<PAGE>
THIS PROSPECTUS, DATED AUGUST 22, 1996, AND PROSPECTUS SUPPLEMENT, DATED
AUGUST 30, 1996, FILED PURSUANT TO RULE 424(B)(5), RELATE TO REGISTRATION
STATEMENT NO. 333-9817
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 22, 1996)
U.S. $1,500,000,000
SEARS ROEBUCK ACCEPTANCE CORP.
MEDIUM-TERM NOTES SERIES II
DUE AT LEAST 9 MONTHS FROM DATE OF ISSUE
----------------
Sears Roebuck Acceptance Corp. ("SRAC") may offer from time to time up to
U.S. $1,500,000,000 aggregate initial offering price or its equivalent in
foreign currencies (based on the applicable exchange rate at the time of
offering), of its Medium-Term Notes Series II due at least 9 months from the
date of issue, as selected by the purchaser and agreed to by SRAC. The Notes may
be denominated in U.S. dollars or in such foreign currencies as may be
designated by SRAC at the time of offering. The specific currencies, interest
rates (including whether fixed or floating) and maturity dates of the Notes will
be set forth in Pricing Supplements to this Prospectus Supplement.
Purchasers of the Notes are required to pay for them in the currency
specified in the Pricing Supplement by delivery of the requisite amount of the
Specified Currency to an Agent, unless other arrangements have been made.
Principal of and interest on the Notes are generally payable by SRAC in the
Specified Currency. See "Currency Exchange and Other Information" and
"Description of Notes."
Except as described herein, interest on Fixed Rate Notes will be payable May
15 and November 15 of each year (or on either of such dates or on such other
dates as specified therein and in the applicable Pricing Supplement) and at
maturity. Interest on Floating Rate Notes will be payable on the dates specified
therein and in the applicable Pricing Supplement.
The Notes will not be redeemable prior to their Stated Maturity unless
either a Redemption Commencement Date or one or more Redemption Dates are
specified in the applicable Pricing Supplement. See "Description of
Notes--General." If a Redemption Commencement Date is so specified, the Notes
will be redeemable at the option of SRAC on or after such date as described
herein. If one or more Redemption Dates is so specified, the Notes will be
redeemable on such Redemption Dates at the option of SRAC or repayable at the
option of the Holders thereof, or both, and at such Redemption Prices, in each
case as specified in the applicable Pricing Supplement.
The Notes will be issued only in a minimum denomination of U.S. $1,000 or
the approximate equivalent thereof in the Specified Currency and (except as
otherwise specified in the applicable Pricing Supplement) will initially be
Book-Entry Notes represented by one or more Global Notes registered in the name
of the Depository's nominee as described herein. An interest in a Global Note
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depository and its participants. Notes will be issued in fully
registered, certificated form to owners of beneficial interests therein or their
nominees, rather than to the Depository's nominee, only as specified in the
applicable Pricing Supplement, or under the limited circumstances described
herein. See "Description of Notes--General" and "Description of
Notes--Book-Entry Notes."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS
OR ANY SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
INITIAL PUBLIC OFFERING AGENTS'
PRICE(1) COMMISSIONS(2)(3) PROCEEDS TO SRAC(1)(2)(3)(4)
<S> <C> <C> <C>
Per Note........................ 100% .125%-.750% 99.250%-99.875%
Total (5)....................... $1,500,000,000 $1,875,000-$11,250,000 $1,488,750,000-$1,498,125,000
</TABLE>
(1) Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued at 100% of their principal amount.
(2) SRAC will pay to Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated or
Salomon Brothers Inc (the "Agents") a commission of from .125% to .750% (or
at such other rate as may from time to time be negotiated between such Agent
and SRAC), depending on maturity, of the principal amount of any Note sold
through such Agent provided, however, that commissions with respect to Notes
maturing in more than 30 years will be negotiated and set forth in the
applicable Pricing Supplement. SRAC has agreed to indemnify each Agent
against certain liabilities, including liabilities under the Securities Act
of 1933.
(3) In addition, it is anticipated that SRAC will offer Notes directly to
certain institutional investors in jurisdictions in which SRAC and its
employees may be registered or qualified to do so or in transactions in
which they are exempt from such registration or qualification. For sales
made directly by SRAC, no commissions will be payable and the proceeds to
SRAC will be the initial public offering price.
(4) Before deducting estimated expenses of $870,000 payable by SRAC, including
$40,000 of estimated expenses of the Agents to be reimbursed by SRAC.
(5) Or the equivalent thereof in foreign currencies or currency units.
--------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
SEARS ROEBUCK ACCEPTANCE CORP.
August 30, 1996
<PAGE>
THE AGENTS HAVE AGREED TO USE THEIR REASONABLE EFFORTS TO SOLICIT OFFERS TO
PURCHASE NOTES FROM TIME TO TIME ON BEHALF OF SRAC. NOTES MAY BE SOLD TO EACH OF
THE AGENTS, AS PRINCIPAL, AT DISCOUNTS EQUAL TO THE COMMISSIONS APPLICABLE TO
AGENCY SALES OF NOTES OR, IF SO INDICATED IN THE APPLICABLE PRICING SUPPLEMENT,
AT NEGOTIATED DISCOUNTS, FOR RESALE IN NEGOTIATED TRANSACTIONS, AT FIXED PUBLIC
OFFERING PRICES OR AT VARYING PRICES RELATED TO PREVAILING PRICES DETERMINED AT
THE TIME OF RESALE. THE AGENTS MAY ACT AS AGENTS FOR SALES OF NOTES, OR MAY
OFFER THE NOTES THEY HAVE PURCHASED AS PRINCIPALS, TO OR THROUGH DEALERS, AND
SUCH DEALERS MAY RECEIVE COMPENSATION FROM THE AGENTS. SRAC RESERVES THE RIGHT
TO SELL THE NOTES DIRECTLY ON ITS OWN BEHALF, AND IT IS ANTICIPATED THAT SRAC
WILL OFFER THE NOTES DIRECTLY TO CERTAIN INSTITUTIONAL INVESTORS. SRAC ALSO
RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFERING CONTEMPLATED
HEREBY WITHOUT NOTICE. NO TERMINATION DATE FOR THE OFFERING OF THE NOTES HAS
BEEN ESTABLISHED. SRAC OR THE SOLICITING AGENT MAY REJECT ANY ORDER. SEE "PLAN
OF DISTRIBUTION."
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, ANY ACCOMPANYING
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
NEITHER THIS PROSPECTUS SUPPLEMENT, ANY ACCOMPANYING PRICING SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES 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 ACCOMPANYING PRICING SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SRAC SINCE THE
DATE HEREOF OR THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Currency Exchange and Other Information............................................... S-3
Description of Notes.................................................................. S-3
Foreign Currency Risks................................................................ S-14
United States Tax Considerations...................................................... S-15
Plan of Distribution.................................................................. S-21
Legal Opinion......................................................................... S-22
PROSPECTUS
Available Information................................................................. 3
Reports to Holders of Debt Securities................................................. 3
Incorporation of Certain Documents by Reference....................................... 3
Sears Roebuck Acceptance Corp......................................................... 4
Use of Proceeds....................................................................... 4
Summary Financial Information......................................................... 5
Ratio of Earnings to Fixed Charges.................................................... 6
Description of Debt Securities........................................................ 6
Plan of Distribution.................................................................. 10
Legal Opinion......................................................................... 10
Experts............................................................................... 10
</TABLE>
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CURRENCY EXCHANGE AND OTHER INFORMATION
Purchasers are required to pay for the Medium-Term Notes Series II (the
"Notes") in the currency specified in the applicable Pricing Supplement (the
"Specified Currency"). Currently, there are limited facilities in the United
States for conversion of U.S. dollars into foreign currencies, and vice versa.
