<PAGE>
FILED PURSUANT TO 424(b)(2)
REGISTRATION NO. 33-57011
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 24, 1995
U.S. $220,000,000
Ashland Inc.
Medium-Term Notes, Series H
Due Nine Months or More from Date of Issue
-------------
ASHLAND INC. (THE "COMPANY") MAY OFFER AND SELL FROM TIME TO TIME ITS
MEDIUM-TERM NOTES (ISSUABLE IN ONE OR MORE SERIES) WITHIN THE UNITED STATES OR
OUTSIDE THE UNITED STATES OR BOTH SIMULTANEOUSLY. THE MEDIUM-TERM NOTES,
SERIES H (THE "NOTES"), OFFERED BY THIS PROSPECTUS SUPPLEMENT ARE BEING
OFFERED IN THE UNITED STATES IN AN AGGREGATE PRINCIPAL AMOUNT OF U.S.
$220,000,000 (OR THE EQUIVALENT THEREOF IF ANY OF THE NOTES ARE DENOMINATED
IN FOREIGN CURRENCIES OR CURRENCY UNITS), SUBJECT TO REDUCTION AS A RESULT
OF THE SALE OF OTHER SECURITIES (OTHER THAN THE NOTES) PURSUANT TO THE
REGISTRATION STATEMENT OF WHICH THE ACCOMPANYING PROSPECTUS IS A PART.
SEE "DESCRIPTION OF THE MEDIUM-TERM NOTES--GENERAL" AND "PLAN OF
DISTRIBUTION". UNLESS OTHERWISE INDICATED IN A PRICING SUPPLEMENT TO
THIS PROSPECTUS SUPPLEMENT (A "PRICING SUPPLEMENT"), THE INTEREST
PAYMENT DATES FOR EACH NOTE WILL BE FEBRUARY 15 AND AUGUST 15 OF EACH
YEAR. EACH NOTE WILL MATURE ON A DAY NINE MONTHS OR MORE FROM ITS
DATE OF ISSUE, AS SET FORTH ON THE FACE OF SUCH NOTE (THE "STATED
MATURITY"). THE INTEREST PAYMENT DATES FOR EACH FLOATING RATE NOTE
WILL BE ESTABLISHED ON THE DATE OF SALE AND WILL BE SET FORTH IN
EACH SUCH NOTE AND IN THE APPLICABLE PRICING SUPPLEMENT. IF SO
INDICATED IN THE APPLICABLE PRICING SUPPLEMENT, SUCH NOTE WILL BE
SUBJECT TO REDEMPTION BY THE COMPANY, IN WHOLE OR IN PART, ON
AND AFTER THE REDEMPTION DATE, IF ANY, FIXED BY THE COMPANY AT
THE TIME OF SALE AND SET FORTH IN THE APPLICABLE PRICING
SUPPLEMENT (THE "REDEMPTION DATE"), AT 100% OF ITS PRINCIPAL
AMOUNT, UNLESS OTHERWISE SPECIFIED, TOGETHER WITH INTEREST TO
THE REDEMPTION DATE. THE NOTES MAY BE DENOMINATED IN U.S.
DOLLARS, OR IN SUCH FOREIGN CURRENCIES OR CURRENCY UNITS AS
MAY BE DESIGNATED BY THE COMPANY ("SPECIFIED CURRENCY"). THE
NOTES WILL BE ISSUED ONLY IN FULLY REGISTERED FORM, AND FOR
NOTES DENOMINATED IN U.S. DOLLARS, IN MINIMUM DENOMINATIONS
OF $1,000 AND ANY INTEGRAL MULTIPLE OF $1,000 IN EXCESS
THEREOF. TERMS RELATING TO NOTES NOT DENOMINATED IN U.S.
DOLLARS ("FOREIGN CURRENCY NOTES") OR TO THE REDEMPTION OF
THE NOTES WILL BE SET FORTH IN THE APPLICABLE PRICING
SUPPLEMENT. SEE "DESCRIPTION OF THE MEDIUM-TERM NOTES".
EACH NOTE WILL BE REPRESENTED BY EITHER A GLOBAL SECURITY (A "GLOBAL NOTE")
REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY, AS
DEPOSITARY (THE "DEPOSITARY") (EACH SUCH NOTE REPRESENTED BY A GLOBAL NOTE
BEING REFERRED TO HEREIN AS A "BOOK-ENTRY NOTE"), OR A CERTIFICATE ISSUED IN
DEFINITIVE FORM (A "CERTIFICATED NOTE"), AS SET FORTH IN THE APPLICABLE
PRICING SUPPLEMENT. INTERESTS IN BOOK-ENTRY NOTES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, THE RECORDS
MAINTAINED BY THE DEPOSITARY AND ITS PARTICIPANTS. EXCEPT AS
DESCRIBED IN "DESCRIPTION OF THE MEDIUM-TERM NOTES--BOOK-ENTRY
NOTES", OWNERS OF BENEFICIAL INTERESTS IN GLOBAL SECURITIES (AS
DEFINED IN THE PROSPECTUS) WILL NOT BE ENTITLED TO RECEIVE NOTES
IN DEFINITIVE FORM AND WILL NOT BE
CONSIDERED THE HOLDERS THEREOF FOR
PURPOSES OF THE INDENTURE.
THE INTEREST RATE OR INTEREST RATE FORMULA, IF ANY, ISSUE PRICE AND STATED
MATURITY FOR EACH NOTE WILL BE ESTABLISHED BY THE COMPANY AT THE DATE OF SALE
OF SUCH NOTE AND WILL BE SET FORTH IN THE APPLICABLE PRICING SUPPLEMENT.
UNLESS OTHERWISE INDICATED IN THE APPLICABLE PRICING SUPPLEMENT, THE NOTES
WILL BEAR INTEREST AT A FIXED RATE (A "FIXED RATE NOTE") OR A RATE OR RATES
DETERMINED BY REFERENCE TO THE COMMERCIAL PAPER RATE, THE PRIME RATE,
LIBOR, THE TREASURY RATE, THE FEDERAL FUNDS RATE OR THE CD RATE (A
"FLOATING RATE NOTE"), AS ADJUSTED BY A SPREAD OR SPREAD MULTIPLIER (AS
SUCH TERMS ARE DEFINED HEREIN), IF ANY, APPLICABLE TO SUCH NOTES.
INTEREST RATES AND INTEREST RATE FORMULAE ARE SUBJECT TO CHANGE BY THE
COMPANY, BUT NO SUCH CHANGE WILL AFFECT THE INTEREST RATE ON ANY NOTE
THERETOFORE ISSUED OR WHICH THE COMPANY HAS
AGREED TO SELL. SEE "DESCRIPTION OF THE MEDIUM-TERM NOTES".
THE APPLICABLE PRICING SUPPLEMENT IN CONNECTION WITH EACH NOTE WILL INDICATE
WHETHER SUCH NOTE HAS ORIGINAL ISSUE DISCOUNT, AND IF SO, THE
YIELD TO MATURITY FOR SUCH NOTE. SEE "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES".
THE NOTES MAY BE ISSUED AS INDEXED NOTES THE PRINCIPAL AMOUNT OF WHICH, PAYABLE
AT STATED MATURITY, AND/OR THE INTEREST, PAYABLE ON EACH INTEREST PAYMENT DATE
AND AT STATED MATURITY, WILL BE DETERMINED BY REFERENCE TO CURRENCIES,
CURRENCY UNITS, COMMODITY PRICES, FINANCIAL OR NON-FINANCIAL INDICES OR
OTHER FACTORS (THE "INDEXED NOTES"), AS INDICATED IN THE APPLICABLE
PRICING SUPPLEMENT. SEE "DESCRIPTION OF THE
MEDIUM-TERM NOTES--INDEXED
NOTES".
UNLESS OTHERWISE INDICATED IN THE APPLICABLE PRICING SUPPLEMENT, A FOREIGN
CURRENCY NOTE WILL NOT BE SOLD IN, OR TO A RESIDENT OF, THE COUNTRY OF
THE SPECIFIED CURRENCY IN WHICH SUCH NOTE IS DENOMINATED. SEE "SPECIAL
PROVISIONS RELATING TO FOREIGN CURRENCY NOTES."
FOR A DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES, SEE
"CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES".
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT,
ANY PRICING SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO AGENTS' NET PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(2)(3)
----------------- ---------------------------------- -------------------------------------------
<S> <C> <C> <C>
PER NOTE.................... 100% .125% -- .750% 99.875% -- 99.250%
TOTAL(4)(5)................. U.S.$220,000,000 U.S.$275,000 -- U.S.$1,650,000 U.S.$219,725,000 -- U.S.$218,350,000
(1) UNLESS OTHERWISE SPECIFIED IN A PRICING SUPPLEMENT, NOTES WILL BE ISSUED AT 100% OF THEIR PRINCIPAL AMOUNT.
(2) THE COMPANY WILL PAY TO EACH AGENT A COMMISSION RANGING FROM .125% TO .750% OF THE PRINCIPAL AMOUNT OF ANY NOTE, DEPENDING UPON
ITS STATED MATURITY, SOLD THROUGH SUCH AGENT. THE COMPANY MAY ALSO SELL NOTES TO ANY AGENT AT OR ABOVE PAR FOR RESALE TO ONE OR
MORE INVESTORS OR BROKER-DEALERS AT VARYING PRICES RELATED TO PREVAILING MARKET PRICES AT THE TIME OF RESALE, AS DETERMINED BY
SUCH AGENT, WITH AN APPROPRIATE CONCESSION BEING GIVEN TO SUCH AGENT FOR THE RESALE PRICE OF THE NOTES. THE COMMISSION PAYABLE
BY THE COMPANY TO THE AGENTS WITH RESPECT TO NOTES WITH MATURITIES GREATER THAN 30 YEARS WILL BE NEGOTIATED AT THE TIME THE
COMPANY ISSUES SUCH NOTES. IN EACH CASE, THE COMPANY HAS AGREED TO INDEMNIFY THE AGENTS AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES UNDER THE SECURITIES ACT OF 1933.
