
Rate Notes in principal amounts in excess of $2,500,000.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, on the Maturity Date. If any Interest Payment
Date other than the Maturity Date for any Floating Rate Note would otherwise be
a day that is not a Business Day, such Interest Payment Date will be postponed
to the next succeeding day that is a Business Day, except that in the case of a
Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis and
such Business Day falls in the next succeeding calendar month, such Interest
Payment Date will be the immediately preceding Business Day. If the Maturity
Date of a Floating Rate Note falls on a day that is not a Business Day, the
required payment of principal, premium, if any, and interest will be made on the
next succeeding Business Day with the same force and effect as if made on the
date such payment was due, and no interest will accrue on such payment for the
period from and after the Maturity Date to the date of such payment on the next
succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards (E.G., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
Specified Currency other than United States dollars, to the nearest unit (with
one-half cent or unit being rounded upwards).
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With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which the applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Floating Rate Notes for which the applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for Floating Rate Notes
for which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only one
of the applicable Interest Rate Bases applied as specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Citibank,
N.A. will be the "Calculation Agent." Upon request of the Holder of any Floating
Rate Note, the Calculation Agent will disclose the interest rate then in effect
and, if determined, the interest rate that will become effective as a result of
a determination made for the next succeeding Interest Reset Date with respect to
such Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date, or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Maturity Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent will determine each Interest Rate Basis in accordance with the
following provisions.
CD RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agents or their respective affiliates) selected by the Calculation Agent (after
consultation with Capital Funding) for negotiable United States dollar
certificates of deposit of major United States money market banks for negotiable
United States dollar certificates of deposit with a remaining maturity closest
to the Index Maturity specified in the applicable Pricing Supplement in an
amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
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displayed on the Designated CMT Telerate Page under the caption "...Treasury
Constant Maturities...Federal Reserve Board Release H.15...Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
week, or the month, as applicable, ended immediately preceding the week in which
the related CMT Rate Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page or is not displayed by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
(each, a "Reference Dealer") in The City of New York (which may include the
Agents or their respective affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent (after
consultation with Capital Funding) and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such Treasury
Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from five
such Reference Dealers selected by the Calculation Agent (after consultation
with Capital Funding) and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least U.S. $100 million. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers so selected by the
Calculation Agent are quoting as mentioned herein, the CMT Rate determined as of
such CMT Rate Interest Determination Date will be the CMT Rate in effect on such
CMT Rate Interest Determination Date. If two Treasury Notes with an original
maturity as described in the second preceding sentence have remaining terms to
maturity equally close to the Designated CMT Maturity Index, the quotes for the
Treasury Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display constituting the page on
the Dow Jones Telerate Service specified in the applicable Pricing Supplement
(or any other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)) for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
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"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in
the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
COMMERCIAL PAPER RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the heading "Commercial Paper." In the event that such rate is not published by
3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate on such Commercial Paper Rate Interest Determination Date
will be the Money Market Yield of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an Index
Maturity of 30 days or 90 days, respectively). If such rate is not yet published
in either H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on
the related Calculation Date, then the Commercial Paper Rate on such Commercial
Paper Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the offered
rates at approximately 11:00 A.M., New York City time, on such Commercial Paper
Rate Interest Determination Date of three leading dealers of commercial paper in
The City of New York (which may include the Agents or their respective
affiliates) selected by the Calculation Agent (after consultation with Capital
Funding) for commercial paper having the Index Maturity specified in the
applicable Pricing Supplement placed for an industrial issuer whose bond rating
is "AA", or the equivalent, from a nationally recognized statistical rating
organization; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined as of such Commercial Paper Rate Interest Determination
Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
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.
ELEVENTH DISTRICT COST OF FUNDS RATE. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate
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determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect on
such Eleventh District Cost of Funds Rate Interest Determination Date.
FEDERAL FUNDS RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Note for which the interest rate is determined
with reference to the Federal Funds Rate (a "Federal Funds Rate Interest
Determination Date"), the rate on such date for United States dollar federal
funds as published in H.15(519) under the heading "Federal Funds (Effective)"
or, if not published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on such Federal Funds Rate Interest Determination
Date as published in Composite Quotations under the heading "Federal
Funds/Effective Rate." If such rate is not published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
respective affiliates) selected by the Calculation Agent (after consultation
with Capital Funding) prior to 9:00 A.M., New York City time, on such Federal
Funds Rate Interest Determination Date; provided, however, that if the brokers
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate determined as of such Federal Funds Rate
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency having the Index Maturity
specified in such Pricing Supplement, commencing on the applicable Interest
Reset Date, that appear (or, if only a single rate is required as aforesaid,
appears) on the Designated LIBOR Page as of 11:00 A.M., London time, on such
LIBOR Interest Determination Date, if at least two such offered rates appear
(unless, as aforesaid, only a single rate is required) on such Designated
LIBOR Page, or (b) if "LIBOR Telerate" is specified in the applicable
Pricing Supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the rate for deposits in the Index Currency having the Index Maturity
specified in such Pricing Supplement, commencing on such Interest Reset
Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date. If fewer than two such
offered rates appear, or if no such rate appears, as applicable, LIBOR on
such LIBOR Interest Determination Date will be determined in accordance with
the provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
reference banks in the London interbank market, as selected by the
Calculation Agent (after consultation with Capital Funding), to provide the
Calculation Agent with its offered quotation for deposits in the Index
Currency for the period of the Index Maturity specified in the applicable
Pricing Supplement, commencing on the applicable Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00 A.M.,
London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in such Index
Currency in such market at such time. If at least two such quotations are so
provided, then LIBOR on such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two such quotations are so
provided, then LIBOR on such LIBOR Interest Determination Date will be the
arithmetic mean
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of the rates quoted at approximately 11:00 A.M., in the applicable Principal
Financial Center, on such LIBOR Interest Determination Date by three major
banks in such Principal Financial Center selected by the Calculation Agent
(after consultation with Capital Funding) for loans in the Index Currency to
leading European banks, having the Index Maturity specified in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in such Index Currency in such
market at such time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined as of such LIBOR Interest Determination Date will be LIBOR in
effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no such
currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the display on the Dow Jones
Telerate Service (or any successor service) for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency.
PRIME RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 (as hereinafter defined) as such bank's
prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 for such Prime Rate Interest Determination Date, then the Prime Rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date by four major money
center banks in The City of New York selected by the Calculation Agent (after
consultation with Capital Funding). If fewer than four such quotations are so
provided, then the Prime Rate shall be the arithmetic mean of four prime rates
(quoted on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on such Prime Rate Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by as many
substitute banks or trust companies as are necessary in order to obtain four
such prime rate quotations, provided such substitute banks or trust companies
are organized and doing business under the laws of the United States, or any
State thereof, each having total equity capital of at least $500 million and
being subject to supervision or examination by Federal or State authority,
selected by the Calculation Agent (after consultation with Capital Funding) to
provide such rate or rates; provided, however, that if the banks or trust
companies so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Prime Rate determined as of such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate Interest
Determination Date.
"Reuters Screen USPRIME1" means the display designated as "USPRIME1" on the
Reuter Monitor Money Rates Service (or such other page as may replace the
USPRIME1 on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
TREASURY RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the
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applicable Pricing Supplement, as such rate is published in H.15(519) under the
heading "Treasury Bills-auction average (investment)" or, if not published by
3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the Auction of Treasury Bills having the Index
Maturity specified in the applicable Pricing Supplement are not reported as
provided by 3:00 P.M., New York City time, on the related Calculation Date, or
if no such Auction is held, then the Treasury Rate will be calculated by the
Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 P.M., New York City time, on such Treasury Rate Interest
Determination Date, of three leading primary United States government securities
dealers (which may include the Agents or their respective affiliates) selected
by the Calculation Agent (after consultation with Capital Funding), for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
specified in the applicable Pricing Supplement; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Maturity Date or any other term relating thereto, may be modified as
specified under "Other Provisions" on the face thereof or in an Addendum
relating thereto, if so specified on the face thereof and in the applicable
Pricing Supplement.