However, since December 31, 1989, the Federal Reserve Board no longer objects to
the establishment by U.S. banks of non-U.S. dollar denominated checking or
savings account facilities in the United States. Principal and interest payments
in respect of the Notes will be made in the Specified Currency unless such
Specified Currency is unavailable due to circumstances beyond the control of
SRAC. See "Foreign Currency Risks" and "Description of Notes."
References herein to "U.S. dollars" or "U.S. $" or "$" are to the currency
of the United States of America.
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION, WHICH SETS FORTH THE PARTICULAR TERMS OF THE
NOTES OFFERED HEREBY (REFERRED TO IN THE PROSPECTUS AS THE "OFFERED DEBT
SECURITIES") EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN THE APPLICABLE PRICING
SUPPLEMENT, SUPPLEMENTS THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF
DEBT SECURITIES SET FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS
HEREBY MADE. THE APPLICABLE PRICING SUPPLEMENT MAY SPECIFY DIFFERENT OR
ADDITIONAL TERMS.
GENERAL
The Notes are to be issued under an Indenture (the "Indenture"), dated as of
May 15, 1995, between SRAC and The Chase Manhattan Bank, N.A.
The authorized denominations of Notes denominated in U.S. dollars will be
U.S. $1,000 and any larger amount in integral multiples of $1,000. The
authorized denominations of Notes denominated in a Specified Currency other than
U.S. dollars will be the equivalent, as determined by the Market Exchange Rate
(as defined below) on the Business Day (as defined below) immediately preceding
the date on which SRAC accepts an offer to purchase such Notes, of U.S. $1,000
(rounded to an integral multiple of 1,000 units of such Specified Currency) and
any larger amount. The Market Exchange Rate on a given date for a given
Specified Currency is the noon buying rate in New York City for cable transfers
for such Specified Currency as certified for customs purposes by the Federal
Reserve Bank of New York.
The Notes mature at least nine months from the date of issue, as selected by
the purchaser and agreed to by SRAC. The Notes will constitute a single series
of Debt Securities under the Indenture, which is unlimited in aggregate
principal amount. The aggregate amount of Notes that may be offered hereunder
will be reduced by the aggregate initial public offering price of any other Debt
Securities issued by SRAC pursuant to the Registration Statement that includes
this Prospectus Supplement and the accompanying Prospectus.
The Notes are issuable in registered form only, without coupons, as
Book-Entry Notes initially represented by one or more global notes (each a
"Global Note") registered in the name of Cede & Co. ("Cede"), as the nominee of
The Depository Trust Company ("DTC," and, together with any successor depository
selected by SRAC, the "Depository"), except that Notes in fully registered,
certificated form ("Certificated Notes") will be issued to, and registered in
the names of, owners of beneficial interests therein or their nominees if so
specified in the applicable Pricing Supplement or under the limited
circumstances described under "Book-Entry Notes." All Book-Entry Notes having
the same terms, including, but not limited to, Interest Payment Dates, interest
rate, Maturity Date, and redemption or repayment provisions may be represented
by a single Global Note. A beneficial interest in a Global Note will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depository and its participants. Payments of principal and interest on
Book-Entry Notes will be made by the Trustee to the Depository. See "Book-Entry
Notes."
S-3
<PAGE>
Unless previously redeemed or repaid, a Note will mature on the date
("Maturity Date") that is specified on the face thereof and in the applicable
Pricing Supplement.
The Notes will be unsecured obligations of SRAC and will be identical except
for currency denomination, interest rate, Interest Payment Dates, Maturity Date,
issue date and applicable redemption or repayment provisions. The Notes will not
be subject to any sinking fund and, unless a Redemption Commencement Date or one
or more Redemption Dates are specified in the applicable Pricing Supplement,
will not be redeemable or repayable prior to their Maturity Date. If a
Redemption Commencement Date is so specified with respect to any Note, the
applicable Pricing Supplement will also specify one or more redemption prices
(expressed as a percentage of the principal amount of such Note to be redeemed)
("Redemption Price") and the redemption period or periods during which such
Redemption Price shall apply. In addition, if a Redemption Commencement Date is
so specified, any such Note shall be redeemable in whole or in part at the
option of SRAC (whether or not any other Note is concurrently redeemed) on any
Business Day on or after such specified Redemption Commencement Date at the
specified Redemption Price applicable to the redemption period during which such
Note is to be redeemed, together with interest accrued to the redemption date.
If one or more Redemption Dates are specified in a Pricing Supplement with
respect to any Note, such Pricing Supplement also will specify one or more
Redemption Prices, the Redemption Date or Dates for which such Redemption Prices
shall apply, and the notice period during which the option to redeem or to be
repaid may be exercised, the methods by which a notice of redemption or
repayment may be delivered and whether the option to redeem or to be repaid may
be exercised by SRAC, the Holders of such Notes or both. Redemption or repayment
of Global Notes (and notice thereof) shall be made in accordance with applicable
procedures of the Depository.
Notes will be sold in individual issues of Notes having such interest rate
or interest rate formula, Maturity Date and date of original issuance as shall
be selected by the initial purchasers and agreed to by SRAC. Each Note will bear
interest at a fixed rate or at a rate determined by reference to one or more of
the Commercial Paper Rate, the Prime Rate, LIBOR, the Treasury Rate, the CD
Rate, the CMT Rate or the Federal Funds Rate, or such other interest rate
formula as is set forth in the applicable Pricing Supplement, as adjusted by the
Spread or Spread Multiplier, if any, applicable to such Note (as such terms are
defined below). See "Description of Notes--Interest Rate."
The term "Business Day" as used herein means each Monday, Tuesday,
Wednesday, Thursday and Friday which is (a) not a legal holiday for banking
institutions in any of the City of Wilmington, Delaware, the City of Chicago,
The City of New York or the city in which the principal corporate trust office
of the Trustee is located, and (b) with respect to Notes denominated in a
Specified Currency other than U.S. dollars, any such day that is not a legal
holiday for banking institutions in the principal financial center of the
country of the Specified Currency (which in the case of European Currency Units
will be Brussels), and (c) with respect to LIBOR Notes, any day specified in (a)
above on which dealings in deposits in U.S. dollars are transacted in the London
interbank market.
INTEREST RATE
Each Note will bear interest from and including its date of issue or from
and including the most recent Interest Payment 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 in accordance with the terms thereof. Interest will
be payable on each Interest Payment Date and at maturity as specified below
under "Payment of Principal and Interest."