(3) ASSUMING NOTES ARE ISSUED AT 100% OF PRINCIPAL AMOUNT AND BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$150,000.
(4) IN U.S. DOLLARS OR THE EQUIVALENT THEREOF IN FOREIGN CURRENCIES OR CURRENCY UNITS.
(5) TO BE REDUCED AS A RESULT OF SALES OF OTHER SECURITIES (OTHER THAN THE NOTES) PURSUANT TO THE REGISTRATION STATEMENT OF WHICH
THE ACCOMPANYING PROSPECTUS IS A PART.
</TABLE>
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THE NOTES MAY BE OFFERED ON A CONTINUING BASIS BY THE COMPANY THROUGH CS
FIRST BOSTON CORPORATION, SALOMON BROTHERS INC AND CITICORP SECURITIES, INC.
(THE "AGENTS"), WHICH HAVE AGREED TO USE THEIR REASONABLE EFFORTS TO SOLICIT
OFFERS TO PURCHASE THE NOTES. THE NOTES MAY BE SOLD AT OR ABOVE PAR TO ANY AGENT
AS PRINCIPAL FOR RESALE TO INVESTORS AT VARYING PRICES RELATED TO PREVAILING
MARKET PRICES AT THE TIME OF RESALE AS DETERMINED BY SUCH AGENT. THE COMPANY MAY
FROM TIME TO TIME SELL NOTES DIRECTLY ON ITS OWN BEHALF AT OR ABOVE PAR TO
INVESTORS, AND ON SUCH SALES NO COMMISSION WILL BE PAID. THE NOTES WILL NOT BE
LISTED ON ANY SECURITIES EXCHANGE, AND THERE CAN BE NO ASSURANCE THAT THE NOTES
WILL BE SOLD OR THAT THERE WILL BE A SECONDARY MARKET FOR THE NOTES. THE COMPANY
RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFER OR SOLICITATION OF
OFFERS MADE HEREBY WITHOUT NOTICE. THE COMPANY, OR THE SOLICITING AGENT, MAY
REJECT ANY OFFER IN WHOLE OR IN PART. SEE "PLAN OF DISTRIBUTION".
CS FIRST BOSTON
SALOMON BROTHERS INC
Citicorp Securities, Inc.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS DECEMBER 11, 1996
<PAGE>
IN CONNECTION WITH THE DISTRIBUTION OF THE NOTES, THE AGENTS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY OR OTHER DEBT SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
RATIOS
The following table sets forth the consolidated ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred stock dividends for
the Company:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.................................. * 1.84 2.51 1.13 2.28
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.......................................................... * 1.76 2.19 1.07 2.05
</TABLE>
- ------------------------
* Fixed charges exceeded earnings (as defined) by $174 million as a result of
special charges and the current year impact of accounting changes.
The above ratios are computed on a total enterprise basis including the
Company and its consolidated subsidiaries, plus their share of significant
affiliates accounted for on the equity method that are 50% owned or whose
indebtedness has been directly or indirectly guaranteed by the Company or its
consolidated subsidiaries. Earnings consist of income before income taxes,
minority interest and the cumulative effect of accounting changes, adjusted to
exclude fixed charges (excluding capitalized interest) and undistributed
earnings of equity method affiliates excluded from the total enterprise. Fixed
charges consist of interest incurred on indebtedness, the portion of operating
lease rentals deemed representative of the interest factor and the amortization
of debt expense.
DESCRIPTION OF THE MEDIUM-TERM NOTES
The following description of the particular terms of the Notes offered
hereby supplements and to the extent inconsistent therewith replaces the
description of the general terms of the Debt Securities set forth under the
heading "Description of Debt Securities" in the accompanying Prospectus, to
which description reference is made. The Notes are referred to in the Prospectus
as the "Debt Securities". Capitalized terms not defined under this heading have
the meanings ascribed to them in the Indenture.
GENERAL
The Notes offered hereby will be issued under the Indenture (the
"Indenture") referred to in the accompanying Prospectus with Citibank, N.A., as
Trustee (the "Trustee"). The Notes offered hereby constitute a single series for
purposes of the Indenture. The aggregate principal amount of the Notes offered
hereby is limited to U.S. $220,000,000 (or the equivalent thereof in foreign
currencies or currency units), less an amount equal to the proceeds from the
sale of other Securities (other than the Notes) pursuant to the Registration
Statement of which the accompanying Prospectus is a part. See "Plan of
Distribution". Unless otherwise indicated in the applicable Pricing Supplement,
currency amounts in this Prospectus Supplement, the accompanying Prospectus and
any Pricing Supplement are stated in United States dollars ("$", "dollars",
"U.S. dollars" or "U.S.$").
Each Note will mature on a day nine months or more from the date of issue,
as selected by the initial purchaser and agreed to by the Company and as
specified in the applicable Pricing Supplement. "Business Day" means any day,
other than a Saturday or Sunday, that meets each of the following applicable
requirements: the day is (a) not a day on which banking institutions are
authorized or required by law or regulation to be closed in The City of New
York, (b) if the Note is denominated in a Specified Currency other
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<PAGE>
than the European Currency Unit ("ECU"), the unit of account from time to time
of the Council of the European Communities, or United States dollars, not a day
on which banking institutions are authorized or required by law or regulation to
close in the financial center of the country issuing the Specified Currency, (c)
if the Note is denominated in ECU, any day that is designated as an ECU
settlement day by the ECU Banking Association in Paris or otherwise generally
regarded in the ECU interbank market as a day on which payments in ECU are made,
and (d) with respect to LIBOR Notes, a London Banking Day. "London Banking Day"
means any day on which dealings in deposits in United States dollars are
transacted in the London interbank market.
The Notes will be issuable only in fully registered form, and if denominated
in U.S. dollars, in denominations of $1,000 and integral multiples of $1,000 in
excess thereof. The authorized denominations of Notes not denominated in U.S.
dollars will be set forth in the applicable Pricing Supplement.
The Notes are unsecured obligations of the Company and will rank on a parity
with the Company's other unsecured and unsubordinated indebtedness and senior to
the Company's subordinated indebtedness. Except as described in the accompanying
Prospectus under the headings "Description of Debt Securities-- Certain
Covenants of Ashland With Respect to Senior Securities--LIMITATIONS ON LIENS"
and
"--LIMITATIONS ON SALE AND LEASE-BACK," the Indenture does not contain any
provision that restricts or otherwise regulates the Company's ability to incur
additional indebtedness ranking senior, PARI PASSU or junior to the Notes.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. See "Book-Entry Notes".
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal, premium, if any,
and any interest on the Notes will be made in U.S. dollars. If any of the Notes
are to be denominated in a foreign currency (one other than U.S. dollars) or
currency unit, or if the principal, premium, if any, and any interest on any of
the Notes is to be payable at the option of the holder or the Company in a
currency, including a currency unit, other than that in which such Note is
denominated, the applicable Pricing Supplement will provide additional
information, including applicable exchange rate information, pertaining to the
terms of such Notes and other matters of interest to the holders thereof. See
also "Special Provisions Relating to Foreign Currency Notes".
A Note is not subject to redemption by the Company prior to the Redemption
Date fixed at the time of sale and set forth in the applicable Pricing
Supplement. If no Redemption Date is indicated with respect to a Note, such Note
is not redeemable prior to its Stated Maturity. Unless otherwise indicated in
the applicable Pricing Supplement, on or after the indicated Redemption Date,
the related Note will be redeemable in whole or in part in increments of $1,000
at the option of the Company at a redemption price equal to 100% of the
principal amount to be redeemed, together with interest thereon payable to the
date of redemption, on notice given not more than 60 nor less than 30 days prior
to the Redemption Date. The Notes will not have a sinking fund unless otherwise
specified in the applicable Pricing Supplement.
The Company may provide that any Note will be repayable at the option of the
holder thereof, at such times and on such terms and conditions as are set forth
in such Note and described in the applicable Pricing Supplement.
Payments of principal, premium, if any, and interest on Book-Entry Notes
will be made to the Depositary, or its nominee, as Holder thereof, in accordance
with arrangements then in effect between the Trustee and the Depositary. Unless
otherwise specified in the applicable Pricing Supplement, payments of principal,
premium, if any, and interest on Certificated Notes will be made in immediately
available funds at the office of the Paying Agent in the Borough of Manhattan,
The City of New York, or such other office or agency as the Company may
designate, provided that payments in such funds will be made only if such
Certificated Notes are presented to the Paying Agent in time for the Paying
Agent to make such payments in such funds in accordance with its normal
procedures. The Company has initially designated Citibank, N.A., acting through
its principal corporate trust office in the Borough of Manhattan, The City of
New York, as its Paying
S-3
<PAGE>
Agent for the Certificated Notes. The Company, at its option, may pay interest
on the Notes (other than interest payable at Maturity) by check mailed to the
person entitled thereto (which, in the case of Book-Entry Notes, will be a
nominee of the Depositary).