AMORTIZING NOTES
Capital Funding may from time to time offer Amortizing Notes. Unless
otherwise specified in the applicable Pricing Supplement, interest on each
Amortizing Note will be computed on the basis of a 360-day year of twelve 30-day
months. Payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. Further information concerning additional terms and
provisions of Amortizing Notes will be specified in the applicable Pricing
Supplement, including a table setting forth repayment information for such
Amortizing Notes.
ORIGINAL ISSUE DISCOUNT NOTES
Capital Funding may offer Original Issue Discount Notes from time to time.
Such Original Issue Discount Notes may currently pay no interest or interest at
a rate which at the time of issuance is below market rates. In the event of
redemption, repayment or acceleration of maturity in respect of an Original
Issue Discount Note, the amount payable to the Holder of such Original Issue
Discount Note will be equal to (i) the Amortized Face Amount (as hereinafter
defined) as of the date of such event, plus (ii) with respect to any redemption
of an Original Issue Discount Note, the Initial Redemption Percentage specified
in the applicable Pricing Supplement (as adjusted by the Annual Redemption
Percentage Reduction, if applicable ) minus 100% multiplied by the Issue Price
specified in such Pricing Supplement (the "Issue Price"), net of any portion of
such Issue Price which has been paid prior to the date of redemption, or the
portion of the Issue Price (or the net amount) proportionate to the portion of
the unpaid principal amount to be redeemed, plus (iii) any accrued interest to
the date of such event the payment of which would constitute qualified stated
interest payments within the meaning of Treasury Regulation 1.1273-1(c) under
the Internal Revenue Code of 1986, as amended (the "Code"). The "Amortized Face
Amount" of an Original Issue Discount Note means an amount equal to (i) the
Issue Price thereof plus (ii) the aggregate portions of the original issue
discount (the excess of the amounts considered as part of the "stated redemption
price at maturity" of such Original Issue Discount Note within the meaning of
Section 1273(a)(2) of the Code, whether denominated as principal or interest,
over the Issue Price) which shall theretofore have accrued pursuant to Section
1272 of the Code (without regard to Section 1272(a)(7) of the Code) from the
date of issue of such Original Issue Discount Note to the date of determination,
minus (iii) any amount considered as part of the "stated
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redemption price at maturity" of such Original Issue Discount Note which has
been paid from the date of issue to the date of determination. Certain
additional considerations relating to the offering of any Original Issue
Discount Notes may be specified in the applicable Pricing Supplement.
INDEXED NOTES
Notes may be issued with the amount of principal, premium and/or interest
payable in respect thereof to be determined with reference to the price or
prices of specified commodities or stocks, the exchange rate of one or more
specified currencies (including a composite currency such as the ECU) relative
to an indexed currency or such other price or exchange rate ("Indexed Notes"),
as specified in the applicable Pricing Supplement. In certain cases, Holders of
Indexed Notes may receive a principal payment on the Maturity Date that is
greater than or less than the principal amount of such Indexed Notes depending
upon the relative value on the Maturity Date of the specified indexed item.
Information as to the method for determining the amount of principal, premium,
if any, and/or interest payable in respect of Indexed Notes, certain historical
information with respect to the specified indexed item and tax considerations
associated with an investment in Indexed Notes will be set forth in the
applicable Pricing Supplement.
BOOK-ENTRY NOTES
Capital Funding has established a depository arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depository
arrangement with respect to the Book-Entry Notes will be described in the
applic-
able Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest (if any) at the same rate or pursuant to the same
formula and having the same date of issue, currency of denomination and payment,
Interest Payment Dates (if any), Stated Maturity Date, redemption provisions (if
any), repayment provisions (if any) and other terms will be represented by a
single Global Security. Each Global Security representing Book-Entry Notes will
be deposited with, or on behalf of, the Depositary and will be registered in the
name of the Depositary or a nominee of the Depositary. No Global Security may be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor of the
Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a Global
Security, the Depositary or its nominee, as the case may be, will be the sole
Holder of the Book-Entry Notes represented thereby for all purposes under the
Indenture. Except as otherwise provided in this section, the Beneficial Owners
of the Global Security or Securities representing Book-Entry Notes will not be
entitled to receive physical delivery of Certificated Notes and will not be
considered the Holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferrable. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary and, if such Beneficial Owner is not a Participant, on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global Security
or the Indenture. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
Such limits and such laws may impair the ability to transfer beneficial
interests in a Global Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each Global
Security representing Book-Entry Notes will be exchangeable for Certificated
Notes of like tenor and terms and of differing authorized denominations
aggregating an equal principal amount, only if (i) the Depositary notifies
Capital Funding that it is unwilling or unable to continue as Depositary for the
Global Securities, (ii) the Depositary ceases to be a clearing agency registered
under the Exchange Act, (iii) Capital Funding in its sole discretion determines
that the Global Securities shall be exchangeable for Certificated Notes or (iv)
there shall have occurred and be continuing an Event of Default under the
Indenture with respect to the Notes. Upon any such exchange, the Certificated
Notes shall be registered in the names of the Beneficial Owners of the Global
Security or Securities representing Book-Entry Notes, which names shall be
provided by the Depositary's relevant Participants (as identified by the
Depositary) to the Paying Agent.
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The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership nominee).
One fully registered Global Security will be issued for each issue of
Book-Entry Notes, each in the aggregate principal amount of such issue, and
will be deposited with the Depositary. If, however, the aggregate principal
amount of any issue exceeds $200,000,000, one Global Security will be issued
with respect to each $200,000,000 principal amount and an additional Global
Security will be issued with respect to any remaining principal amount of
such issue.
The Depositary 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
Exchange Act. The Depositary holds securities that its participants
("Participants") deposit with the Depositary. The Depositary 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 of the Depositary ("Direct Participants") include
securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. The
Depositary 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 Depositary's
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
("Indirect Participants"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of each
actual purchaser of each Book-Entry Note represented by a Global Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in a Global Security
representing Book-Entry Notes are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners of a Global Security representing Book-Entry Notes will not receive
Certificated Notes representing their ownership interests therein, except in
the event that use of the book-entry system for such Book-Entry Notes is
discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depositary and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the Depositary's
records reflect only the identity of the Direct Participants to whose
accounts such Book-Entry Notes are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct and Indirect Participants to Beneficial Owners will by governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
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Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to Capital Funding as soon
as possible after the applicable record date. The Omnibus Proxy assigns Cede
& Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest payments on the Global
Securities representing the Book-Entry Notes will be made to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
applicable payment date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that
it will not receive payment on such date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers
in bearer form or registered in "street name", and will be the
responsibility of such Participant and not of the Depositary, the Paying
Agent, the Trustee or Capital Funding, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest to the Depositary is the
responsibility of Capital Funding, the Paying Agent or the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes within an issue are being redeemed, the
Depositary's practice is to determine by lot the amount of the interest of
each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any option to elect to have its
Book-Entry Notes repaid by Capital Funding, through its Participant, to the
Paying Agent, and shall effect delivery of such Book-Entry Notes by causing
the Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Paying Agent. The requirement for physical
delivery of Book-Entry Notes in connection with a demand for repayment will
be deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depositary's records.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to Capital Funding or the Paying Agent. Under such
circumstances, in the event that a successor securities depository is not
obtained, Certificated Notes are required to be printed and delivered.