Each Note will bear interest at either (a) a fixed rate (a "Fixed Rate
Note") or (b) a variable rate (a "Floating Rate Note") determined by reference
to the specified Interest Rate Basis (as defined below), which will be adjusted
by adding or subtracting any applicable Spread or multiplying by any applicable
Spread Multiplier. 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 (a "Maximum Rate");
and (b) a minimum numerical interest rate limitation, or floor, on the rate of
S-4
<PAGE>
interest which may accrue during any interest period (a "Minimum Rate"). The
"Spread" is the number of basis points, if any, specified in the applicable
Pricing Supplement as being applicable to the interest rate for such Floating
Rate Note and the "Spread Multiplier" is the percentage, if any, specified in
the applicable Pricing Supplement as being applicable to the interest rate for
such Floating Rate Note. "Market Day" means (a) with respect to any Note (other
than any LIBOR Note), any day which is not a legal holiday for banking
institutions in The City of New York, and (b) with respect to any LIBOR Note,
any such day on which dealings in deposits in U.S. dollars are transacted in the
London interbank market. "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. Unless otherwise provided in the applicable Pricing Supplement, The
Chase Manhattan Bank will be the calculation agent (the "Calculation Agent")
with respect to Floating 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.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be one or
more of: (a) the Commercial Paper Rate, in which case such Floating Rate Note
will be a Commercial Paper Rate Note; (b) the Prime Rate, in which case such
Floating Rate Note will be a Prime Rate Note; (c) LIBOR, in which case such
Floating Rate Note will be a LIBOR Note; (d) the Treasury Rate, in which case
such Floating Rate Note will be a Treasury Rate Note; (e) the CD Rate, in which
case such Floating Rate Note will be a CD Rate Note; (f) the CMT Rate, in which
case such Floating Rate Note will be a CMT Rate Note; (g) the Federal Funds
Rate, in which case such Floating Rate Note will be a Federal Funds Rate Note;
or (h) such other interest rate formula as is set forth in such Pricing
Supplement. The applicable Pricing Supplement for a Floating Rate Note will
specify the Interest Rate Basis and, if applicable, the Calculation Agent, the
Index Maturity, the Spread, the Spread Multiplier, the Maximum Rate, the Minimum
Rate, the Interest Payment Dates, the Regular Record Dates, the Interest
Determination Dates (including the date as of which the Initial Interest Rate is
set (the "Initial Interest Determination Date")) and the Interest Reset Dates
with respect to such Note.
The initial rate of interest (the "Initial Interest Rate") on each Floating
Rate Note will be set on the Initial Interest Determination Date and reset daily
(except in the case of Treasury Rate Notes), weekly, monthly, quarterly,
semi-annually or annually (each an "Interest Reset Date"), as specified in the
applicable Pricing Supplement. Except for the Initial Interest Determination
Date, the Interest Reset Date will be, in the case of Floating Rate Notes which
reset daily, each Market 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, 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
February, May, August and November; 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. If any Interest Reset Date for any
Floating Rate Note would otherwise be a day that is not a Market Day with
respect to such Floating Rate Note, the Interest Reset Date for such Floating
Rate Note shall be postponed to the next day that is a Market Day with respect
to such Floating Rate Note, except that in the case of a LIBOR Note, if such
Market Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Market 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 Interest Determination Date"), for a LIBOR
Note (the "LIBOR Interest Determination Date"), for a CD Rate Note (the "CD
Interest Determination Date"), for a CMT Rate Note (the "CMT Interest
Determination Date") and for a Federal Funds Rate Note (the "Federal Funds
Interest Determination Date") will be the second Market Day preceding such
Interest Reset Date, except in the case of the Initial Interest Determination
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note (the
S-5
<PAGE>
"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, except in the case of the Initial Interest Determination Date.
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, except in the
case of the Initial Interest Determination Date. 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 Market Day immediately following such auction
date, except in the case of the Initial Interest Determination Date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% or (.0987655)), and all U.S. dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with
one-half cent 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 on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
The "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, except in the case of the Initial Interest Determination Date, for
which the Calculation Date will be the Initial Interest Determination Date as
specified in the applicable Pricing Supplement or (ii) the Business Day
immediately preceding the applicable Interest Payment Date or the date of
maturity, redemption or repayment.
Interest rates will be determined by the Calculation Agent as follows:
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread 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.
"Commercial Paper Rate" means, with respect to any Interest Reset Date, the
Money Market Yield (calculated as described below) of the per annum rate (quoted
on a bank discount basis) for the relevant Commercial Paper Interest
Determination Date for commercial paper having the specified Index Maturity 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 prior to 9:00 A.M., New York City time, on the relevant
Calculation Date, then the Commercial Paper Rate with respect to such Interest
Reset Date shall be the Money Market Yield of such rate on such Commercial Paper
Interest Determination Date for commercial paper having the specified Index
Maturity as published by the Federal Reserve Bank of New York in its daily
statistical release, "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper." If by
3:00 P.M., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, the Commercial Paper Rate
with respect to such Interest Reset Date shall be calculated by the Calculation
Agent and shall be the Money Market Yield of the arithmetic mean of the offered
per annum rates (quoted on a bank discount basis), as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent for commercial paper of the specified Index Maturity placed
for an industrial issuer whose bond rating is "AA," or the equivalent, from a
nationally
S-6
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recognized statistical rating agency; provided, however, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Commercial Paper Rate with respect to such
Interest Reset Date will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" means the rate for which is quoted on a bank discount
basis, a yield (expressed as a percentage) calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
------------
360- (D X M)
where "D" refers to the per annum rate for a security, quoted on a bank discount
basis and expressed as a decimal; and "M" refers to the number of days in the
period for which accrued 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.
"Prime Rate" means, with respect to any Interest Reset Date, the rate set
forth for the relevant Prime Interest Determination Date in H.15(519) under the
heading "Bank Prime Loan." In the event that such rate is not published prior to
9:00 A.M., New York City time, on the relevant Calculation Date, then the Prime
Rate with respect to such Interest Reset Date will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the display
designated as page "USPRIME1" on the Reuter Monitor Money Rates Service (or such
other page as may replace the USPRIME1 page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks)
("Reuters Screen USPRIME1 Page") as such bank's prime rate or base lending rate
as in effect for such Prime Interest Determination Date as quoted on the Reuters
Screen USPRIME1 Page on such Prime Interest Determination Date. If fewer than
four such rates appear on the Reuters Screen USPRIME1 Page on such Prime
Interest Determination Date, the Prime Rate with respect to such Interest Reset
Date will be the arithmetic mean of the prime rates or base lending rates
(quoted on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on such Prime Interest Determination
Date by three major banks in The City of New York selected by the Calculation
Agent; provided, however, that if fewer than three banks selected as aforesaid
by the Calculation Agent are quoting as mentioned in this sentence, the Prime
Rate with respect to such Interest Reset Date will be the Prime Rate in effect
on such Prime Interest Determination Date.
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 the LIBOR Note and in the
applicable Pricing Supplement.