Certificated Notes may be presented for registration of transfer or exchange
at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The
City of New York.
Except as described in the accompanying Prospectus under the heading
"Certain Rights to Require Purchase of Securities by Ashland Upon Unapproved
Change in Control and Decline in Debt Rating", the Indenture does not contain
any covenants or provisions designed to protect the holders of the Notes in the
event that the Company enters into a transaction that adversely affects the
Company's debt-to-equity ratio.
For a description of the rights attaching to different series of Debt
Securities under the Indenture, see "Description of Debt Securities" in the
Prospectus.
BOOK-ENTRY NOTES
Upon issuance, all Notes in book-entry form having the same original
issuance date, Stated Maturity and otherwise having identical terms and
provisions will be represented by a Global Note.
Each Global Note representing Book-Entry Notes will be deposited with, or on
behalf of, the Depositary, and registered in the name of a nominee of the
Depositary. Book-Entry Notes will not be exchangeable at the option of the
holder for Certificated Notes and, except under the circumstances described in
the accompanying Prospectus, will not otherwise be issuable in definitive form.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of section 17A of the
Securities Exchange Act of 1934. The Depositary was created to hold securities
of its participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the accompanying
Prospectus under "Description of Debt Securities-- Global Securities". The
Depositary has confirmed to the Company, the Agents and the Trustee that it
intends to follow such procedures.
INTEREST
Each interest bearing Note will bear interest from and including the date of
issuance, or from and including the most recent Interest Payment Date (or, if
such Note is a Floating Rate Note and the Interest Reset Date (as defined
herein) is daily or weekly, the day following the most recent regular record
date (a "Regular Record Date")) to which interest on such Note has been paid or
duly provided for, at the fixed rate per annum, or at the rate per annum
determined pursuant to the interest rate formula, stated therein and in the
applicable Pricing Supplement, until the principal thereof is paid or made
available for payment. Interest payments, if any, will be in the amount of
interest accrued from and including the next preceding Interest Payment Date in
respect of which interest has been paid or duly provided for, or from and
including the date of issue, if no interest has been paid with respect to such
Note, to but excluding the applicable Interest Payment Date. However, unless
otherwise specified in the applicable Pricing Supplement, in the case of
Floating Rate Notes on which the interest rate is reset daily or weekly, the
interest payments (other than interest payments on any date on which principal
is payable) will include interest accrued from but excluding the second
preceding Regular Record Date, or from and including the date of issue, if no
interest has been paid with respect to such Note, through and including the
Regular Record Date next preceding the
S-4
<PAGE>
applicable Interest Payment Date, except that interest paid at Maturity will
include interest accrued to but excluding such date. "Maturity" means the date
on which the principal of a Note becomes due, whether at Stated Maturity, upon
redemption or otherwise.
Interest, if any, will be payable at each Interest Payment Date and at
Maturity. See "Description of Debt Securities--Payment and Paying Agents" in the
Prospectus. Interest will be payable to the Person (which, in the case of a
Book-Entry Note, shall be the Depositary) in whose name a Note is registered at
the close of business on the Regular Record Date next preceding each Interest
Payment Date; PROVIDED, HOWEVER, that interest payable at Maturity or, if
applicable, upon redemption, will be payable to the Person (which, in the case
of a Book-Entry Note, shall be the Depositary) to whom principal shall be
payable. Unless otherwise specified in the applicable Pricing Supplement, the
first payment of interest on any Note (other than a Floating Rate Note on which
interest is reset daily or weekly) originally issued between a Regular Record
Date and an Interest Payment Date will be made on the Interest Payment Date
following the next succeeding Regular Record Date to the registered owner on
such Regular Record Date.
The Company will select an interest rate or interest rate formula for each
issue of Notes based on market conditions at the time of issuance, taking into
account, among other things, expectations concerning the level of interest rates
that will prevail during the period the Notes will be outstanding, the relative
attractiveness of such interest rate or interest rate formula to prospective
investors and the Company's financial needs. Unless otherwise provided in the
applicable Pricing Supplement, Citibank, N.A., will be the calculation agent
(the "Calculation Agent") with respect to the Floating Rate Notes.
Interest rates, or interest rate formulas, are subject to change by the
Company 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 the Company.
FIXED RATE NOTES
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note.
Unless otherwise indicated in the applicable Pricing Supplement, the Interest
Payment Dates with respect to Fixed Rate Notes will be February 15 and August 15
of each year and at Maturity and the Regular Record Dates for such Notes will be
the February 1 and August 1 next preceding the February 15 and August 15
Interest Payment Dates. Unless otherwise indicated 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 of a Fixed Rate Note falls on a
day that is not a Business Day, the related payment of principal, premium, if
any, 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 the amount so
payable for the period from and after such Interest Payment Date or Maturity, as
the case may be.
FLOATING RATE NOTES
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis for such Floating Rate Note, which may be
adjusted by adding or subtracting the Spread or multiplying by the Spread
Multiplier (as defined below) as specified in the applicable Pricing Supplement.
Such basis may be: (a) the Commercial Paper Rate, in which case such Note will
be a Commercial Paper Rate Note, (b) the Prime Rate, in which case such Note
will be a Prime Rate Note, (c) LIBOR, in which case such Note will be a LIBOR
Note, (d) the Treasury Rate, in which case such Note will be a Treasury Rate
Note, (e) the Federal Funds Rate, in which case such Note will be a Federal
Funds Rate Note, (f) the CD Rate, in which case such Note will be a CD Rate
Note, or (g) such other interest rate formula as is set forth in such Pricing
Supplement. In addition, a Floating Rate Note may bear interest at the lowest or
highest or average of two or more interest rate formulae. The applicable Pricing
Supplement for a Floating Rate Note also will specify the Spread or Spread
Multiplier, if any, applicable to each Note. In addition, such Pricing
Supplement will define or particularize for each Note the following terms, if
applicable: Calculation Date, Initial Interest Rate, Interest Payment Dates,
Regular Record Dates, Index Maturity (as defined below), Interest Determination
Dates and Interest Reset Dates with respect to such Note. The "Spread" is the
number of basis points specified in the applicable Pricing Supplement as being
applicable to the interest rate for such Note and the "Spread Multiplier" is the
percentage specified in the applicable Pricing Supplement as being applicable to
S-5
<PAGE>
the interest rate for such Note. "Index Maturity" means, with respect to a
Floating Rate Note, the period to maturity of the instrument or obligation on
which the interest rate formula is based, as specified in the applicable Pricing
Supplement.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, the Interest Reset Date will be, in the case
of Floating Rate Notes which reset daily, each Business Day; in the case of
Floating Rate Notes (other than Treasury Rate Notes) which reset weekly, the
Wednesday of each week; in the case of Treasury Rate Notes which reset weekly,
except as provided below, the Tuesday of each week; in the case of Floating Rate
Notes which reset monthly, the third Wednesday of each month; in the case of
Floating Rate Notes which reset quarterly, the third Wednesday of March, June,
September and December; in the case of Floating Rate Notes which reset
semi-annually, the third Wednesday of two months of each year, as specified in
the applicable Pricing Supplement; and in the case of Floating Rate Notes which
reset annually, the third Wednesday of one month of each year, as specified in
the applicable Pricing Supplement. The rate of interest on a Floating Rate Note
in effect on any day will be (i) if such day is an Interest Reset Date with
respect to such Floating Rate Note, the interest rate on such Floating Rate Note
determined as of the Interest Determination Date pertaining to such Interest
Reset Date, or (ii) if such day is not an Interest Reset Date with respect to
such Floating Rate Note, the interest on such Floating Rate Note determined as
of the Interest Determination Date pertaining to the immediately preceding
Interest Reset Date with respect to such Floating Rate Note; PROVIDED, HOWEVER,
that (a) the interest rate in effect from the date of issue to but excluding the
first Interest Reset Date with respect to a Floating Rate Note will be the
Initial Interest Rate (as set forth in the applicable Pricing Supplement) and
(b) the interest rate in effect for the ten days immediately prior to Maturity
will be that in effect on the tenth day preceding such Maturity. If any Interest
Reset Date for any Floating Rate Note would otherwise be a day that is not a
Business Day for such Floating Rate Note, the Interest Reset Date for such
Floating Rate Note shall be postponed to the next day that is a Business Day for
such Floating Rate Note, except that in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
for a Prime Rate Note (the "Prime Rate Interest Determination Date"), for a
Federal Funds Rate Note (the "Federal Funds Interest Determination Date") and
for a CD Rate Note (the "CD Interest Determination Date") will be the second
Business Day preceding the Interest Reset Date with respect to such Note. The
Interest Determination Date pertaining to an Interest Reset Date for a LIBOR
Note (the "LIBOR Interest Determination Date") will be the second London Banking
Day preceding such Interest Reset Date. The Interest Determination Date
pertaining to an Interest Reset Date for a Treasury Rate Note (the "Treasury
Interest Determination Date") will be the day of the week in which such Interest
Reset Date falls on which Treasury bills would normally be auctioned. Treasury
bills are usually sold at auction on the Monday of each week, unless that day is
a legal holiday, in which case the auction is usually held on the following
Tuesday, except that such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Treasury Interest Determination Date pertaining to the
Interest Reset Date occurring in the next succeeding week. If an auction date
shall fall on any Interest Reset Date for a Treasury Rate Note, then such
Interest Reset Date shall instead be the first Business Day immediately
following such auction date.