Capital Funding may decide to discontinue use of system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that Capital Funding believes
to be reliable, but Capital Funding takes no responsibility for the accuracy
thereof.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing the
applicable currency. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States residents and, with
respect to Foreign Currency Notes, is by necessity incomplete. Capital Funding
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to
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any matters that may affect the purchase, holding or receipt of payments of
principal of and premium, if any, and interest on the Foreign Currency Notes.
Such persons should consult their own financial and legal advisors with regard
to such matters. See "Risk Factors -- Exchange Rates and Exchange Controls".
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, Capital
Funding is obligated to make payments of principal of, premium, if any, and
interest on, Foreign Currency Notes in the applicable Specified Currency (or, if
such Specified Currency is not at the time of such payment legal tender for the
payment of public and private debts, in such other coin or currency of the
country which issued such Specified Currency as at the time of such payment is
legal tender for the payment of such debts). Any such amounts payable by Capital
Funding in a foreign or composite currency will, unless otherwise specified in
the applicable Pricing Supplement, be converted by the Exchange Rate Agent named
in the applicable Pricing Supplement into United States dollars for payment to
Holders. However, the Holder of a Foreign Currency Note may elect to receive
such amounts in the applicable foreign or composite currency as hereinafter
described.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by Capital Funding for
the purchase by the quoting dealer of the applicable foreign or composite
currency for United States dollars for settlement on such payment date in the
aggregate amount of such currency or composite currency payable to all Holders
of Foreign Currency Notes scheduled to receive United States dollar payments and
at which the applicable dealer commits to execute a contract. All currency
exchange costs will be borne by the Holder of such Foreign Currency Note by
deductions from such payments. If three such bid quotations are not available,
payments will be made in the applicable foreign or composite currency.
A Holder of a Foreign Currency Note may elect to receive all or a specified
portion of any payment of the principal of, premium, if any, and/or interest on,
such Foreign Currency Note in the applicable foreign or composite currency by
submitting a written request for such payment to the Paying Agent at its
corporate trust office in The City of New York on or prior to the applicable
Record Date or at least fifteen calendar days prior to the Maturity Date, as the
case may be. Such written request may be mailed or hand delivered or sent by
cable, telex or other form of facsimile transmission. A Holder of a Foreign
Currency Note may elect to receive all or a specified portion of all future
payments in the applicable foreign or composite currency in respect of such
principal, premium, if any, and/or interest and need not file a separate
election for each payment. Such election will remain in effect until revoked by
written notice to the Paying Agent, but written notice of any such revocation
must be received by the Paying Agent on or prior to the applicable Record Date
or at least fifteen calendar days prior to the Maturity Date, as the case may
be. Holders of Foreign Currency Notes whose Notes are to be held in the name of
a broker or nominee should contact such broker or nominee to determine whether
and how an election to receive payments in the applicable currency or composite
currency may be made.
Payments of the principal of and premium, if any, and/or interest on Foreign
Currency Notes which are to be made in United States dollars will be made in the
manner specified herein with respect to Notes denominated in United States
dollars. See "Description of Notes -- General." Payments of interest on Foreign
Currency Notes which are to be made in the applicable foreign or composite
currency on an Interest Payment Date other than the Maturity Date will be made
by check mailed to the address of the Holders of such Foreign Currency Notes as
they appear in the Debt Securities Register, subject to the right to receive
such interest payments by wire transfer of immediately available funds under the
circumstances described under "Description of Notes -- General". Payments of
principal of, premium, if any, and/or interest on, Foreign Currency Notes which
are to be made in the applicable foreign or composite currency on the Maturity
Date will be made by wire transfer of immediately available funds to an account
with a bank designated at least fifteen calendar days prior to the Maturity Date
by each Holder thereof, provided that
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such bank has appropriate facilities therefor and that the applicable Foreign
Currency Note is presented and surrendered at the principal corporate trust
office of the Paying Agent in time for the Trustee to make such payments in such
funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, a
Beneficial Owner of a Global Security or Securities representing Book-Entry
Notes payable in a currency or composite currency other than United States
dollars which elects to receive payments of principal, premium, if any, and/or
interest in such currency or composite currency must notify the Participant
through which it owns its interest on or prior to the applicable Record Date or
at least fifteen calendar days prior to the Maturity Date, as the case may be,
of such Beneficial Owner's election. Such Participant must notify the Depositary
of such election on or prior to the third Business Day after such Record Date or
at least twelve calendar days prior to the Maturity Date, as the case may be,
and the Depositary will notify the Paying Agent of such election on or prior to
the fifth Business Day after such Record Date or at least ten calendar days
prior to the Maturity Date, as the case may be. If complete instructions are
received by the Participant from the Beneficial Owner and forwarded by the
Participant to the Depositary, and by the Depositary to the Paying Agent, on or
prior to such dates, then such Beneficial Owner will receive payments in the
applicable foreign or composite currency.
PAYMENT CURRENCY
If the applicable foreign or composite currency for a Foreign Currency Note
is not available for the required payment of principal, premium, if any, and/or
interest due to the imposition of exchange controls or other circumstances
beyond the control of Capital Funding, Capital Funding will be entitled to
satisfy its obligations to the Holder of such Foreign Currency Note by making
such payment in United States dollars on the basis of the Market Exchange Rate
(as hereinafter defined) on the second Business Day prior to such payment or, if
such Market Exchange Rate is not then available, on the basis of the most
recently available Market Exchange Rate or as otherwise specified in the Foreign
Currency Note and the applicable Pricing Supplement.
If payment in respect of a Foreign Currency Note is required to be made in
any composite currency (E.G., ECU), and such composite currency is unavailable
due to the imposition of exchange controls or other circumstances beyond the
control of Capital Funding, Capital Funding will be entitled to satisfy its
obligations to the Holder of such Foreign Currency Note by making such payment
in United States dollars. The amount of each payment in United States dollars
shall be computed by the Exchange Rate Agent on the basis of the equivalent of
the composite currency in United States dollars. The component currencies of the
composite currency for this purpose (collectively, the "Component Currencies"
and each, a "Component Currency") shall be the currency amounts that were
components of the composite currency as of the last day on which the composite
currency was used. The equivalent of the composite currency in United States
dollars shall be calculated by aggregating the United States dollar equivalents
of the Component Currencies. The United States dollar equivalent of each of the
Component Currencies shall be determined by the Exchange Rate Agent on the basis
of the most recently available Market Exchange Rate for each such Component
Currency, or as otherwise specified in the Foreign Currency Note and applicable
Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The "Market Exchange Rate" for a currency other than United States dollars
or a composite currency means the noon dollar buying rate in The City of New
York for cable transfers for such currency or composite currency as certified
for customs purposes by (or if not so certified, as otherwise determined by)
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the Federal Reserve Bank of New York. Any payment made in United States dollars
under such circumstances where the required payment is in a currency other than
United States dollars or a composite currency will not constitute an Event of
Default under the Indenture with respect to the related Foreign Currency Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Foreign Currency
Notes.
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Foreign Currency Notes only in United States
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into United States dollars would be determined with reference to
the date of default, the date of entry of the judgment or some other date. Under
current New York law, a state court in the State of New York rendering a
judgment on a Foreign Currency Note would be required to render such judgment in
the applicable foreign currency or composite currency, and such judgment would
be converted into United States dollars at the exchange rate prevailing on the
date of entry of the judgment. Accordingly, Holders of Foreign Currency Notes
would bear the risk of exchange rate fluctuations between the time the amount of
the judgement is calculated and the time such amount is converted from United
States dollars into the applicable foreign currency or composite currency.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of tax accounting).