"LIBOR" with respect to any Interest Reset Date will be determined by the
Calculation Agent in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
the rate for deposits in U.S. dollars having the specified Index Maturity,
commencing on the second Market Day immediately following such LIBOR
Interest Determination Date (or, in the case of the Initial Interest
Determination Date, on such Initial Interest Determination Date), that
appears on the display designated as page "3750" on the Dow Jones Telerate
Service (or such other page as may replace 3750 on that service for the
purposes of displaying London interbank offer rates of major banks)
("Telerate Page 3750") as of 11:00 A.M., London time, on such LIBOR Interest
Determination Date. If such rate does not appear on Telerate Page 3750,
LIBOR with respect to such Interest Reset Date will be determined as
described in (ii) below.
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(ii) With respect to a LIBOR Interest Determination Date on which no
such rate appears on the Telerate Page 3750 as described in (i) above, LIBOR
will be determined on the basis of the rates at approximately 11:00 A.M.,
London time, on such LIBOR Interest Determination Date at which deposits in
U.S. dollars having the specified Index Maturity are offered to prime banks
in the London interbank market by four major banks in the London interbank
market selected by the Calculation Agent commencing on the second Market Day
immediately following such LIBOR Interest Determination Date (or, in the
case of the Initial Interest Determination Date, on such Initial Interest
Determination Date), and in a principal amount equal to an amount of not
less than U.S. $1,000,000 that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time (a
"Representative Amount"). The Calculation Agent will request the principal
London office of each of such banks to provide a quotation of its rate. If
at least two such quotations are provided, LIBOR with respect to such
Interest Reset Date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR with respect to such Interest Reset
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., New York City time, on such LIBOR Interest Determination Date by three
major banks in The City of New York, selected by the Calculation Agent, for
loans in U.S. dollars to leading European banks having the specified Index
Maturity commencing on the Interest Reset Date and in a Representative
Amount; provided, however, that if fewer than three banks selected as
aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, LIBOR with respect to such Interest Reset Date will be the LIBOR
in effect on such LIBOR Interest Determination Date.
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 the Treasury
Rate Note and in the applicable Pricing Supplement.
"Treasury Rate" means, with respect to any Interest Reset Date, the rate for
the auction on the relevant Treasury Interest Determination Date of direct
obligations of the United States ("Treasury bills") having the specified Index
Maturity as published in H.15(519) under the heading "U.S. Government
Securities/Treasury Bills/Auction Average (Investment)" or, if not so published
by 9:00 A.M., New York City time, on the relevant Calculation Date, the auction
average rate (expressed as a bond equivalent, on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) for such auction as
otherwise announced by the United States Department of the Treasury. In the
event that the results of such auction of Treasury bills having the specified
Index Maturity are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date, or if no such auction is held during
such week, then the Treasury Rate shall be the rate set forth in H.15(519) for
the relevant Treasury Interest Determination Date for the specified Index
Maturity under the heading "U.S. Government Securities/Treasury Bills/Secondary
Market." In the event such rate is not so published by 3:00 P.M., New York City
time, on the relevant Calculation Date the Treasury Rate with respect to such
Interest Reset Date shall be calculated by the Calculation Agent and shall be a
yield to maturity (expressed as a bond equivalent, on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates as of approximately 3:30 P.M., New York City
time, on such Treasury Interest Determination Date, of three primary United
States government securities dealers in The City of New York selected by the
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Treasury Rate with respect to such Interest
Reset Date will be the Treasury Rate in effect on such Treasury 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 on the face of the CD Rate Note and in the
applicable Pricing Supplement.
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"CD Rate" means, with respect to any Interest Reset Date, the rate for the
relevant CD Interest Determination Date for negotiable certificates of deposit
having the specified Index Maturity as published in H.15(519) under the heading
"CDs (Secondary Market)." In the event that such rate is not published prior to
9:00 A.M., New York City time, on the relevant Calculation Date, then the CD
Rate with respect to such Interest Reset Date shall be the rate on such CD
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the CD Rate with respect to such Interest Reset Date shall be
calculated by the Calculation Agent and shall be the arithmetic mean of the
secondary market offered rates, as of 10:00 A.M., New York City time, on such CD
Interest Determination Date, of three leading nonbank dealers of 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 with a remaining maturity closest to the specified Index
Maturity in a denomination of U.S. $5,000,000; provided, however, that if fewer
than three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the CD Rate with respect to such Interest Reset Date
will be the CD Rate in effect on such CD Interest Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates specified on the face of the CMT Rate Note and in the
applicable Pricing Supplement.
"CMT Rate" means, with respect to any Interest Reset Date, the rate for the
relevant CMT Interest Determination Date displayed on the Designated CMT
Telerate Page (as defined below) under the caption ". . . Treasury Constant
Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index (as defined
below) for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the week, or the month, as applicable, ended immediately preceding the
week in which the related CMT Interest Determination Date occurs. If such rate
is no longer displayed on the relevant page, or if not displayed by 3:00 P.M.,
New York City time, on the relevant Calculation Date, then the CMT Rate for such
CMT Interest Determination Date will be such treasury constant maturity rate for
the Designated CMT Maturity Index as published in the relevant H.15(519). If
such rate is no longer published, or if not published by 3:00 P.M., New York
City time, on the relevant Calculation Date, then the CMT Rate for such CMT
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not published by 3:00 P.M., New York
City time, on the relevant Calculation Date, then the CMT Rate for the CMT
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time, on
the CMT Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
(each, a "Reference Dealer") in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent (from five such
Reference Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for the most
recently issued direct noncallable fixed rate obligations of the United States
("Treasury Notes") with an original maturity of approximately the Designated CMT
Maturity Index and a remaining term to maturity of not less than such Designated
CMT Maturity Index minus one year. If three or four (and not five) of such
Reference Dealers are quoting as described above, then the CMT Rate will be
based on the arithmetic mean of the offer prices obtained and neither the
highest nor the lowest of such quotes will be
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eliminated. If the Calculation Agent cannot obtain three such Treasury Note
quotations, the CMT Rate for such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on the
arithmetic mean of the secondary market offer side prices as of approximately
3:30 P.M., New York City time, on the CMT Interest Determination Date of three
Reference Dealers in The City of New York (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, than the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect on such CMT Interest Determination Date. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the quotes
for the Treasury Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20, or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
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 on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement.
"Federal Funds Rate" means, with respect to any Interest Reset Date, the
rate on the relevant Federal Funds Interest Determination Date for Federal Funds
as published in H.15(519) under the heading "Federal Funds (Effective)." In the
event that such rate is not published prior to 9:00 A.M., New York City time, on
the relevant Calculation Date, then the Federal Funds Rate with respect to such
Interest Reset Date will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the Federal Funds Rate with respect to such Interest Reset Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean of
the rates, as of 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 fewer than three
brokers selected as aforesaid by the Calculation Agent are quoting as mentioned
in this sentence, the Federal Funds Rate with respect to such Interest Reset
Date will be the Federal Funds Rate in effect on such Federal Funds Interest
Determination Date.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of, premium, if any, and interest on the Notes is payable by
SRAC in the Specified Currency. Interest payable on any Interest Payment Date
(other than Defaulted Interest) shall be payable to the person who is the
registered Holder at the close of business on the immediately preceding Regular
Record Date. Cede will initially be the registered Holder of Global Notes. See
"Book-Entry Notes." The "Regular Record Date" with respect to any Floating Rate
Note shall be the date 15 calendar
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days prior to each Interest Payment Date, whether or not such date shall be a
Business Day, and the "Regular Record Date" with respect to any Fixed Rate Note
shall be the May 1 and November 1 next preceding any May 15 or November 15
Interest Payment Date and the date 15 calendar days prior to any other Interest
Payment Date, whether or not such date shall be a Business Day. Interest payable
upon redemption or repayment or at maturity (other than a redemption, repayment
or maturity occurring on an Interest Payment Date) will be paid to the same
person to whom the principal amount is payable. The first payment of interest on
any Note 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 next succeeding Regular
Record Date.