A Floating Rate Note may also have either or both of the following: (a) a
maximum numerical interest rate limitation, or ceiling, on the rate of interest
which may accrue during any interest period; and (b) a minimum numerical
interest rate limitation, or floor, on the rate of interest which may accrue
during any interest period, as specified in the applicable Pricing Supplement.
In addition to any maximum interest rate which may be applicable to any Floating
Rate Note pursuant to the above provisions, assuming that a court would enforce
the provisions of the Notes and the Indenture specifying New York law as the
governing law, the interest rate on the Floating Rate Notes will in no event be
higher than the maximum rate permitted by
S-6
<PAGE>
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 per annum
on a simple interest basis is 16% on investments below $250,000 and 25% on
investments from $250,000 to $2,500,000.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
which reset weekly, on the third Wednesday of March, June, September and
December of each year, in the case of Floating Rate Notes which reset daily or
monthly, on the third Wednesday of each month or on the third Wednesday of
March, June, September and December of each year (as indicated in the applicable
Pricing Supplement); in the case of Floating Rate Notes which reset quarterly,
on the third Wednesday of March, June, September and December of each year, in
the case of Floating Rate Notes which reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset annually, on the
third Wednesday of the month specified in the applicable Pricing Supplement
(each an "Interest Payment Date"), and in each case, at Maturity. If an Interest
Payment Date (other than an Interest Payment Date at Maturity) with respect to
any Floating Rate Note would otherwise fall on a day that is not a Business Day
with respect to such Note, such Interest Payment Date will be the following day
that is a Business Day with respect to such Note, except that in the case of a
LIBOR Note, if such day falls in the next calendar month, such Interest Payment
Date will be the preceding day that is a Business Day with respect to such LIBOR
Note. If the Maturity of a Floating Rate Note falls on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue from and after such Maturity. Unless otherwise indicated in the
applicable Pricing Supplement, the Regular Record Date with respect to Floating
Rate Notes shall be the date 15 calendar days prior to each Interest Payment
Date, whether or not such date shall be a Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
interest accrued from and including the date of issue, or from and including the
last date to which interest has been paid or duly provided for, is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day in such period from and including the date of issue, or
from and including the last date to which interest has been paid or duly
provided for, as the case may be, to but excluding the date for which accrued
interest is being calculated. The interest factor for each such day is computed
by dividing the interest rate applicable to such date by 360, in the case of
Commercial Paper Rate Notes, LIBOR Notes, Federal Funds Rate Notes or CD Rate
Notes, or by the actual number of days in the year, in the case of Treasury Rate
Notes and Prime Rate Notes. The interest factor for Notes for which two or more
interest rate formulae are applicable will be calculated in each period in the
same manner as if only the lowest, highest or average of, as the case may be,
such interest rate formulae applied.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation on Floating Rate Notes will be
rounded, upwards if necessary, 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 .9876545) being rounded to 9.87655% (or .987655) and
9.876544% (or .9876544) being rounded to 9.87654% (or .987654)), and all dollar
amounts used in or resulting from such calculation on Floating Rate Notes will
be rounded to the nearest cent or, in the case of Foreign Currency Notes, the
nearest unit (with one-half cent or five one-thousandths of a unit being rounded
upwards).
Upon the request of the holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate which will become effective as a result of a determination made on
the most recent Interest Determination 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 suceeding
Business Day or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity, as the case may be.
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<PAGE>
COMMERCIAL PAPER RATE NOTES. Commercial Paper Rate Notes will bear interest
at the interest rates (calculated with reference to the Commercial Paper Rate
and the Spread or Spread Multiplier, if any), and will be payable on the dates,
specified on the face of the Commercial Paper Rate Note and in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity designated 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 of the Board of Governors of the Federal Reserve System
("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 Calculation Date
pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate will be the Money Market Yield of the rate on such
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity designated 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" ("Composite
Quotations") under the heading "Commercial Paper". If such rate is not published
by 3:00 P.M., New York City time, on the Calculation Date pertaining to such
Commercial Paper Interest Determination Date, then the Commercial Paper Rate for
such Commercial Paper 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 of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent as of 11:00 A.M., New York City time,
on such Commercial Paper Interest Determination Date for commercial paper having
the Index Maturity designated in the applicable Pricing Supplement placed for an
industrial issuer whose bond rating is "AA", or the equivalent, from a
nationally recognized rating agency; PROVIDED, HOWEVER, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Commercial Paper Rate will be the Commercial Paper Rate then
in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage rounded to the
next higher one-hundred thousandth of a percentage point) 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 per annum rate for the 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.
PRIME RATE NOTES. Prime Rate Notes will bear interest at the interest rates
(calculated with reference to the Prime Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Prime Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date, the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 365 or 366 days, as the case may be, as of the close
of business on such Prime Rate Interest Determination Date by three major money
center banks in The City of New York selected by the Calculation Agent. If fewer
than three such quotations are provided, the Prime Rate shall be determined on
the basis of the rates furnished in The City of New York by three substitute
banks or trust companies organized and doing business under the laws of the
United States, or any state thereof, having total equity capital of at least
$500 million and being subject to supervision or examination by Federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
PROVIDED, HOWEVER, that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, the Prime Rate will be the Prime Rate then in effect
on such Prime Rate Interest Determination Date.
S-8
<PAGE>
LIBOR NOTES. LIBOR Notes will bear interest at the interest rates
(calculated with reference to LIBOR and the Spread or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of such LIBOR Note
and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions: On each LIBOR Interest Determination Date, LIBOR will be determined
on the basis of the offered rate for deposits in U.S. dollars having the Index
Maturity specified in the applicable Pricing Supplement, commencing on the
second London Banking Day immediately following such LIBOR Interest
Determination Date, which appears on the Telerate Page 3750 as of 11:00 A.M.,
London time, on that LIBOR Interest Determination Date. If such rate does not so
appear on the Telerate Page 3750, the rate in respect of such LIBOR Interest
Determination Date will be determined on the basis of the rates at which
deposits in U.S. dollars are offered by four major banks in the London interbank
market, selected by the Calculation Agent at approximately 11:00 A.M., London
time, on the LIBOR Interest Determination Date next preceding the relevant
Interest Reset Date, to prime banks in the London interbank market for a period
of the Index Maturity commencing on that Interest Reset Date and in a principal
amount equal to an amount not less than $1,000,000 that is representative for a
single transaction in such market at such time. In such case, the Calculation
Agent will request the principal London office of each of the aforesaid major
banks to provide a quotation of such rate. If at least two such quotations are
provided in respect of such LIBOR Interest Determination Date, the rate for that
Interest Reset Date will be the arithmetic mean of the quotations, and, if fewer
than two quotations are provided as requested in respect of such LIBOR Interest
Determination Date, the rate for that Interest Reset Date will be the arithmetic
mean of the rates quoted by three major banks in The City of New York, selected
by the Calculation Agent (which may include one or more of the Agents or their
affiliates), at approximately 11:00 A.M., New York City time, on that LIBOR
Interest Determination Date for loans in U.S. dollars to leading European banks
for a period of the Index Maturity commencing on that Interest Reset Date and in
a principal amount equal to an amount not less than $1,000,000 that is
representative for a single transaction in such market at such time; PROVIDED,
HOWEVER, if the aforesaid rate cannot be determined by the Calculation Agent,
LIBOR in respect of such LIBOR Interest Determination Date will be LIBOR then in
effect on such LIBOR Interest Determination Date.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service,
or such other service as may be nominated as the information vendor, for the
purpose of displaying rates or prices relating to LIBOR).
TREASURY RATE NOTES. Treasury Rate Notes will bear interest at the interest
rates (calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
such Treasury Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the rate
for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity designated in the applicable
Pricing Supplement as published in H.15(519) under the heading "U.S. Government
Securities--Treasury Bills--Auction Average (Investment)" or, if not so
published by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Treasury Interest Determination Date, the Treasury Rate will be the
auction average rate, expressed as a Bond Equivalent Yield (calculated as
described below), for such auction as otherwise announced by the United States
Department of the Treasury. If the results of the auction of Treasury bills
having the Index Maturity designated in the applicable Pricing Supplement are
not published or announced as provided above by 3:00 P.M., New York City time,
on such Calculation Date or if no such auction is held in a particular week,
then the Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity, expressed as a Bond Equivalent Yield of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Treasury Interest Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent,
for the issue of Treasury bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing
S-9
<PAGE>
Supplement; PROVIDED, HOWEVER, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate with respect to such Treasury Interest Determination Date will be the
Treasury Rate then in effect on such Treasury Interest Determination Date.
"Bond Equivalent Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X N
Bond Equivalent Yield = ------------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for Treasury bills, quoted on a
bank-discount basis and expressed as a decimal; "N" refers to the actual number
of days in the year for which interest is being calculated; and "M" refers to
the actual number of days in the interest period for which interest is being
calculated.
FEDERAL FUNDS RATE NOTES. Federal Funds Rate Notes will bear interest at
the interest rates (calculated with reference to the Federal Funds Rate and the
Spread or Spread Multiplier, if any), and will be payable on the dates,
specified in the Federal Funds Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Federal Funds Interest Determination
Date, the rate on that day for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)" or, if not so published by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Federal Funds
Interest Determination Date, the Federal Funds Rate will be the rate on such
Federal Funds Interest Determination Date as published in Composite Quotations
under the heading "Federal Funds/Effective Rate". If such rate is not published
by 3:00 P.M., New York City time, on the Calculation Date pertaining to such
Federal Funds Interest Determination Date, then the Federal Funds Rate for such
Federal Funds Interest Determination Date will be calculated by the Calculation
Agent and will be the arithmetic mean of the rates prior to 9:00 A.M., New York
City time, on such Federal Funds Interest Determination Date for the last
transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent; PROVIDED, HOWEVER, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate with respect to such Federal Funds Interest Determination Date will
be the Federal Funds Rate in effect on such Federal Funds Interest Determination
Date.