ORIGINAL ISSUE DISCOUNT. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue discount
("Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service
("IRS") on January 27, 1994 under the original issue discount provisions of the
Code.
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For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a DE MINIMIS amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (E.G., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (I.E., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified DE MINIMIS amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is the
sum of the daily portions of original issue discount with respect to such
Discount Note for each day during the taxable year (or portion of the taxable
year) on which such U.S. Holder held such Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between (i) the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a Discount Note at the beginning
of any accrual period is the sum of the issue price of the Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified DE MINIMIS amount and (b) it provides for stated interest, paid or
compounded at least annually, at
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current values of (i) one or more qualified floating rates, (ii) a single fixed
rate and one or more qualified floating rates, (iii) a single objective rate, or
(iv) a single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than zero but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (E.G., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (I.E., a cap) or a minimum numerical limitation (I.E., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations unless such cap or floor is fixed
throughout the term of the Note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula and which is based upon (i) one or more qualified floating rates, (ii)
one or more rates where each rate would be a qualified floating rate for a debt
instrument denominated in a currency other than the currency in which the
Variable Note is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property (other than stock or debt
of the issuer or a related party) or (iv) a combination of objective rates. The
OID Regulations also provide that other variable interest rates may be treated
as objective rates if so designated by the IRS in the future. Despite the
foregoing, a variable rate of interest on a Variable Note will not constitute an
objective rate if it is reasonably expected that the average value of such rate
during the first half of the Variable Note's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Variable Note's term. A "qualified inverse floating rate" is
any objective rate where such rate is equal to a fixed rate minus a qualified
floating rate, as long as variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds. The OID Regulations also provide that if a Variable Note provides for
stated interest at a fixed rate for an initial period of less than one year
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Note's issue date is
intended to approximate the fixed rate (E.G., the value of the variable rate on
the issue date does not differ from the value of the fixed rate by more than 25
basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Variable Note that provides for stated interest at either a single qualified
floating rate or a single objective rate throughout the term thereof and that
qualifies as a "variable rate debt instrument" under the OID Regulations will
generally not be treated as having been issued with original issue discount
unless the Variable Note is issued at a "true" discount (I.E., at a price below
the Note's stated principal amount) in excess of a specified DE MINIMIS amount.
Original issue discount on such a Variable Note arising from "true" discount is
allocated to an accrual period using the constant yield method described above
by assuming that the variable rate is a fixed rate equal to (i) 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 (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably expected
for the Variable Note.
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In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
U.S. Holders should be aware that on December 15, 1994, the IRS released
proposed amendments to the OID Regulations which would broaden the definition of
an objective rate and would further clarify certain other provisions contained
in the OID Regulations. If adopted, these amendments to the OID Regulations
would be effective for debt instruments issued 60 days or more after the date on
which such proposed amendments are finalized.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. The proper United States Federal income tax treatment
of Variable Notes that are treated as contingent payment debt obligations will
be more fully described in the applicable Pricing Supplement. Furthermore, any
other special United States Federal income tax considerations, not otherwise
discussed herein, which are applicable to any particular issue of Notes will be
discussed in the applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of Capital Funding
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
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U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, DE
MINIMIS original issue discount, market discount, DE MINIMIS market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
SHORT-TERM NOTES. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects to
do so. If such an election is not made, any gain recognized by the U.S. Holder
on the sale, exchange or maturity of the Short-Term Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily compounding),
through the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price as
of the purchase date, such U.S. Holder will be treated as having purchased such
Note at a "market discount," unless such market discount is less than a
specified DE MINIMIS amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment that
does not constitute qualified stated interest) on, or any gain realized on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the lesser of (i) the amount of such payment or realized gain or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or semiannual compounding basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies and may be revoked only with the consent of
the IRS.
PREMIUM. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S. Holder will be considered
to have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable year
by the amortized amount of such excess for the taxable year. However, if the
Note may be optionally redeemed after the U.S. Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization
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of some bond premium until later in the term of the Note. Any election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the U.S. Holder and may be revoked only with the consent
of the IRS.
DISPOSITION OF A NOTE. Except as discussed above, upon the sale, exchange
or retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST
IS PAYABLE, IN A FOREIGN CURRENCY
As used herein, "Foreign Currency" means a currency or currency unit other
than U.S. dollars.
PAYMENTS OF INTEREST IN A FOREIGN CURRENCY.
CASH METHOD. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of interest
on a Note (other than original issue discount or market discount) will be
required to include in income the United States dollar value of the Foreign
Currency payment (determined on the date such payment is received) regardless of
whether the payment is in fact converted to United States dollars at that time,
and such United States dollar value will be the U.S. Holder's tax basis in such
Foreign Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the
United States dollar value of the amount of interest income (including original
issue discount or market discount and reduced by amortizable bond premium to the
extent applicable) that has accrued and is otherwise required to be taken into
account with respect to a Note during an accrual period. The United States
dollar value of such accrued income will be determined by translating such
income at the average rate of exchange for the accrual period or, with respect
to an accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. A U.S. Holder may elect, however, to
translate such accrued interest income using the rate of exchange on the last
day of the accrual period or, with respect to an accrual period that spans two
taxable years, using the rate of exchange on the last day of the taxable year.
If the last day of an accrual period is within five business days of the date of
receipt of the accrued interest, a U.S. Holder may translate such interest using
the rate of exchange on the date of receipt. The above election will apply to
other debt obligations held by the U.S. Holder and may not be changed without
the consent of the IRS. A U.S. Holder should consult a tax advisor before making
the above election. A U.S. Holder will recognize exchange gain or loss (which
will be treated as ordinary income or loss) with respect to accrued interest
income on the date such income is received. The amount of ordinary income or
loss recognized will equal the difference, if any, between the United States
dollar value of the Foreign Currency payment received (determined on the date
such payment is received) in respect of such accrual period and the United
States dollar value of interest income that has accrued during such accrual
period (as determined above).
PURCHASE, SALE AND RETIREMENT OF NOTES. A U.S. Holder who purchases a Note
with previously owned Foreign Currency will recognize ordinary income or loss in
an amount equal to the difference, if any, between such U.S. Holder's tax basis
in the Foreign Currency and the United States dollar fair market value of the
Foreign Currency used to purchase the Note, determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized
S-28
<PAGE>
on the sale, exchange or retirement and such U.S. Holder's adjusted tax basis in
the Note. Such gain or loss generally will be capital gain or loss (except to
the extent of any accrued market discount not previously included in the U.S.
Holder's income) and will be long-term capital gain or loss if at the time of
sale, exchange or retirement the Note has been held by such U.S. Holder for more
than one year. To the extent the amount realized represents accrued but unpaid
interest, however, such amounts must be taken into account as interest income,
with exchange gain or loss computed as described in "Payments of Interest in a
Foreign Currency" above. If a U.S. Holder receives Foreign Currency on such a
sale, exchange or retirement the amount realized will be based on the United
States dollar value of the Foreign Currency on the date the payment is received
or the Note is disposed of (or deemed disposed of as a result of a material
change in the terms of the Note). In the case of a Note that is denominated in
Foreign Currency and is traded on an established securities market, a cash basis
U.S. Holder (or, upon election, an accrual basis U.S. Holder) will determine the
United States dollar value of the amount realized by translating the Foreign
Currency payment at the spot rate of exchange on the settlement date of the
sale. A U.S. Holder's adjusted tax basis in a Note will equal the cost of the
Note to such holder, increased by the amounts of any market discount or original
issue discount previously included in income by the holder with respect to such
Note and reduced by any amortized acquisition or other premium and any principal
payments received by the holder. A U.S. Holder's tax basis in a Note, and the
amount of any subsequent adjustments to such holder's tax basis, will be the
United States dollar value of the Foreign Currency amount paid for such Note, or
of the Foreign Currency amount of the adjustment, determined on the date of such
purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the United States dollar value of the Foreign Currency principal amount
of the Note, determined on the date such payment is received or the Note is
disposed of, and the United States dollar value of the Foreign Currency
principal amount of the Note, determined on the date the U.S. Holder acquired
the Note. Such Foreign Currency gain or loss will be recognized only to the
extent of the total gain or loss realized by the U.S. Holder on the sale,
exchange or retirement of the Note.