Except as provided below, interest will be payable: in the case of Fixed
Rate Notes, on May 15 and November 15 of each year (or on either of such dates
or on such other dates as specified in the applicable Pricing Supplement); in
the case of Floating Rate Notes which reset daily, weekly or monthly, on the
third Wednesday of each month or on the third Wednesday of February, May, August
and November 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 February, May, August and November 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 any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date.
If an Interest Payment Date 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 next succeeding Business Day (or, in the
case of a LIBOR Note, if such day falls in the next calendar month, the next
preceding Business Day).
If the Maturity Date of any Note falls on a day that is not a Business Day,
the payment of interest and principal may be made on the next succeeding
Business Day with the same force and effect as if made on the Maturity Date, and
no interest on such payment shall accrue for the period from and after the
Maturity Date.
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date or Maturity Date (or date of redemption or
repayment) will include interest accrued to but excluding such Interest Payment
Date or Maturity Date (or date of redemption or repayment); provided, however,
that if the Interest Reset Dates with respect to any Floating Rate Note are
daily or weekly, interest payable on such Floating Rate Note on any Interest
Payment Date, other than interest payable on the date on which principal on any
such Floating Rate Note is payable, will include interest accrued to but
excluding the day following the next preceding Regular Record Date.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid 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 from the date of issue, or from the last date to which
interest has been paid, to but excluding the date for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such day
is computed by dividing the interest rate (expressed as a decimal) applicable to
such date by 360, in the case of Commercial Paper Rate Notes, Prime Rate Notes,
LIBOR Notes, CD Rate Notes or Federal Funds Rate Notes, or by the actual number
of days in the year, in the case of Treasury Rate Notes and CMT Rate Notes. The
applicable interest rate on any Interest Reset Date will be the interest rate as
reset on such date. The applicable interest rate on any other day will be the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate). Interest on Fixed Rate Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
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Payment of principal and interest will be made by wire transfer to any
Holder of $10,000,000 or more in aggregate principal amount of Certificated
Notes having the same Interest Payment Date, and payments of principal will be
made by wire transfer to any Holder of $10,000,000 or more in aggregate
principal amount of Certificated Notes having the same Maturity Date or date of
redemption or repayment, if the Holder thereof shall have designated in writing
to the Trustee an account with a bank located in the country issuing the
Specified Currency or such other country as shall be satisfactory to SRAC and
the Trustee. If any payment of interest is to be made by wire transfer, such
information must be received by the Trustee at its corporate trust office in The
City of New York on or prior to the Regular Record Date for an Interest Payment
Date. The Trustee will, subject to applicable laws and regulations and until it
receives notice to the contrary, make such payment to such Holder by wire
transfer to the designated account. If a payment of interest is not made by wire
transfer for any reason, payment will be made by check. Checks for payment of
interest on an Interest Payment Date will be mailed to the Holder at the address
of such Holder appearing on the Security Register on the applicable Regular
Record Date. See "Payment Currency" and "Important Currency Exchange
Information."
To receive payment upon redemption, repayment or at maturity of a U.S.
dollar denominated Certificated Note, a Holder must make presentation and
surrender of such Note on or before the redemption or repayment date or Maturity
Date, as applicable. Payment will be by check unless proper wire transfer
instructions are on file with the Trustee or are received at presentment. To
receive payment upon redemption, repayment or at maturity of a Note denominated
in a Foreign Currency, a Holder must make presentation and surrender not less
than two Business Days prior to the redemption or repayment date or Maturity
Date, as applicable. Upon presentation and surrender of a Note denominated in a
Foreign Currency at any time after the date two Business Days prior to the
redemption or repayment date or Maturity Date, as applicable, SRAC will pay the
principal and interest due upon redemption, repayment or at maturity (unless the
redemption date or Maturity Date is an Interest Payment Date) two Business Days
after such presentation and surrender.
SRAC will pay any administrative costs imposed by banks in connection with
sending payments by wire transfer, but any tax, assessment or governmental
charge imposed upon payments will be borne by the Holders of the Notes in
respect of which payments are made.
For further information concerning payments of principal and interest on
Book-Entry Notes, see "Book-Entry Notes."
PAYMENT CURRENCY
If the principal of or interest on any Note is payable in a Specified
Currency other than U.S. dollars and such Specified Currency is not available
due to the imposition of exchange controls or other circumstances beyond its
control, SRAC will be entitled to satisfy its obligations to Holders of the
Notes by making such payment in U.S. dollars on the basis of the most recently
available Market Exchange Rate. Any payment made under such circumstances in
U.S. dollars where the required payment is in a Specified Currency other than
U.S. dollars will not constitute a default under the Indenture.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date at least nine months from the date of original issue or
on which the amount of interest payable on an Interest Payment Date 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. Holders of Indexed Notes may
receive a principal amount at maturity that is greater than or less than the
face amount of such Notes 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 or amount of
interest payable, 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 United States federal income tax considerations will be described in
the applicable Pricing Supplement.
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BOOK-ENTRY NOTES
THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM
HAS BEEN OBTAINED FROM SOURCES THAT SRAC BELIEVES TO BE RELIABLE, BUT SRAC TAKES
NO RESPONSIBILITY FOR THE ACCURACY THEREOF.
Book-Entry Notes will initially be represented by one or more Global Notes
registered in the name of the nominee of DTC except as set forth below.
Book-Entry Notes will be available for purchase in minimum denominations of
$1,000 and any larger amount in integral multiples of $1,000 in book-entry form.