CD RATE NOTES. CD Rate Notes will bear interest at the interest rates
(calculated with reference to the CD Rate and the Spread or Spread Multiplier,
if any), and will be payable on the dates, specified in the CD Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published in H.15(519) under the heading
"CDs (Secondary Market)" or, if not so published by 3:00 P.M., New York City
time, on the Calculation Date pertaining to such CD Interest Determination Date,
the CD Rate will be the rate on such CD Interest Determination Date for
negotiable certificates of deposit of the Index Maturity designated in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit". If such rate is not published by 3:00 P.M.,
New York City time, on such Calculation Date, then the CD Rate on such CD
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the secondary market offered rates as of the opening
of business, New York City time, on such CD Interest Determination Date, of
three leading nonbank dealers in negotiable U.S. dollar certificates of deposit
in The City of New York selected by the Calculation Agent for negotiable
certificates of deposit of major United States money market banks of the highest
credit standing (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement in a denomination of $5,000,000; PROVIDED, HOWEVER, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the CD Rate with respect to such CD Interest
Determination Date will be the CD Rate in effect on such CD Interest
Determination Date.
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<PAGE>
INDEXED NOTES
Notes may be issued as Indexed Notes, as indicated in the applicable Pricing
Supplement. Holders of Indexed Notes may receive a principal amount at Maturity
that is greater than or less than the face amount of such Note depending upon
the fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at Maturity, a historical comparison of the relative value, rate
or price of the specified index and the face amount of the Indexed Note and
certain additional tax considerations will be described in the applicable
Pricing Supplement.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of and interest on
the Notes will be made in U.S. dollars. If any of the Notes are to be
denominated in a currency or currency unit other than U.S. dollars, the
following provisions shall apply, which are in addition to, and to the extent
inconsistent therewith replace, the description of general terms and provisions
of Notes set forth in the accompanying Prospectus and elsewhere in this
Prospectus Supplement.
Foreign Currency Notes are issuable in registered form only, without
coupons. The denominations for particular Foreign Currency Notes will be
specified in the applicable Pricing Supplement.
Unless otherwise provided in the applicable Pricing Supplement, payment of
the purchase price of Foreign Currency Notes will be made in immediately
available funds.
Notes denominated in Specified Currencies other than ECUs will not be sold
in, or to residents of, the country of the Specified Currency in which
particular Notes are denominated except as otherwise specified in the applicable
Pricing Supplement.
CURRENCIES
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for Foreign Currency Notes in the Specified Currency. At the
present time there are limited facilities in the United States for the
conversion of U.S. dollars into the Specified Currencies and vice versa, and
banks do not generally offer non-U.S. dollar checking or savings account
facilities in the United States. However, if requested on or prior to the fifth
Business Day preceding the date of delivery of the Notes, or by such other day
as determined by the Agent who presented such offer to purchase Notes to the
Company, such Agent may at its discretion arrange for the conversion of U.S.
dollars into the Specified Currency set forth in the applicable Pricing
Supplement to enable the purchasers to pay for the Notes. Each such conversion,
if any, will be made on such terms and subject to such conditions, limitations
and charges as the person making such conversion may from time to time establish
in accordance with its regular foreign exchange practices. All costs of exchange
will be borne by the purchasers of the Notes.
Specific information about the foreign currency or currency units in which a
particular Foreign Currency Note is denominated, including historical exchange
rates and a description of the currency and any exchange controls, will be
contained in the applicable Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of and interest on Foreign Currency Notes are payable by the
Company in U.S. dollars. However, unless otherwise specified in the applicable
Pricing Supplement, the holder of a Foreign Currency Note may elect to receive
such payments in the Specified Currency as described below. Unless otherwise
specified in the applicable Pricing Supplement, the Exchange Rate Agent will
determine the rate of conversion for all payments of principal of and interest
on Foreign Currency Notes to U.S. dollars. "Exchange Rate Agent" means the agent
appointed by the Company to make such determinations. Unless otherwise specified
in a Pricing Supplement, the Exchange Rate Agent shall be Citibank, N.A.
Unless otherwise specified in the applicable Pricing Supplement, any U.S.
dollar amount to be received by a holder of a Foreign Currency Note will be
based on the indicative spot quotation which will yield the
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<PAGE>
largest number of U.S. dollars upon conversion of the Specified Currency, out of
indicative spot quotations 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 which may be the Exchange Rate Agent) obtained from Reuters or,
if quotes from Reuters are not available, the Telerate foreign exchange
quotation service for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date; PROVIDED HOWEVER,
that if fewer than three such quotes are available, such dollar amount shall be
based on an applicable rate published by the Federal Reserve Bank of New York.
If such bid quotations and such rate published by the Federal Reserve Bank are
not available, payments will be made in the Specified Currency. Unless otherwise
specified in the applicable Pricing Supplement, all currency exchange costs will
be borne by the holder of the Foreign Currency Note by deductions from such
payments.
Unless otherwise specified in the applicable Pricing Supplement, a holder of
Foreign Currency Notes may elect to receive payment of the principal of and
interest on the Notes in the Specified Currency by transmitting a written
request for such payment to the corporate trust department of Citibank, N.A. in
the Borough of Manhattan, The City of New York on or prior to the Regular Record
Date or at least sixteen days prior to Maturity, as the case may be. Such
request shall be in writing (mailed or hand delivered) or by cable, telex or
other form of facsimile transmission. A holder of a Foreign Currency Note may
elect to receive payment in the Specified Currency for all principal and
interest payments and need not file a separate election for each payment. Such
election will remain in effect until revoked by written notice to Citibank, N.A.
in the Borough of Manhattan, The City of New York, but written notice of any
such revocation must be received by Citibank, N.A. in the Borough of Manhattan,
The City of New York on or prior to the Regular Record Date or at least sixteen
days prior to Maturity, as the case may be. Holders of Foreign Currency Notes
whose Foreign Currency 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 Specified Currency may be made.
Interest on and principal of Foreign Currency Notes paid in U.S. dollars
will be paid in the manner specified in the accompanying Prospectus and
elsewhere in this Prospectus Supplement for interest on and principal of Notes
denominated in U.S. dollars. Interest on Foreign Currency Notes paid in the
Specified Currency will be paid by a check drawn on an account maintained at a
bank outside the United States, unless other arrangements have been made. The
principal of Foreign Currency Notes paid in the Specified Currency, together
with interest accrued and unpaid thereon, due at Maturity will be paid in
immediately available funds by wire transfer to such account maintained with a
bank outside the United States (unless other arrangements have been made) as
shall have been designated at least sixteen days prior to Maturity by the
holders thereof so long as such Foreign Currency Notes are presented to the
Trustee or the Paying Agents designated in the applicable Pricing Supplement in
time for the Trustee or such Paying Agents to make such payments in such funds.
Any payment of principal or interest required to be made on an Interest Payment
Date or at Maturity of a Foreign Currency Note which is not a Business Day need
not be made on such day, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date or at
Maturity, as the case may be, and no interest shall accrue for the period from
and after such Interest Payment Date or Maturity.
PAYMENT CURRENCY
If a Specified Currency is not available for the payment of principal or
interest with respect to a Foreign Currency Note due to the imposition of
exchange controls or other circumstances beyond the control of the Company, the
Company will be entitled to satisfy its obligations to holders of Foreign
Currency Notes by making such payment in U.S. dollars on the basis of the Market
Exchange Rate on the date of such payment, or if such Market Exchange Rate is
not then available, on the basis of the most recently available Market Exchange
Rate. See "Foreign Currency Risks--Exchange Rates and Exchange Controls".
"Market Exchange Rate" for any Specified Currency means the noon buying rate in
The City of New York for cable transfers for such Specified Currencies as
certified for customs purposes by the Federal Reserve Bank of New York.
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<PAGE>
FOREIGN CURRENCY RISKS
GENERAL
EXCHANGE RATES AND EXCHANGE CONTROLS. An investment in Notes that are
denominated in a Specified Currency entails significant risks that are not
associated with a similar investment in a security denominated in U.S. dollars.
Such risks include, without limitation, the possibility of significant changes
in rates of exchange between the U.S. dollar and the various foreign currencies
and the possibility of the imposition or modification of foreign controls by
either the U.S. or foreign governments. Such risks generally depend on economic
and political events over which the Company has no control. In recent years,
rates of exchange between U.S. dollars and certain foreign currencies have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations in such rate that may occur
during the term of any Note. Depreciation of the currency specified in a Note
against the U.S. dollar would result in a decrease in the effective yield of
such Note below its coupon rate, and in certain circumstances could result in a
loss to the investor on a U.S. dollar basis.
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS DO NOT DESCRIBE ALL
THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A FOREIGN CURRENCY OR A
CURRENCY UNIT AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE
PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN NOTES DENOMINATED IN CURRENCIES OTHER THAN U.S. DOLLARS. SUCH
NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED
WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of and interest
on the Notes. Such persons should consult their own counsel with regard to such
matters.
GOVERNING LAW AND JUDGMENTS. The Notes will be governed by and construed in
accordance with the laws of the State of New York. An amendment to the Judiciary
Law of the State of New York adopted in 1987 provides that a judgment or decree
in an action based upon an obligation denominated in a currency other than U.S.
dollars will be rendered in the foreign currency of the underlying obligation
converted into U.S. dollars at a rate of exchange prevailing on the date of
entry of the judgment or decree.