ORIGINAL ISSUE DISCOUNT. In the case of a Discount Note or Short-Term Note,
(i) original issue discount is determined in units of the Foreign Currency, (ii)
accrued original issue discount is translated into United States dollars as
described in "Payments of Interest in a Foreign Currency -- Accrual Method"
above and (iii) the amount of Foreign Currency gain or loss on the accrued
original issue discount is determined by comparing the amount of income received
attributable to the discount (either upon payment, maturity or an earlier
disposition), as translated into United States dollars at the rate of exchange
on the date of such receipt, with the amount of original issue discount accrued,
as translated above.
PREMIUM AND MARKET DISCOUNT. In the case of a Note with market discount,
(i) market discount is determined in units of the Foreign Currency, (ii) accrued
market discount taken into account upon the receipt of any partial principal
payment or upon the sale, exchange, retirement or other disposition of the Note
(other than accrued market discount required to be taken into account currently)
is translated into United States dollars at the exchange rate on such
disposition date (and no part of such accrued market discount is treated as
exchange gain or loss) and (iii) accrued market discount currently includible in
income by a U.S. Holder for any accrual period is translated into United States
dollars on the basis of the average exchange rate in effect during such accrual
period, and the exchange gain or loss is determined upon the receipt of any
partial principal payment or upon the sale, exchange, retirement or other
disposition of the Note in the manner described in "Payments of Interest in a
Foreign Currency -- Accrual Method" above with respect to computation of
exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium is
determined in the relevant Foreign Currency and reduces interest income in units
of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the United
States dollar value of the bond premium amortized with respect to a period,
determined on the date the interest attributable to such period is received, and
the United States dollar value of the bond premium determined on the date of the
acquisition of the Note.
S-29
<PAGE>
EXCHANGE OF FOREIGN CURRENCIES. A U.S. Holder will have a tax basis in any
Foreign Currency received as interest or on the sale, exchange or retirement of
a Note equal to the United States dollar value of such Foreign Currency,
determined at the time the interest is received or at the time of the sale,
exchange or retirement. Any gain or loss realized by a U.S. Holder on a sale or
other disposition of Foreign Currency (including its exchange for United States
dollars or its use to purchase Notes) will be ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of Capital Funding, a controlled foreign corporation
related to Capital Funding or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of Capital
Funding or, at the time of such individual's death, payments in respect of the
Notes would have been effectively connected with the conduct by such individual
of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
S-30
<PAGE>
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by Capital
Funding through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., Lehman Brothers, Lehman Brothers Inc.,
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc. The Agents will
purchase Notes, as principal, from Capital Funding from time to time for resale
to investors and other purchasers at varying prices relating to prevailing
market prices at the time of resale as determined by the applicable Agent, or,
if so specified in the applicable Pricing Supplement, for resale at a fixed
offering price. If agreed to by Capital Funding and the applicable Agent, such
Agent may also utilize its reasonable efforts on an agency basis to solicit
offers to purchase the Notes at 100% of the principal amount thereof, unless
otherwise specified in the applicable Pricing Supplement. Capital Funding will
pay a commission to each Agent, ranging from .125% to .75% of the principal
amount of each Note, depending upon its stated maturity, sold through such
Agent. Commissions with respect to Notes with stated maturities in excess of 40
years that are sold through an Agent will be negotiated between Capital Funding
and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from Capital
Funding as principal to other dealers for resale to investors and other
purchasers, and may allow any portion of the discount received in connection
with such purchase from Capital Funding to such dealers. After the initial
offering of Notes, the offering price (in the case of Notes to be resold on a
fixed price basis), the concession and the discount may be changed.
Capital Funding reserves the right to withdraw, cancel or modify the offer
made hereby without notice and may reject orders in whole or in part (whether
placed directly with Capital Funding or through an Agent). Each Agent will have
the right, in its discretion reasonably exercised, to reject in whole or in part
any offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date of
settlement. See "Description of Notes -- General".
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. An Agent may from time to
time purchase and sell Notes in the secondary market, but no Agent is 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, an Agent may make a market in the Notes, but no
Agent is obligated to do so and may discontinue any market-making activity at
any time.
Each of the Agents may be deemed to be an "underwriter" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). Capital
Funding and U S WEST have agreed to indemnify the Agents against certain
liabilities (including liabilities under the Securities Act), or to contribute
to payments the Agents may be required to make in respect thereof. Capital
Funding has agreed to reimburse the Agents for certain other expenses.
Certain of the Agents and their affiliates have engaged and may in the
future engage in investment and commercial banking transactions with Capital
Funding and certain of its affiliates in the ordinary course of business.
Concurrently with the offering of Notes described herein, Capital Funding
may issue other Debt Securities described in the accompanying Prospectus
pursuant to the Indenture.
S-31
<PAGE>
EXPERTS
The consolidated financial statements of U S WEST and the combined financial
statements of the Communications Group and the Media Group as of December 31,
1993 and 1994 and for each of the three years in the period ended December 31,
1994, included in U S WEST's Current Report on Form 8-K dated September 28,
1995, are incorporated herein by reference in reliance on the reports of Coopers
& Lybrand L.L.P., independent certified public accountants, given upon the
authority of that firm as experts in accounting and auditing.
The Consolidated Financial Statements and Consolidated Financial Statement
Schedule included in U S WEST's Annual Report on Form 10-K for the year ended
December 31, 1994 are incorporated herein by reference in reliance on the
reports of Coopers & Lybrand L.L.P., independent certified public accountants,
given upon the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Time Warner Entertainment Company,
L.P., as of December 31, 1994 and 1993 and for each of the three years in the
period ended December 31, 1994, which appear in the Current Report on Form 8-K
of U S WEST, dated May 23, 1995, as amended by Forms 8-K/A filed on July 12,
1995 and August 24, 1995, are incorporated herein by reference in reliance on
the report of Ernst & Young LLP, independent auditors, given upon the authority
of that firm as experts in accounting and auditing.
The financial statements of Mercury Personal Communications (trading as
Mercury One-2-One) as of March 31, 1995, 1994 and 1993 and for each of the three
years in the period ended March 31, 1994, which appear in the Current Report on
Form 8-K of U S WEST dated May 23, 1995, as amended by Forms 8-K/A filed on July
12, 1995 and August 24, 1995, are incorporated herein by reference in reliance
on the report of Arthur Andersen, independent chartered accountants, given upon
the authority of that firm as experts in accounting and auditing.
The combined financial statements of Georgia Cable Holdings Limited
Partnership and Subsidiary Partnerships as of December 31, 1993 and 1992 and for
each of the years in the two-year period ended December 31, 1993, which appear
in the Current Report on Form 8-K of U S WEST, dated May 23, 1995, as amended by
Forms 8-K/A filed on July 12, 1995 and August 24, 1995, have been incorporated
by reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Wometco Cable Corp. and
subsidiaries as of December 31, 1993 and 1992 and for each of the years in the
two-year period ended December 31, 1993, which appear in the Current Report on
Form 8-K of U S WEST, dated May 23, 1995, as amended by Forms 8-K/A filed on
July 12, 1995 and August 24, 1995, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report on the 1993 consolidated
financial statements of Wometco Cable Corp. and subsidiaries refers to a change
in the method of accounting for income taxes in 1993 to adopt the provisions of
Financial Accounting Standards Board FASB No. 109 -- Accounting for Income
Taxes.