SRAC has been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede
is expected to be the Holder of the Global Notes. Unless and until Certificated
Notes are issued under the limited circumstances described herein, no person
acquiring an interest in the Book-Entry Notes (a "Book-Entry Note Owner") will
be entitled to receive a certificate representing such person's interest in the
Book-Entry Notes, all references herein or in the Prospectus to actions by
Holders shall refer to actions taken by DTC upon instructions from its
Participants (as defined below), and all references herein or in the Prospectus
to payments to Holders shall refer to payments to DTC or Cede, as the registered
Holder of the Global Notes, for distribution to Book-Entry Note Owners in
accordance with DTC procedures.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers (including the Agents),
banks, trust companies, clearing corporations and certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The Rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
Book-Entry Note Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Notes may do so only through Participants and Indirect
Participants. In addition, Book-Entry Note Owners will receive all payments of
principal, premium, if any, and interest from the Trustee through Participants
and, if applicable, Indirect Participants. Under a book-entry format, Book-Entry
Note Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will
forward such payments to its Participants which thereafter will forward them to
Indirect Participants or Book-Entry Note Owners. It is anticipated that the only
"Holder" will be Cede, as nominee of DTC. Book-Entry Note Owners will not be
recognized by the Trustee as Holders, as such term is used in the Indenture, and
Book-Entry Note Owners will only be permitted to exercise the rights of Holders
indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Notes and is
required to receive and transmit payments of principal, premium, if any, and
interest on the Book-Entry Notes. Participants and Indirect Participants with
which Book-Entry Note Owners have accounts with respect to the Book-Entry Notes
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Book-Entry Note Owners.
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Book-Entry
Note Owner to pledge Book-Entry Notes to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Book-Entry Notes, may be limited due to the lack of a physical certificate for
such Book-Entry Notes.
DTC has advised SRAC that it will take any action permitted to be taken by a
Holder under the Indenture only at the direction of one or more Participants to
whose account with DTC the Book-Entry Notes are credited.
Certificated Notes will be issued to Book-Entry Note Owners or their
nominees, rather than to DTC or its nominees only if (i) SRAC advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Depository with respect to the Book-Entry Notes, and the
Trustee or SRAC is unable to locate a qualified successor, or (ii) SRAC, at its
option, elects to terminate the book-entry system through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Certificated Notes. Upon surrender by DTC of a
Global Note representing the Book-Entry Notes and instructions for
re-registration, the Trustee will issue the Book-Entry Notes in the form of
Certificated Notes, and thereafter the Trustee will recognize the registered
holders of such Certificated Notes as Holders under the Indenture.
MODIFICATION OR AMENDMENT OF THE INDENTURE
For the purpose of determining whether the consent of Holders of the
requisite percentage of principal amount of Notes to a modification or
alteration of the Indenture has been obtained, the principal amount of Notes
denominated in a Foreign Currency will be the amount in U.S. dollars based upon
the Market Exchange Rate for such Foreign Currency on the latest date for which
such rate was established on or before the date for determining the Holders
entitled to perform such act (Section 2.11). See "Description of Debt
Securities--Modification or Amendment of the Indenture" in the Prospectus.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS. An investment in securities
denominated in foreign currencies entails significant risks that are not
associated with investments denominated in U.S. dollars. Such risks ("Foreign
Currency 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
exchange controls by either the U.S. or foreign governments. Foreign Currency
Risks generally depend on economic and political events over which SRAC has no
control. In recent years, rates of exchange between the U.S. dollar and certain
foreign currencies have been highly volatile and such volatility may be expected
in the future. Fluctuations in any particular exchange rate that have occurred
in the past are not necessarily indicative, however, of fluctuations in the rate
that may occur during the term of any Note. On a U.S. dollar basis, 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.
FACTORS PRODUCING FOREIGN CURRENCY RISKS, INCLUDING RATES OF EXCHANGE,
CHANGE CONTINUOUSLY. THIS PROSPECTUS SUPPLEMENT CONTAINS A SUMMARY OF CERTAIN
RISKS OF AN INVESTMENT IN THE NOTES THAT RESULT FROM THE NOTES BEING DENOMINATED
IN A FOREIGN CURRENCY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN THE NOTES. THE
NOTES, WHEN DENOMINATED IN OTHER THAN U.S. DOLLARS, 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 SRAC disclaims any
responsibility to advise prospective purchasers
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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
financial and legal advisors 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 Delaware. If an action based on the
Notes resulted in a judgment against SRAC in a court in the United States, it is
likely that the court would grant judgment relating to the Notes only in U.S.
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into U.S. dollars would be that in effect on the date of default,
the date the judgment was rendered, or some other date.
EXCHANGE CONTROLS, ETC. 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 Currency at the time of payment of principal
of or interest on a Note. Even if there were no actual exchange controls, it is
possible that the Specified Currency for any particular Note would not be
available at the time of such payments. In that event, SRAC will 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 last available Market Exchange Rate. See "Description of Notes-- Payment
Currency."
With respect to any Note denominated in other than U.S. dollars, the Pricing
Supplement will include information with respect to the applicable Specified
Currency (which supplement shall include information with respect to applicable
current foreign exchange controls, if any). The information therein concerning
rates of exchange is furnished as a matter of information only and should not be
regarded as indicative of the range of or trends in fluctuations in currency
exchange rates that may occur in the future.
UNITED STATES TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of the ownership of Notes is based upon the opinion, set forth in
full below, of Baker & McKenzie, special United States tax counsel to SRAC. For
purposes of this discussion of United States Tax Considerations, with respect to
Book-Entry Notes, the term "Holder" refers only to Book-Entry Note Owners, and
with respect to Certificated Notes, the term "Holder" refers to the registered
Holder. The discussion deals only with Notes held as capital assets and does not
deal with special tax situations, such as dealers in securities or currencies,
Holders whose functional currency is not the United States dollar, or persons
holding Notes as a hedge against currency risks or as part of a larger
integrated financial transaction. Persons considering the purchase of Notes
should consult their own tax advisors concerning the application of United
States federal income tax laws to their particular situations and any
consequences arising under the laws of any other taxing jurisdiction.
Notes may be issued under the Indenture providing for payments of principal
in amounts to be determined by reference to an index. Notes may also be issued
under the Indenture with a term of 12 months or less at issue prices of less
than their stated redemption price at maturity, giving rise to original issue
discount for federal income tax purposes. Notes may also be issued under the
Indenture with original issue discount which are denominated in more than one
currency. Federal income tax consequences and other special considerations
applicable to any such Notes will be described in the Pricing Supplement
relating thereto. Certain Notes bearing original issue discount and certain
Floating Rate Notes, in either case with a maturity date more than five years
from the issue date, may constitute "high yield original issue discount
obligations" for federal income tax purposes. The United States federal income
and estate tax consequences for Holders of Notes constituting high yield
original issue discount obligations will be discussed in the Pricing Supplements
relating to any such Notes.
In the opinion of Baker & McKenzie, all Notes issued under the Indenture
will be properly characterized as indebtedness of SRAC, and SRAC will so
characterize all such Notes for all United States federal income tax purposes.
This characterization by SRAC will be binding on every Holder of a Note, unless
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the Holder discloses its inconsistent characterization on such Holder's federal
income tax return. The Internal Revenue Service will not be bound by the
characterization of the Notes by SRAC and the Holders.
UNITED STATES HOLDERS
As used herein, "United States Holder" means a Holder of a Note who is, or
which is, a United States Person. A "United States Person" is (i) a citizen or
resident of the United States of America (including the States and the District
of Columbia), its territories, possessions and other areas subject to its
jurisdiction, including the Commonwealth of Puerto Rico (the "United States"),
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State and (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source.
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT. Stated interest on a Note
(whether in a foreign currency or U.S. dollars) will be taxable to a United
States Holder as ordinary interest income at the time it accrues or is paid in
accordance with the United States Holder's method of accounting for tax
purposes, subject to the discussion in the succeeding paragraphs.