EXCHANGE CONTROLS AND AVAILABILITY OF SPECIFIED CURRENCY. Governments have
imposed from time to time, and may in the future impose, exchange controls which
could affect exchange rates as well as the availability of a specified foreign
currency at the time of payment of principal of, and premium, if any, or
interest on a Note. Even if there are no actual exchange controls, it is
possible that the Specified Currency for any particular Note would not be
available at such Note's Maturity. In that event, the Company would make
required payments in U.S. dollars on the basis of the Market Exchange Rate on
the date of such payment, or if such rate of exchange is not then available, on
the basis of the most recently available Market Exchange Rate. See "Special
Provisions Relating to Foreign Currency Notes--Payment Currency."
Information concerning exchange rates for the Specified Currency in which
principal of, premium, if any, and interest on the Notes is payable, as against
the U.S. dollar at selected times during the last five years, as well as
exchange controls affecting such currencies, will be set forth in the applicable
Pricing Supplement. The information concerning exchange rates will be furnished
as a matter of information only and should not be regarded as indicative of the
range of or trends in fluctuations in currency exchange rates that may occur in
the future.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States Federal income tax
consequences resulting from the beneficial ownership of Notes by certain
persons. This summary does not purport to consider all the possible United
States Federal tax consequences of the purchase, ownership or disposition of the
Notes and is not intended to reflect the individual tax position of any
beneficial owner. It deals only with Notes and currencies or composite
currencies other than U.S. dollars ("Foreign Currency") held as capital assets.
Moreover, except as expressly indicated, it addresses initial purchasers and
does not address beneficial owners that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities or currencies,
purchasers that hold Notes (or Foreign Currency) as a hedge against currency
risks or as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a "conversion transaction")
comprised of a Note and one or more other investments, or purchasers that have a
"functional currency" other than the U.S. dollar. Except to the extent discussed
below under "Non-United States Holders", this summary is not applicable to
non-United States persons not subject to United States Federal income tax on
their worldwide income. This summary is based upon the United States Federal tax
laws and regulations as now in effect and as currently interpreted and does not
take into account possible changes in such tax laws or such interpretations, any
of which may be applied retroactively. It does not include any description of
the tax laws of any state, local or foreign governments that may be applicable
to the Notes or Holders thereof, and it does not discuss the tax treatment of
Notes denominated in certain hyperinflationary currencies or dual currency
Notes. Persons considering the purchase of Notes should consult their own tax
advisors concerning the application of the United States Federal tax laws to
their particular situations as well as any consequences to them under the laws
of any other taxing jurisdiction.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
In general, interest on a Note, whether payable in U.S. dollars or a Foreign
Currency (other than certain payments on a Discount Note, as defined and
described below under "Original Issue Discount"), will be taxable to a
beneficial owner who or which is (i) a citizen or resident of the United States,
(ii) a corporation created or organized under the laws of the United States or
any State thereof (including the District of Columbia) or (iii) a person
otherwise subject to United States Federal income taxation on its worldwide
income (a "United States Holder") as ordinary income at the time it is received
or accrued, depending on the Holder's method of accounting for tax purposes. If
an interest payment is denominated in or determined by reference to a Foreign
Currency, then special rules, described below under "Foreign Currency Notes",
apply.
ORIGINAL ISSUE DISCOUNT
The following discussion summarizes the United States Federal income tax
consequences to United States Holders of Notes issued with original issue
discount ("OID") for Federal income tax purposes. United States Holders of a
Note issued with OID generally will be subject to special tax accounting rules
provided in the Internal Revenue Code of 1986, as amended (the "Code"). On
February 4, 1994, the Treasury Department published final regulations (the "OID
Regulations"), which expand and illustrate the rules provided by the Code.
Special rules apply to OID on a Discount Note that is denominated in Foreign
Currency. See "Foreign Currency Notes--Foreign Currency Discount Notes".
GENERAL. A Note will be treated as issued with OID (a "Discount Note") if
the excess of the Note's "stated redemption price at maturity" over its issue
price is greater than a DE MINIMIS amount (as set forth in the Code and the OID
Regulations). Generally, the issue price of a Note (or any Note that is part of
an issue of Notes) will be the first price at which a substantial amount of
Notes that are part of such issue of Notes are sold (other than to underwriters,
placement agents or wholesalers). Under the OID Regulations, the "stated
redemption price at maturity" of a Note is the sum of all payments provided by
the Note that are not payments of "qualified stated interest". A "qualified
stated interest" payment includes any stated interest payment on a Note that is
unconditionally payable at least annually at a single fixed rate (or at certain
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floating rates) that appropriately takes into account the length of the interval
between stated interest payments. The Pricing Supplement will state whether a
particular issue of Notes will constitute an issue of Discount Notes.
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is DE MINIMIS, then such excess constitutes "DE MINIMIS
OID". Under the OID Regulations, unless the election described below under
"Election to Treat All Interest as Original Issue Discount" is made, such a Note
will not be treated as issued with OID (in which case the following paragraphs
under "Original Issue Discount" will not apply) and a United States Holder of
such a Note will recognize capital gain with respect to such DE MINIMIS OID as
stated principal payments on the Note are made. The amount of such gain with
respect to each such payment will equal the product of the total amount of the
Note's DE MINIMIS OID and a fraction, the numerator of which is the amount of
the principal payment made and the denominator of which is the stated principal
amount of the Note.
In certain cases, Notes that bear stated interest and are issued at par may
be deemed to bear OID for Federal income tax purposes, with the result that the
inclusion of interest in income for Federal income tax purposes may vary from
the actual cash payments of interest made on such Notes, generally accelerating
income for cash method taxpayers. Under the OID Regulations, a Note may be a
Discount Note where, among other things, (i) a Floating Rate Note provides for a
maximum interest rate or a minimum interest rate that is reasonably expected as
of the issue date to cause the yield on the debt instrument to be significantly
less, in the case of a maximum rate, or more, in the case of a minimum rate,
than the expected yield determined without the maximum or minimum rate, as the
case may be; (ii) a Floating Rate Note provides for significant front-loading or
back-loading of interest; or (iii) a Note bears interest at a floating rate in
combination with one or more other floating or fixed rates. Notice will be given
in the applicable Pricing Supplement when the Company determines that a
particular Note, including any Floating Rate Note, will be a Discount Note.
The Code and the OID Regulations provide rules that require a United States
Holder of a Discount Note having a maturity of more than one year from its date
of issue to include OID in gross income before the receipt of cash attributable
to such income, without regard to the Holder's method of accounting for tax
purposes. The amount of OID includible in gross income by a United States Holder
of a Discount Note is the sum of the "daily portions" of OID with respect to the
Discount Note for each day during the taxable year or portion of the taxable
year in which the United States Holder holds such Discount Note ("accrued OID").
The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID allocable to that accrual period. Under
the OID Regulations, accrual periods with respect to a Note may be any set of
periods (which may be of varying lengths) selected by the United States Holder
as long as (i) no accrual period is longer than one year and (ii) each scheduled
payment of interest or principal on the Note occurs on the first day or final
day of an accrual period.
The amount of OID allocable to an accrual period equals the excess of (a)
the product of the Discount Note's adjusted issue price at the beginning of the
accrual period and the Discount Note's yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) over (b) the sum of any payments of
qualified stated interest on the Discount Note allocable to the accrual period.
The "adjusted issue price" of a Discount Note at the beginning of the first
accrual period is the issue price and at the beginning of any accrual period
thereafter is (x) the sum of the issue price of such Discount Note, the accrued
OID for each prior accrual period (determined without regard to the amortization
of any acquisition premium or bond premium, which are discussed below), and the
amount of any qualified stated interest on the Note that has accrued prior to
the beginning of the accrual period but is not payable until a later date, less
(y) any prior payments on the Discount Note that were not qualified stated
interest payments. If a payment (other than a payment of qualified stated
interest) is made on the first day of an accrual period, then the adjusted issue
price at the beginning of such accrual period is reduced by the amount of the
payment. If a portion of the initial purchase price of a Note is attributable to
interest that accrued prior to the Note's issue date, the first stated interest
payment on the Note is to be made within one year of the Note's issue date and
such payment will equal or exceed the amount of pre-
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issuance accrued interest, then the issue price may be decreased by the amount
of pre-issuance accrued interest, in which case a portion of the first stated
interest payment will be treated as a return of the excluded pre-issuance
accrued interest and not as an amount payable on the Note.
The OID Regulations contain certain special rules that generally allow any
reasonable method to be used in determining the amount of OID allocable to a
short initial accrual period (if all other accrual periods are of equal length)
and require that the amount of OID allocable to the final accrual period equal
the excess of the amount payable at the maturity of the Discount Note (other
than any payment of qualified stated interest) over the Discount Note's adjusted
issue price as of the beginning of such final accrual period. In addition, if an
interval between payments of qualified stated interest on a Discount Note
contains more than one accrual period, then the amount of qualified stated
interest payable at the end of such interval is allocated PRO RATA (on the basis
of their relative lengths) between the accrual periods contained in the
interval.
United States Holders of Discount Notes generally will have to include in
income increasingly greater amounts of OID over the life of the Notes.