S-32
<PAGE>
PROSPECTUS
(U S WEST Logo)
$1,185,000,000
U S WEST CAPITAL FUNDING, INC.
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM,
IF ANY, AND INTEREST, BY
U S WEST, INC.
U S WEST Capital Funding, Inc. ("Capital Funding") from time to time may
offer its notes, debentures, or other debt securities (the "Debt Securities"),
in one or more series, up to an aggregate principal amount of $1,185,000,000 (or
its equivalent, based on the applicable exchange rate at the time of offering,
in such foreign currencies, or units of two or more thereof as shall be
designated by Capital Funding). Debt Securities may be issued in registered form
without coupons, bearer form with coupons attached, or in the form of a Global
Security. All Debt Securities will be unconditionally guaranteed as to payment
of principal, premium, if any, and interest by U S WEST, Inc. ("U S WEST").
When a particular series of Debt Securities is offered, a supplement to this
Prospectus will be delivered (the "Prospectus Supplement") together with this
Prospectus setting forth the terms of such Debt Securities, including, where
applicable, the specific designation, aggregate principal amount, denominations,
currency or currencies in which the principal, and premium, if any, and interest
are payable, maturity, rate (which may be fixed or variable) and time of payment
of interest, any terms for redemption or repurchase at the option of Capital
Funding or the holder, any terms for sinking fund payments, the initial public
offering price, the names of, and the principal amounts to be purchased by,
underwriters and the compensation of such underwriters, any listing of the Debt
Securities on a securities exchange, and the other terms in connection with the
offering and sale of such Debt Securities.
If an agent of Capital Funding or a dealer or an underwriter is involved in
the sale of the Debt Securities in respect of which this Prospectus is being
delivered, the agent's commission or dealer's or underwriter's discount will be
set forth in, or may be calculated from, the Prospectus Supplement. The net
proceeds to Capital Funding from such sale will be the purchase price of such
Debt Securities less such commission in the case of an agent, the purchase price
of such Debt Securities in the case of a dealer or the public offering price
less such discount in the case of an underwriter, and less, in each case, the
other attributable issuance expenses. The aggregate net proceeds to Capital
Funding from all the Debt Securities will be the purchase price of the Debt
Securities sold, less the aggregate of agents' commissions and dealers' and
underwriters' discounts and other expenses of issuance and distribution. The net
proceeds to Capital Funding from the sale of the Debt Securities will be set
forth in the Prospectus Supplement. See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is October 3, 1995.
<PAGE>
AVAILABLE INFORMATION
U S WEST is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information concerning U S WEST can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such reports, proxy statements and other information concerning U S
WEST may also be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005 and the Pacific Stock Exchange, 301
Pine Street, San Francisco, California 94104, the securities exchanges on which
shares of U S WEST's common stock are listed.
U S WEST and Capital Funding have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933
(the "Securities Act"). This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
No separate financial statements of Capital Funding have been included
herein. U S WEST does not consider that such financial statements would be
material to holders of the Debt Securities because (i) Capital Funding is a
direct wholly-owned subsidiary of U S WEST, a reporting company under the
Exchange Act, (ii) Capital Funding does not have any independent operations but
exists for the sole purpose of issuing debt securities guaranteed by U S WEST,
and (iii) the obligations of Capital Funding under the Debt Securities are fully
and unconditionally guaranteed by U S WEST. See "Description of Debt Securities
and Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by U S WEST with the Commission
(File No. 1-8611) and are incorporated herein by reference: (i) Annual Report on
Form 10-K for the year ended December 31, 1994, (ii) Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, (iii) Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and (iv) Current Reports on Form 8-K dated
January 19, 1995, April 10, 1995, April 18, 1995, May 23, 1995 (as amended by
Forms 8K/A filed on July 12, 1995 and August 24, 1995), June 20, 1995, July 28,
1995, September 22, 1995 and September 28, 1995.
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
U S WEST AND CAPITAL FUNDING WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE HEREIN,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN. REQUESTS SHOULD BE DIRECTED TO THE TREASURER, U S WEST, INC.,
7800 EAST ORCHARD ROAD, ENGLEWOOD, COLORADO 80111 (TELEPHONE NUMBER (303)
793-6500).
-------------------
2
<PAGE>
U S WEST, INC.
U S WEST was incorporated in 1983 under the laws of the State of Colorado
and has its principal executive offices at 7800 East Orchard Road, Englewood,
Colorado 80111 (telephone number (303) 793-6500). U S WEST is a diversified
global communications company engaged in the telecommunications, cable, wireless
communications and multimedia content and services businesses. U S WEST conducts
its businesses through two groups: the U S WEST Communications Group (the
"Communications Group") and the U S WEST Media Group (the "Media Group"). The
Communications Group provides regulated communications services to more than 25
million residential and business customers in the states of Arizona, Colorado,
Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon,
South Dakota, Utah, Washington, and Wyoming (collectively, the "Communications
Group Region"). The Media Group is comprised of (i) cable and telecommunications
network businesses outside the Communications Group Region and internationally,
(ii) domestic and international wireless communications network businesses and
(iii) domestic and international multimedia content and services businesses.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates through the issuance of indebtedness guaranteed by U S WEST
and has no independent operations. The principal executive offices of Capital
Funding are located at 7800 East Orchard Road, Englewood, Colorado 80111
(telephone number (303) 793-6500).
USE OF PROCEEDS
Capital Funding will apply the net proceeds from the sale of the Debt
Securities to its general funds to be used for loans to U S WEST and affiliates
of U S WEST, which will in turn use the funds for general corporate purposes,
including acquisitions, the reduction of short-term and long-term borrowings,
and for other business opportunities. The amount and timing of these loans will
depend upon the future growth and financing requirements of U S WEST and its
affiliates.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges from
continuing operations of U S WEST for the periods indicated. For the purpose of
calculating the ratio, earnings consist of income before income taxes and fixed
charges. Fixed charges include interest on indebtedness (excluding discontinued
operations) and the portion of rentals representative of the interest factor.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
- ------------------------------------ ------------
1990 1991 1992 1993 1994 1994 1995
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
4.07 3.11 3.85 2.38 4.85 4.98 4.09
</TABLE>
The 1993 ratio is based on earnings from continuing operations before
extraordinary charges associated with the decision to discontinue accounting for
the operations of U S WEST in accordance with SFAS No. 71 of $3.123 billion and
the early extinguishment of debt of $77 million. The 1993 and 1991 ratios
include restructuring charges of $1 billion and $364 million, respectively.
Excluding the restructuring charges the 1993 and 1991 ratios of earnings to
fixed charges would have been 4.22 and 3.75, respectively. The 1992 ratio is
based on earnings before the cumulative effect of change in accounting
principles which reduced net income by $1.793 billion.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
The following description sets forth certain general terms and provisions of
the Debt Securities and Guarantees to which any Prospectus Supplement may
relate. The particular terms and provisions of the series of Debt Securities
offered by a Prospectus Supplement and the extent to which such general terms
and provisions described below may apply thereto, will be described in the
Prospectus Supplement relating to such series of Debt Securities.