If Notes are issued at a discount from their stated redemption price at
maturity equal to or more than one-fourth of one percent of the stated
redemption price at maturity multiplied by the number of full years to maturity,
such Notes will be original issue discount obligations ("Original Issue Discount
Notes"). The difference between the issue price and the stated redemption price
at maturity of each such Original Issue Discount Note will constitute original
issue discount ("Original Issue Discount"). The stated redemption price at
maturity will include all payments other than interest based on a fixed rate or,
unless otherwise stated in a Pricing Supplement, a floating rate, payable
unconditionally at intervals of one year or less during the entire term of the
Original Issue Discount Notes ("Stated Interest").
Each initial Holder of an Original Issue Discount Note will be required to
include in gross income, in each taxable year during which the Original Issue
Discount Note is held, a portion of the Original Issue Discount calculated on a
yield to maturity basis in addition to Stated Interest, if any, paid on such
Note, regardless of the United States Holder's method of accounting for tax
purposes. A United States Holder should be aware that, because of the above
original issue discount rules, such Holder will be required to include
increasingly greater amounts of Original Issue Discount in gross income in each
successive accrual period in advance of the receipt of the cash attributable to
such Original Issue Discount income.
A United States Holder of an Original Issue Discount Note must include in
gross income the sum of the daily portions of Original Issue Discount with
respect to an Original Issue Discount Note for each day during the taxable year
such Holder holds such Note. The daily portion is determined by allocating to
each day of the accrual period a ratable portion of an amount equal to the
excess of (i) the Adjusted Issue Price (as defined below) of the Original Issue
Discount Note at the beginning of the accrual period multiplied by the yield to
maturity of such Note (determined by compounding at the close of each accrual
period and adjusted for the length of the accrual period) over (ii) the amount
payable as Stated Interest, if any, on such Note during such accrual period.
United States Holders may accrue Original Issue Discount using accrual periods
of any length, and such accrual periods may vary in length over the term of the
Original Issue Discount Note, provided that each accrual period must be no
longer than one year and each scheduled payment of principal or interest must
occur either on the final day of an accrual period or on the first day of any
accrual period.
The Adjusted Issue Price of an Original Issue Discount Note at the start of
any accrual period is the issue price of the Original Issue Discount Note
increased by the amount of Original Issue Discount accrued during all prior
accrual periods. A United States Holder of an Original Issue Discount Note must
include in income accrued Original Issue Discount regardless of whether such
Holder uses a cash receipts and disbursements method of tax accounting or an
accrual basis of tax accounting.
The face of each Original Issue Discount Note will set forth the issue date,
issue price, yield to maturity, amount of Original Issue Discount and any other
information required by Treasury regulations.
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SRAC will furnish to the Internal Revenue Service the amount of Original Issue
Discount, the issue date and any additional information required by Treasury
regulations. Holders, including subsequent Holders, will be required to
determine for themselves the reportable amount of Original Issue Discount income
for a year.
For a Holder who uses a cash receipts and disbursements basis of tax
accounting, if a receipt of payment of stated interest is denominated in a
foreign currency, the amount of interest income will be the U.S. dollar value of
the foreign currency payment amount translated at the spot rate on the payment
date, regardless of whether the payment is in fact converted to U.S. dollars.
For a Holder who uses an accrual basis of tax accounting, if an accrual of
interest is denominated in a foreign currency, the amount of interest income
will be the U.S. dollar value of the amount of interest accrued in foreign
currency translated at the appropriate accrual translation rate. The
"appropriate accrual translation rate" is the average spot rate in effect during
such accrual period or, at the Holder's election, the spot rate on the last day
of such accrual period (or on the day of receipt of such interest if such day is
within five days of the end of the applicable accrual period). If the latter
translation convention is elected, such convention will apply with respect to
all other debt instruments held by the Holder during or after the taxable year
for which the election is made. Upon receipt of the interest payment in foreign
currency or upon disposition of the Note, a Holder will recognize currency gain
or loss with respect to the accrued interest equal to the difference between the
Holder's accrued foreign currency interest income translated at the appropriate
accrual translation rate and the U.S. dollar value of the foreign currency
payment translated at the spot rate on the payment date, regardless of whether
the payment is in fact converted to U.S. dollars.
In the case of Original Issue Discount Notes, Treasury regulations provide
similar rules for both cash basis and accrual basis United States Holders for
calculating currency gain or loss with respect to accrued Original Issue
Discount. Original Issue Discount will accrue in the currency in which the Note
is denominated and will be translated into U.S. dollars at the appropriate
accrual translation rate. Upon receipt of the accrued Original Issue Discount or
the disposition of the Note, such a Holder will recognize currency gain or loss
with respect to the accrued Original Issue Discount equal to the difference
between the Holder's accrued Original Issue Discount income translated at the
appropriate accrual translation rate and the U.S. dollar value of the foreign
currency payment translated at the spot rate on the payment date or the date of
disposition.
Currency gain or loss recognized by a Holder upon receipt of a foreign
currency payment will be treated as ordinary income or loss. In accordance with
current Treasury regulations, currency gain or loss will not be treated as
interest income or expense.
If a United States Holder acquires a Note (including an Original Issue
Discount Note) other than upon original issue for an amount less than the
principal amount or, in the case of an Original Issue Discount Note, less than
the Revised Issue Price (defined as the sum of the issue price of the Note and
the aggregate amount of Original Issue Discount includible in gross income for
all periods prior to the acquisition without regard to acquisition premium) of
such Original Issue Discount Note on the date of acquisition, the Note may be
considered to be a "market discount bond." As a result, a portion of the gain on
the sale or redemption of the Note (see "United States Tax
Considerations--United States Holders--Purchase, Sale and Redemption of Notes")
equal to the amount of market discount accrued with respect to the Note while it
was held by the United States Holder will be treated as interest income. In
addition, interest on indebtedness incurred or continued to purchase or carry a
Note that is a market discount bond, to the extent that it exceeds in any year
the interest (including Original Issue Discount) on the Note includible in the
United States Holder's income for that year, may not be fully deductible in that
year. The foregoing market discount rules will not apply if the United States
Holder elects to include in income in each taxable year the portion of the
market discount attributable to that year (accrued on either a straight line or
constant interest rate basis) with respect to all market discount bonds acquired
during or after the taxable year in which such election is made. In the case of
a Note denominated in a foreign currency, the amount of market discount will be
determined in units of foreign currency in which the Note is denominated. Unless
the Holder elects to include in income in each taxable year such market
discount, the resultant market discount is required to be translated at the spot
rate on the date of sale or
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redemption of the Note. No part of such market discount is treated as currency
gain or loss. If the Holder elects to include in income in each taxable year
such market discount, the accrued market discount currently includible in income
will be translated at the average spot rate for the accrual period. Currency
gain or loss with respect to accrued market discount currently includible in
income will be determined in a manner similar to that for accrued Original Issue
Discount as discussed above.