ACQUISITION PREMIUM. A United States Holder that purchases a Discount Note
at its original issuance for an amount in excess of its issue price but less
than its stated redemption price at maturity (any such excess being "acquisition
premium"), and that does not make the election described below under "Original
Issue Discount--Election To Treat All Interest as Original Issue Discount", is
permitted to reduce the daily portions of OID by a fraction, the numerator of
which is the excess of the United States Holder's purchase price for the Note
over the issue price, and the denominator of which is the excess of the sum of
all amounts payable on the Note after the purchase date, other than payments of
qualified stated interest, over the Note's issue price. Alternatively, a United
States Holder may elect to compute OID accruals as described under "Original
Issue Discount--General" above, treating the United States Holder's purchase
price as the issue price.
OPTIONAL REDEMPTION. If the Company has an option to redeem a Discount
Note, or the Holder has an option to cause a Discount Note to be repurchased,
prior to the Discount Note's stated maturity, such option will be presumed to be
exercised if, by utilizing any date on which such Discount Note may be redeemed
or repurchased as the maturity date and the amount payable on such date in
accordance with the terms of such Discount Note (the "redemption price") as the
stated redemption price at maturity, the yield on the Discount Note would be (i)
in the case of an option of the Company, lower than its yield to stated
maturity, or (ii) in the case of an option of the Holder, higher than its yield
to stated maturity. If such option is not in fact exercised when presumed to be
exercised, the Note would be treated solely for OID purposes as if it were
redeemed or repurchased, and a new Note were issued, on the presumed exercise
date for an amount equal to the Discount Note's adjusted issue price on that
date.
SHORT-TERM NOTES. Under the Code, special rules apply with respect to OID
on Notes that mature one year or less from the date of issuance ("Short-Term
Notes"). In general, a cash basis United States Holder of a Short-Term Note is
not required to include OID in income as it accrues for United States Federal
income tax purposes unless it elects to do so. Accrual basis United States
Holders and certain other United States Holders, including banks, regulated
investment companies, dealers in securities and cash basis United States Holders
who so elect, are required to include OID in income as it accrues on Short-Term
Notes on a straight-line basis or, at the election of the United States Holder,
under the constant yield method (based on daily compounding). In the case of
United States Holders not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of Short-Term Notes will
be ordinary income to the extent of the OID accrued on a straight-line basis
(unless an election is made to accrue the OID under the constant yield method)
through the date of sale or retirement. United States Holders who are not
required and do not elect to include OID on Short-Term Notes in income as it
accrues will be required to defer deductions for interest on borrowings
allocable to Short-Term Notes in an amount not exceeding the deferred income
until the deferred income is realized.
Any United States Holder of a Short-Term Note can elect to apply the rules
in the preceding paragraph taking into account the amount of "acquisition
discount", if any, with respect to the Note (rather than the OID with respect to
such Note). Acquisition discount is the excess of the stated redemption price at
maturity
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of the Short-Term Note over the United States Holder's purchase price therefor.
Acquisition discount will be treated as accruing on a ratable basis or, at the
election of the United States Holder, on a constant-yield basis.
For purposes of determining the amount of OID subject to these rules, the
OID Regulations provide that no interest payments on a Short-Term Note are
qualified stated interest, but instead such interest payments are included in
the Short-Term Note's stated redemption price at maturity.
NOTES PURCHASED AT A PREMIUM
Under the Code, a United States Holder that purchases a Note for an amount
in excess of its stated redemption price at maturity will not be subject to the
OID rules and may elect to treat such excess as "amortizable bond premium", in
which case the amount of qualified stated interest required to be included in
the United States Holder's income each year with respect to interest on the Note
will be reduced by the amount of amortizable bond premium allocable (based on
the Note's yield to maturity) to such year. Any election to amortize bond
premium is applicable to all bonds (other than bonds the interest on which is
excludible from gross income) held by the United States Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the United States Holder, and may not be revoked without the consent of the
Internal Revenue Service ("IRS"). See also "Original Issue Discount--Election to
Treat All Interest as Original Issue Discount".
NOTES PURCHASED AT A MARKET DISCOUNT
A Note, other than a Short-Term Note, will be treated as issued at a market
discount (a "Market Discount Note") if the amount for which a United States
Holder purchased the Note is less than the Note's issue price, subject to a DE
MINIMIS rule similar to the rule relating to DE MINIMIS OID described under
"Original Issue Discount--General".
In general, any partial payment of principal or any gain recognized on the
maturity or disposition of a Market Discount Note will be treated as ordinary
income to the extent that such gain does not exceed the accrued market discount
on such Note. Alternatively, a United States Holder of a Market Discount Note
may elect to include market discount in income currently over the life of the
Market Discount Note. Such an election applies to all debt instruments with
market discount acquired by the electing United States Holder on or after the
first day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
Market discount accrues on a straight-line basis unless the United States
Holder elects to accrue such discount on a constant yield to maturity basis.
Such an election is applicable only to the Market Discount Note with respect to
which it is made and is irrevocable. A United States Holder of a Market Discount
Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
The market discount rules do not apply to a Short-Term Note.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
Any United States Holder may elect to include in gross income all interest
that accrues on a Note using the constant yield method described above under the
heading "Original Issue Discount--General," with the modifications described
below. For purposes of this election, interest includes stated interest, OID, DE
MINIMIS OID, market discount, acquisition discount, DE MINIMIS market discount
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium.
In applying the constant yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election is generally applicable
only to the Note with respect to which it is made and may not be revoked without
the consent of the IRS. If this election is made with respect to a Note with
amortizable bond premium, the electing United States Holder will be deemed to
have elected to apply amortizable bond premium against
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interest with respect to all debt instruments with amortizable bond premium
(other than debt instruments the interest on which is excludible from gross
income) held by such electing United States Holder as of the beginning of the
taxable year in which the election is made or any such debt instruments acquired
thereafter. The deemed election with respect to amortizable bond premium may not
be revoked without the consent of the IRS.
If the election described above to apply the constant yield method to all
interest on a Note is made with respect to a Market Discount Note, as defined
above, then the electing United States Holder will be treated as having made the
election discussed above under "Notes Purchased at a Market Discount" to include
market discount in income currently over the life of all debt instruments held
or thereafter acquired by such United States Holder.
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note generally will equal its U.S.
dollar cost (which, in the case of a Note purchased with a Foreign Currency,
will be the U.S. dollar value of the purchase price on the date of purchase),
increased by the amount of any OID or market discount (or acquisition discount,
in the case of a Short-Term Note) included in the United States Holder's income
with respect to the Note and the amount, if any, of income attributable to DE
MINIMIS OID included in the United States Holder's income with respect to the
Note, and reduced by the sum of (i) the amount of any payments that are not
qualified stated interest payments, and (ii) the amount of any amortizable bond
premium applied to reduce interest on the Note. A United States Holder generally
will recognize gain or loss on the sale or retirement of a Note equal to the
difference between the amount realized on the sale or retirement and the United
States Holder's tax basis in the Note. The amount realized on a sale or
retirement for an amount in Foreign Currency will be the U.S. dollar value of
such amount on the date of sale or retirement. Except to the extent described
above under "Original Issue Discount--Short-Term Notes" or "Market Discount" or
below under "Foreign Currency Notes--Exchange Gain or Loss", and except to the
extent attributable to accrued but unpaid interest, gain or loss recognized on
the sale or retirement of a Note will be capital gain or loss and will be
long-term capital gain or loss if the Note was held for more than one year.
FOREIGN CURRENCY NOTES
INTEREST PAYMENTS. If an interest payment is denominated in or determined
by reference to a Foreign Currency, the amount of income recognized by a cash
basis United States Holder will be the U.S. dollar value of the interest
payment, based on the exchange rate in effect on the date of receipt, regardless
of whether the payment is in fact converted into U.S. dollars. Accrual basis
United States Holders may determine the amount of income recognized with respect
to such interest payment in accordance with either of two methods. Under the
first method, the amount of income recognized will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the partial period within the
taxable year). Upon receipt of an interest payment (including a payment
attributable to accrued but unpaid interest upon the sale or retirement of a
Note) determined by reference to a Foreign Currency, an accrual basis United
States Holder will recognize ordinary income or loss measured by the difference
between such average exchange rate and the exchange rate in effect on the date
of receipt, regardless of whether the payment is in fact converted into U.S.
dollars. Under the second method, an accrual basis United States Holder may
elect to translate interest income into U.S. dollars at the spot exchange rate
in effect on the last day of the accrual period or, in the case of an accrual
period that spans two taxable years, at the exchange rate in effect on the last
day of the partial period within the taxable year. Additionally, if a payment of
interest is actually received within five business days of the last day of the
accrual period or taxable year, an accrual basis United States Holder applying
the second method may instead translate such accrued interest into U.S. dollars
at the spot exchange rate in effect on the day of actual receipt (in which case
no exchange gain or loss will result). Any election to apply the second method
will apply to all debt instruments held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder and may not be revoked without the consent
of the IRS.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS. Foreign Currency received
as interest on a Note or on the sale or retirement of a Note will have a tax
basis equal to its U.S. dollar value at the time such interest is
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received or at the time of such sale or retirement, as the case may be. Foreign
Currency that is purchased will generally have a tax basis equal to the U.S.
dollar value of the Foreign Currency on the date of purchase. Any gain or loss
recognized on a sale or other disposition of a Foreign Currency (including its
use to purchase Notes or upon exchange for U.S. dollars) will be ordinary income
or loss.