The Debt Securities are to be issued under an Indenture, dated as of April
15, 1988 (the "Indenture"), among U S WEST, Capital Funding and First National
Bank of Santa Fe, as trustee (the "Trustee"). The following summaries of certain
provisions of the Debt Securities, the Guarantees, and the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Debt Securities, the Guarantees, and the
Indenture, including the definitions therein of certain terms. Wherever
particular sections or defined terms of the Indenture are referred to, it is
intended that such sections or defined terms shall be incorporated herein by
reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and additional debt securities may be issued thereunder up to
the aggregate principal amount which may be authorized from time to time by, or
pursuant to a resolution of, Capital Funding's Board of Directors or by a
supplemental indenture. Reference is made to the Prospectus Supplement for the
following terms of the particular series of Debt Securities being offered
hereby: (i) the title of the Debt Securities of the series; (ii) any limit upon
the aggregate principal amount of the Debt Securities of the series; (iii) the
date or dates on which the principal of the Debt Securities of the series will
mature; (iv) the rate or rates (or manner of calculations thereof), if any, at
which the Debt Securities of the series will bear interest, the date or dates
from which any such interest will accrue and on which such interest will be
payable, and, with respect to Debt Securities of the series in registered form,
the record date for the interest payable on any interest payment date; (v) the
place or places where the principal of and interest, if any, on the Debt
Securities of the series will be payable; (vi) any redemption or sinking fund
provisions; (vii) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series which will be payable upon
declaration of acceleration of the maturity thereof; (viii) whether the Debt
Securities of the series will be issuable in registered or bearer form or both,
any restrictions applicable to the offer, sale, or delivery of Debt Securities
in bearer form ("bearer Debt Securities"), and whether and the terms upon which
bearer Debt Securities will be exchangeable for Debt Securities in registered
form ("registered Debt Securities") and vice versa; (ix) whether and under what
circumstances Capital Funding will pay additional amounts on the Debt Securities
of the series held by a person who is not a U.S. person (as defined below) in
respect of taxes or similar charges withheld or deducted and, if so, whether
Capital Funding will have the option to redeem such Debt Securities rather than
pay such additional amounts; (x) whether the Debt Securities will be denominated
or provide for payment in United States dollars or a foreign currency or units
of two or more such foreign currencies; and (xi) any additional provisions or
other special terms not inconsistent with the provisions of the Indenture,
including any terms which may be required by or advisable under United States
laws or regulations or advisable in connection with the marketing of Debt
Securities of such series. (Section 2.01 and 2.02.) To the extent not described
herein, principal, premium, if any, and interest will be payable, and the Debt
Securities of a particular series will be transferable, in the manner described
in the Prospectus Supplement relating to such series.
Each series of Debt Securities will constitute unsecured and unsubordinated
indebtedness of Capital Funding, and will rank on a parity with Capital
Funding's other indebtedness, and will have the benefit of the Guarantees
described herein. However, since U S WEST is a holding company, the right of U S
WEST and, hence, the right of creditors of U S WEST (including the holders of
the Debt Securities) to participate in any distribution of the assets of any
subsidiaries of U S WEST, whether upon liquidation, reorganization, or
otherwise, is subject to prior claims of creditors of the subsidiary, except to
the extent that claims of U S WEST itself as a creditor of a subsidiary may be
recognized.
4
<PAGE>
Debt Securities of any series may be issued as registered Debt Securities or
bearer Debt Securities or both as specified in the terms of the series. Unless
otherwise indicated in the Prospectus Supplement, Debt Securities will be issued
in denominations of $1,000 and integral multiples thereof, and bearer Debt
Securities will not be offered, sold, resold or delivered to U.S. persons in
connection with their original issuance. For purposes of this Prospectus, "U.S.
person" means a citizen, national, or resident of the United States, a
corporation, partnership, or other entity created or organized in or under the
laws of the United States, or any political subdivision thereof, or an estate or
trust which is subject to United States federal income taxation regardless of
its source of income.
To the extent set forth in the Prospectus Supplement, except in special
circumstances set forth in the Indenture, interest on bearer Debt Securities
will be payable only against presentation and surrender of the coupons for the
interest installments evidenced thereby as they mature at a paying agency of
Capital Funding located outside of the United States and its possessions.
(Section 2.05(c).) Capital Funding will maintain such an agency for a period of
two years after the principal of such bearer Debt Securities has become due and
payable. During any period thereafter for which it is necessary in order to
conform to United States tax law or regulations, Capital Funding will maintain a
paying agent outside the United States and its possessions to which the bearer
Debt Securities may be presented for payment and will provide the necessary
funds therefor to such paying agent upon reasonable notice. (Section 2.04)
Bearer Debt Securities and the coupons related thereto will be transferable
by delivery. (Section 2.08(e).)
If appropriate, federal income tax consequences applicable to a series of
Debt Securities will be described in the Prospectus Supplement relating thereto.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
fully registered global securities (each a "Global Security") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Unless and until it is
exchanged for Debt Securities in definitive registered form, a Global Security
may not be transferred except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary, or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as may be described in the
Prospectus Supplement relating to such series, owners of beneficial interests in
a Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture governing such Debt Securities.
The specific terms of the depositary arrangements with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series.
GUARANTEES
U S WEST will unconditionally guarantee the due and punctual payment of the
principal, premium, if any, and interest on the Debt Securities when and as the
same shall become due and payable, whether at maturity, upon redemption, or
otherwise. (Section 2.15.) The Guarantees will rank equally with all other
unsecured and unsubordinated obligations of U S WEST. Since U S WEST is a
holding company, the right of U S WEST and, hence, the right of creditors of U S
WEST (including the holders of the Debt Securities) to participate in any
distribution of the assets of any subsidiaries of U S WEST, whether upon
liquidation, reorganization, or otherwise, is subject to prior claims of
creditors of the subsidiary, except to the extent that claims of U S WEST itself
as a creditor of a subsidiary may be recognized.
5
<PAGE>
EXCHANGE OF SECURITIES
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities may be exchanged for an equal aggregate principal amount of
registered or bearer Debt Securities of the same series and date of maturity in
such authorized denominations as may be requested upon surrender of the bearer
Debt Securities with all unpaid coupons relating thereto, at an agency of
Capital Funding maintained for such purpose and upon fulfillment of all other
requirements of such agent. (Section 2.08(b).) As of the date of this
Prospectus, United States Treasury regulations do not permit exchanges of
registered Debt Securities for bearer Debt Securities and, unless such
regulations are modified, the terms of a series of Debt Securities will not
permit registered Debt Securities to be exchanged for bearer Debt Securities.
LIENS ON ASSETS
If at any time, Capital Funding mortgages, pledges, or otherwise subjects to
any lien the whole or any part of any property or assets now owned or hereafter
acquired by it, except as hereinafter provided, Capital Funding will secure the
outstanding Debt Securities, and any other obligations of Capital Funding which
may then be outstanding and entitled to the benefit of a covenant similar in
effect to this covenant, equally and ratably with the indebtedness or
obligations secured by such mortgage, pledge, or lien, for as long as any such
indebtedness or obligation is so secured. The foregoing covenant does not apply
to the creation, extension, renewal, or refunding of mortgages or liens created
or existing at the time property is acquired, created within 180 days
thereafter, or created for the purpose of securing the cost of construction and
improvement of property, or to the making of any deposit or pledge to secure
public or statutory obligations or with any governmental agency at any time
required by law in order to qualify Capital Funding to conduct its business or
any part thereof or in order to entitle it to maintain self-insurance or to
obtain the benefits of any law relating to workers' compensation, unemployment
insurance, old age pensions, or other social security, or with any court, board,
commission, or governmental agency as security incident to the proper conduct of
any proceeding before it. Nothing contained in the Indenture prevents any entity
other than Capital Funding from mortgaging, pledging, or subjecting to any lien
any of its property or assets, whether or not acquired from Capital Funding or
U S WEST. (Section 4.03.)
AMENDMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
by Capital Funding, U S WEST, and the Trustee with the consent of the holders of
a majority in principal amount of the outstanding Debt Securities of each series
affected by the amendment or supplement (with each series voting as a class), or
compliance with any provision may be waived with the consent of the holders of a
majority in principal amount of the outstanding Debt Securities of each series
affected by such waiver (with each series voting as a class). However, without
the consent of each Debt Securityholder affected, an amendment or waiver may not
(i) reduce the amount of Debt Securities whose holders must consent to an
amendment or waiver; (ii) change the rate of or change the time for payment of
interest on any Debt Security; (iii) change the principal of or change the fixed
maturity of any Debt Security; (iv) waive a default in the payment of the
principal of or interest on any Debt Security; (v) make any Debt Security
payable in money other than that stated in the Debt Security; or (vi) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Debt Security. (Section 9.02.) The Indenture may be amended or supplemented
without the consent of any Debt Securityholder (i) to cure any ambiguity,
defect, or inconsistency in the Indenture, the Debt Securities of any series or
the Guarantees; (ii) to provide for the assumption of all the obligations of
Capital Funding or U S WEST under the Debt Securities, any coupons related
thereto, the Guarantees, and the Indenture by any corporation in connection with
a merger, consolidation, transfer, or lease of Capital Funding's or U S WEST's
property and assets substantially as an entirety, as provided for in the
Indenture; (iii) to provide for uncertificated Debt Securities in addition to or
in place of certificated Debt Securities; (iv) to make any change that does not
adversely affect the rights of any Debt Securityholder; (v) to provide for the
issuance of and establish the form and terms and conditions
6
<PAGE>
of a series of Debt Securities or the Guarantees endorsed thereon or to
establish the form of any certifications required to be furnished pursuant to
the terms of the Indenture or any series of Debt Securities; or (vi) to add to
the rights of Debt Securityholders. (Section 9.01.)
MERGER
Capital Funding or U S WEST may consolidate with or merger into, or transfer
or lease its property and assets substantially as an entirety to, another entity
if the successor entity is a corporation and assumes all the obligations, as the
case may be, of Capital Funding, under the Debt Securities, and any coupons
related thereto and the Indenture, or of U S WEST, under the Guarantees and the
Indenture, and if, after giving effect to such transaction, a Default or Event
of Default would not occur or be continuing. Thereafter, all such obligations of
Capital Funding or U S WEST, as the case may be, shall terminate. (Sections 5.01
and 5.02.)
The general provisions of the Indenture do not afford holders of the Debt
Securities protection in the event of a highly-leveraged transaction,
reorganization, merger or similar transaction involving U S WEST or Capital
Funding that may adversely affect holders of the Debt Securities.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities: (i) default in the payment of
interest on any Debt Security of such series for 90 days; (ii) default in the
payment of the principal of any Debt Security of such series; (iii) failure by
Capital Funding or U S WEST for 90 days after notice to it to comply with any of
its other agreements in the Debt Securities of such series, in the Indenture, in
the Guarantees, or in any supplemental indenture; and (iv) certain events of
bankruptcy or insolvency of Capital Funding or the Guarantor. (Section 6.01.) If
an Event of Default occurs with respect to the Debt Securities of any series and
is continuing, the Trustee or the holders of at least 25% in principal amount of
all of the outstanding Debt Securities of that series may declare the principal
(or, if the Debt Securities of that series are original issue discount Debt
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Debt Securities of that series to be due and
payable. Upon such declaration, such principal (or, in the case of original
issue discount Debt Securities, such specified amount) shall be due and payable
immediately. (Section 6.02).
Securityholders may not enforce the Indenture, the Debt Securities, or the
Guarantees, except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Debt
Securities. (Section 7.01.) Subject to certain limitations, holders of a
majority in principal amount of the Debt Securities of each series affected
(with each series voting as a class) may direct the Trustee in its exercise of
any trust power. (Section 6.05.) The Trustee may withhold from Debt
Securityholders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. (Section 7.05.)
CONCERNING THE TRUSTEE
U S WEST and certain of its affiliates, including Capital Funding, maintain
banking relationships in the ordinary course of business with the Trustee. In
addition, the Trustee and certain of its affiliates serve as trustee,
authenticating agent, or paying agent with respect to certain debt securities of
U S WEST and its affiliates.
PLAN OF DISTRIBUTION
GENERAL
Capital Funding may sell the Debt Securities being offered hereby: (i)
directly to purchasers, (ii) through agents, (iii) through underwriters, (iv)
through dealers, or (v) through a combination of any such methods of sale.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions either (i) at a fixed price or prices, which may be
changed; (ii) at market prices prevailing at the time of sale; (iii) at prices
related to such prevailing market prices; or (iv) at negotiated prices.
7
<PAGE>
Offers to purchase Debt Securities may be solicited directly by Capital
Funding or by agents designated by Capital Funding from time to time. Any such
agent, which may be deemed to be an underwriter, as that term is defined in the
Securities Act, involved in the offer or sale of the Debt Securities in respect
of which this Prospectus is delivered will be named, and any commissions payable
by Capital Funding to such agent will be set forth, in the Prospectus Supplement
or the Pricing Supplement. Unless otherwise indicated in the Prospectus
Supplement or the Pricing Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Agents may be customers of,
engaged in transactions with, or perform services for, Capital Funding in the
ordinary course of business.
If an underwriter or underwriters are utilized in the sale, Capital Funding
and U S WEST will execute an underwriting agreement with such underwriters at
the time of sale to them and the names of the underwriters and the terms of the
transactions will be set forth in the Prospectus Supplement, which will be used
by the underwriters to make resales of the Debt Securities.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, Capital Funding will sell such Debt
Securities to the dealer, as principal. The dealer may then resell such Debt
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
Underwriters, dealers, agents, and other persons may be entitled, under
agreements which may be entered into with Capital Funding and U S WEST, to
indemnification against, or contribution with respect to, certain civil
liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and the consolidated financial
statement schedule included in U S WEST's Annual Report on Form 10-K for the
year ended December 31, 1994, are incorporated herein by reference in reliance
on reports of Coopers & Lybrand L.L.P., independent certified public
accountants, given upon the authority of that firm as experts in accounting and
auditing.
LEGAL OPINIONS
Certain legal matters relating to the Debt Securities and the Guarantees to
be offered hereby will be passed upon for Capital Funding and U S WEST by
Stephen E. Brilz, Senior Attorney and Assistant Secretary of U S WEST, Inc., and
for the agents or underwriters, if any, by Brown & Wood, One World Trade Center,
New York, New York 10048.
8
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CAPITAL FUNDING OR THE AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF CAPITAL FUNDING SINCE THE
DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Risk Factors................................... S-2
Recent Developments............................ S-4
Description of Notes........................... S-5
Special Provisions Relating to Foreign Currency
Notes......................................... S-20
Certain United States Federal Income Tax
Considerations................................ S-23
Plan of Distribution........................... S-31
Experts........................................ S-32
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents By
Reference..................................... 2
U S WEST, Inc. ................................ 3
U S WEST Capital Funding, Inc. ................ 3
Use of Proceeds................................ 3
Ratio of Earnings to Fixed Charges............. 3
Description of Debt Securities and
Guarantees.................................... 4
Plan of Distribution........................... 7
Experts........................................ 8
Legal Opinions................................. 8
</TABLE>
$500,000,000
MEDIUM-TERM NOTES
U S WEST
CAPITAL FUNDING, INC.
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST BY
[U.S. WEST LOGO]
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
OCTOBER 13, 1995
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