FOREIGN CURRENCY DISCOUNT NOTES. OID for any accrual period on a Discount
Note that is denominated in a Foreign Currency will be determined in the Foreign
Currency and then translated into U.S. dollars in the same manner as stated
interest accrued by an accrual basis United States Holder. Upon receipt of an
amount attributable to OID (whether in connection with a payment of interest or
the sale or retirement of a Note), a United States Holder may recognize ordinary
income or loss.
AMORTIZABLE BOND PREMIUM. In the case of a Note that is denominated in a
Foreign Currency, bond premium will be computed in units of Foreign Currency,
and amortizable bond premium will reduce interest income in units of the Foreign
Currency. At the time amortized bond premium offsets interest income, a United
States Holder may realize ordinary income or loss, measured by the difference
between exchange rates at that time and at the time of the acquisition of the
Notes.
MARKET DISCOUNT. Market discount is determined in units of the Foreign
Currency. Accrued market discount that is required to be taken into account on
the maturity or upon disposition of a Note is translated into U.S. dollars at
the exchange rate on the maturity or the disposition date, as the case may be
(and no part is treated as exchange gain or loss). Accrued market discount
currently includible in income by an electing United States Holder is translated
into U.S. dollars at the average exchange rate for the accrual period (or the
partial accrual period during which the United States Holder held the Note), and
exchange gain or loss is determined on maturity or disposition of the Note (as
the case may be) in the manner described above under "Foreign Currency
Notes--Interest Payments" with respect to the computation of exchange gain or
loss on the receipt of accrued interest by an accrual method Holder.
EXCHANGE GAIN OR LOSS. Gain or loss recognized by a United States Holder on
the sale or retirement of a Note that is attributable to changes in exchange
rates will be treated as ordinary income or loss. However, exchange gain or loss
is taken into account only to the extent of total gain or loss realized on the
transaction.
INDEXED NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States Federal income tax rules with respect to currency indexed notes or
other indexed Notes.
NON-UNITED STATES HOLDERS
Subject to the discussion of backup withholding below, payments of principal
(and premium, if any) and interest (including OID) by the Company or any agent
of the Company (acting in its capacity as such) to any Holder of a Note that is
not a United States Holder (a "Non-United States Holder") will not be subject to
United States Federal withholding tax, provided, in the case of interest
(including OID), that (i) the Non-United States Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (ii) the Non-United States Holder is
not a controlled foreign corporation for United States tax purposes that is
related to the Company (directly or indirectly) through stock ownership and
(iii) either (A) the Non-United States Holder certifies to the Company or its
agent under penalties of perjury that it is not a United States person and
provides its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the Note
certifies to the Company or its agent under penalties of perjury that such
statement has been received from the Non-United States Holder by it or by
another financial institution and furnishes the payor with a copy thereof.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including OID) on the Note is effectively connected
with the conduct of such trade or business, the Non-United States Holder,
although exempt from the withholding tax discussed in the preceding paragraph
(provided that such Holder timely furnishes the required certification to claim
such exemption), may be subject to United States Federal income tax on such
interest (or OID) in the same manner as if it were a United States Holder. In
addition, if the Non-United States Holder is a foreign corporation, it may be
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subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest (including OID) on a Note will be
included in the earnings and profits of such Holder if such interest (or OID) is
effectively connected with the conduct by such Holder of a trade or business in
the United States. In lieu of the certificate described in the preceding
paragraph, such a Holder must provide the payor with a properly executed IRS
Form 4224 to claim an exemption from United States Federal withholding tax.
Any capital gain, market discount or exchange gain realized on the sale,
exchange, retirement or other disposition of a Note by a Non-United States
Holder will not be subject to United States Federal income or withholding taxes
if (i) such gain is not effectively connected with a United States trade or
business of the Non-United States Holder and (ii) in the case of an individual,
such Non-United States Holder (A) is not present in the United States for 183
days or more in the taxable year of the sale, exchange, retirement or other
disposition or (B) does not have a tax home (as defined in Section 911(d)(3) of
the Code) in the United States in the taxable year of the sale, exchange,
retirement or other disposition and the gain is not attributable to an office or
other fixed place of business maintained by such individual in the United
States.
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States Federal tax purposes at the time of such
individual's death will not be subject to United States Federal estate tax,
provided that the income from such Notes was not or would not have been
effectively connected with a United States trade or business of such individual
and that such individual qualified for the exemption from United States Federal
withholding tax (without regard to the certification requirements) described
above.
Recently proposed Treasury regulations, generally effective for payments
made after December 31, 1997, could affect the procedures to be followed by a
Non-United States Holder in establishing eligibility for a withholding tax
reduction or exemption.
PURCHASERS OF NOTES THAT ARE NON-UNITED STATES HOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICABILITY OF UNITED STATES
WITHHOLDING AND OTHER TAXES UPON INCOME REALIZED IN RESPECT OF THE NOTES.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, the Company is
required to provide the Internal Revenue Service (the "IRS") with certain
information, including the Holder's name, address and taxpayer identification
number (either the Holder's Social Security number or its employer
identification number, as the case may be), the aggregate amount of principal
and interest paid (including OID, if any) to that Holder during the calendar
year and the amount of tax withheld, if any. This obligation, however, does not
apply with respect to certain United States Holders, including corporations,
tax-exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts.
In the event that a United States Holder subject to the reporting
requirements described above fails to supply its correct taxpayer identification
number in the manner required by applicable law or underreports its tax
liability, the Company, its agents or paying agents or a broker may be required
to "backup" withhold a tax equal to 31% of each payment of interest (including
OID) and principal (and premium, if any) on the Notes. This backup withholding
is not an additional tax and may be credited against the United States Holder's
United States Federal income tax liability, provided that the required
information is furnished to the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-United States Holder of a Note if such Holder
has provided the required certification that it is not a United States person as
set forth in clause (iii) in the first paragraph under "Non-United States
Holders" above, or has otherwise established an exemption (provided that neither
the Company nor its agent has actual knowledge that the Holder is a United
States person or that the conditions of any exemption are not in fact
satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a United States person, a controlled
foreign corporation for United States tax purposes or a foreign person 50
percent or more of
S-20
<PAGE>
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment was effectively connected with a
United States trade or business, information reporting may apply to such
payments. Payment of the proceeds from a sale of a Note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the Holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Under the terms of a Distribution Agreement to be entered into by the
Company and the Agents (the "Distribution Agreement"), the Notes may be offered
on a continuing basis by the Company through the Agents, which have agreed to
use reasonable efforts to solicit purchases of the Notes. The Company will pay
an Agent a commission ranging from .125% to .750% of the principal amount of
each Note, depending on its Stated Maturity, sold through such Agent, as agent.
The commission payable by the Company to the Agents with respect to Notes with
maturities greater than thirty years will be negotiated at the time the Company
issues such Notes. The Company will have the sole right to accept offers to
purchase Notes and may reject any such offer, in whole or in part. Each Agent
will have the right, in its discretion reasonably exercised, without notice to
the Company, to reject any offer to purchase Notes received by it, in whole or
in part. The Company reserves the right to sell Notes at or above par directly
on its own behalf to investors. No commission will be payable to the Agents on
any such sales. The Company may also sell Notes at or above par to any Agent,
acting as principal, for resale to one or more investors at varying prices
related to prevailing market prices at the time of such resale, as determined by
such Agent, or for resale to broker-dealers, with a concession being given to
such Agent for the resale price of the Notes. The offering and selling terms for
such resale may be varied by such Agent. The Company may appoint other persons
to act as its agents pursuant to the Distribution Agreement for purposes of
soliciting offers to purchase Notes. The Company also reserves the right to sell
Notes through agents other than pursuant to the Distribution Agreement where
offers to purchase are received through such agents on an unsolicited basis.
Settlement of such sales will be on substantially the same terms and conditions
as contained in the Distribution Agreement, including commissions.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be in The City of New York in
immediately available funds.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933. The Company has agreed to indemnify the Agents against
and contribute toward certain liabilities, including liabilities under such Act.
The Company has agreed to reimburse the Agents for certain expenses.
Each of the Agents may, from time to time, purchase and sell Notes in the
secondary market, but is not obligated to do so, and there can be no assurance
that there will be a secondary market for the Notes or liquidity in the
secondary market if one develops. From time to time, each of the Agents may make
a market in the Notes.
The Agents and certain of their affiliates have engaged and may engage in
the future in transactions (including investment banking and commercial banking
transactions) with and perform services for the Company and certain of its
affiliates in the ordinary course of business. In addition, Citicorp Securities,
Inc., one of the Agents, is an affiliate of the Trustee.
S-21
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, ANY PRICING SUPPLEMENT HERETO AND THE ACCOMPANYING PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT. THIS PROSPECTUS SUPPLEMENT,
ANY PRICING SUPPLEMENT HERETO AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT HERETO OR THE ACCOMPANYING
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Ratios........................................... S-2
Description of the Medium-Term Notes............. S-2
Special Provisions Relating to Foreign Currency
Notes........................................... S-11
Foreign Currency Risks........................... S-13
Certain United States Federal Income Tax
Consequences.................................... S-14
Plan of Distribution............................. S-21
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference....................................... 2
The Company...................................... 3
Use of Proceeds.................................. 4
Ratios........................................... 4
Description of Debt Securities................... 4
Description of Capital Stock..................... 18
Description of Securities Warrants............... 23
Plan of Distribution............................. 24
Legal Matters.................................... 26
Experts.......................................... 27
</TABLE>
Ashland Inc.
U.S. $220,000,000
Medium-Term Notes,
Series H
PROSPECTUS SUPPLEMENT
CS First Boston
Salomon Brothers Inc
Citicorp Securities, Inc.
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