If a United States Holder acquires a Note for an amount more than the
principal amount of the Note (or the stated redemption price at maturity of a
Note that is an Original Issue Discount Note), a Holder may elect to amortize
such bond premium on a yield to maturity basis. In the case of a Note
denominated in a foreign currency, the amount of bond premium will be determined
in units of the foreign currency in which the Note is denominated. If a Holder
elects to amortize such bond premium, the amount of accrued bond premium in
units of foreign currency in each taxable year will reduce interest income in
units of foreign currency for such taxable year. Currency gain or loss will be
taken into account with respect to accrued bond premium in each taxable year by
treating the portion of premium amortized with respect to any period as a return
of principal (see "United States Tax Considerations--United States
Holders--Purchase, Sale and Redemption of Notes").
Proposed Treasury regulations have been issued that, if finalized in their
current form, would require a United States Holder that purchases a Note at a
premium to amortize such bond premium under a constant yield method. As
proposed, the new rules will be applicable to debt instruments issued on or
after 60 days after the regulations are published in final form. However, a
holder may elect to apply the new rules to all Notes held on or after the first
day of the taxable year that contains the day which is 60 days after the
regulations are published in final form.
If a United States Holder acquires an Original Issue Discount Note other
than upon original issue for an amount more than the Revised Issue Price of such
Note on the date of acquisition, but less than the redemption price of such
Note, such a Holder will be required to reduce each daily portion of accrued
Original Issue Discount by an allocable portion of such acquisition premium. The
allocable portion of such acquisition premium will be equal to the daily portion
of accrued Original Issue Discount multiplied by a fraction (i) the numerator of
which is the excess of the cost of the Original Issue Discount Note incurred by
such Holder over the Revised Issue Price of such Note on the date of acquisition
and (ii) the denominator of which is the excess of the stated redemption price
of the Original Issue Discount Note at maturity over the Revised Issue Price of
such Note on the date of acquisition. In the case of an Original Issue Discount
Note denominated in a foreign currency, the amount of acquisition premium will
be determined in units of foreign currency in which the Note is denominated. The
amount of the allocable portion of acquisition premium in units of foreign
currency in each taxable year will reduce accrued Original Issue Discount in
units of foreign currency for such taxable year. Currency gain or loss will be
taken into account with respect to accrued acquisition premium in each taxable
year by treating the portion of acquisition premium amortized with respect to
any period as a return of principal (see "United States Tax
Considerations--United States Holders--Purchase, Sale and Redemption of Notes").
A Holder may elect to include in gross income its entire return on a Note
(i.e., the excess of all remaining payments to be received on the Note over the
amount paid for such Note by the Holder) based on the compounding of interest at
a constant rate. This election for a Note with amortizable bond premium or
market discount results in a deemed election to apply the same accrual
principles to all of the Holder's debt instruments with amortizable bond premium
or market discount. This election may be revoked only with the consent of the
IRS.
PURCHASE, SALE AND REDEMPTION OF NOTES. A United States Holder's tax basis
in a Note will be its U.S. dollar cost. Such Holder's original tax basis in a
Note will be increased by (i) the net amount of accrued Original Issue Discount
included in income and (ii) the amount of accrued market discount included in
income. Such Holder's tax basis in a Note will be decreased by (i) the amount of
accrued bond premium and (ii) payments other than Stated Interest received by
the Holder with respect to a Note. Although the issue has not yet been directly
addressed by Treasury regulations, in the case of a Note denominated in a
foreign currency, such Holder's original tax basis likely will be increased by
(i) the
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net amount of accrued Original Issue Discount income in units of foreign
currency translated at the appropriate accrual translation rate in effect during
such accrual period and (ii) the amount of accrued market discount included in
income in units of foreign currency translated at the average spot rate in
effect during such accrual period. Such Holder's tax basis likely will be
decreased by (i) payments treated as receipts of accrued bond premium in units
of foreign currency translated at the spot rate on the date of acquisition; (ii)
payments treated as receipts of accrued Original Issue Discount translated at
the appropriate accrual translation rates, or accrued market discount translated
at the average spot rate, for the relevant accrual period; and (iii) payments
treated as receipts of principal translated at the spot rate on the date of
acquisition. In accordance with current Treasury regulations, payments in units
of foreign currency received on a Note by such a Holder will be treated first as
a receipt of Stated Interest, second as a receipt of Original Issue Discount to
the extent accrued, and finally as a receipt of principal.
Subject to the discussion below and the discussion of Notes which are market
discount bonds (see "United States Tax Considerations--United States
Holders--Payments of Interest and Original Issue Discount"), upon the sale or
redemption of a Note, a United States Holder will recognize capital gain or loss
equal to the difference between the amount realized on the sale or redemption of
the Note and the tax basis of the Note. The amount realized on a sale or
redemption of a Note denominated in a foreign currency will be equal to the sale
proceeds or redemption price in units of foreign currency translated at the spot
rate on the date of sale or redemption. Except to the extent described in the
next paragraph or described in "United States Tax Considerations--United States
Holders--Payments of Interest and Original Issue Discount", gain or loss will be
long-term capital gain or loss if at the time of the sale or redemption the Note
has been held for more than one year.
Except to the extent described in the discussion of market discount bonds
(see "United States Tax Considerations--United States Holders--Payments of
Interest and Original Issue Discount"), the portion of the gain or loss
recognized by a United States Holder on the sale or redemption of a Note that is
attributable to changes in exchange rates will be treated as ordinary income or
loss. If a United States Holder acquires a Note denominated in a foreign
currency on or after the date of original issue, such Holder's currency gain or
loss with respect to principal will be calculated by multiplying the principal
amount in units of foreign currency by the change in spot rates between the date
such Holder acquired the Note and the date it was sold or redeemed. For purposes
of computing currency gain or loss, the principal amount of a Note will be a
Holder's purchase price for the Note in units of foreign currency. The sum of
any currency gain or loss with respect to the principal of and accrued but
unpaid interest (including accrued but unpaid Original Issue Discount, if any)
on a Note will be realized only to the extent of the total gain or loss realized
on the sale or redemption.
EXCHANGE OF FOREIGN CURRENCY. Foreign currency received as interest on a
Note or on the sale or redemption of a Note will have a tax basis equal to its
U.S. dollar value (translated at the spot rate) at the time such interest is
received or at the time of sale or redemption of the Note. Foreign currency
purchased will generally have a tax basis equal to the U.S. dollar cost of
acquisition. Any gain or loss recognized on a sale or other disposition of the
foreign currency (including its use to purchase Notes or its exchange for U.S.
dollars) will be ordinary income or loss.
FOREIGN HOLDERS
U.S. WITHHOLDING TAX. Under United States federal income tax laws now in
effect, and subject to the discussion of backup withholding which follows,
payments by SRAC or any paying agent thereof (in its capacity as such) of
principal of and interest (including payments of Original Issue Discount, if
any) on (and premium, if any, on) a Note to a Holder who is not a United States
Person will not be subject to United States federal withholding tax, provided in
the case of interest (including payments of Original Issue Discount, if any)
that (i) such Holder does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of SRAC entitled to
vote; (ii) such Holder is not a controlled foreign corporation for United States
tax purposes with respect to which SRAC is a "related person" as defined in the
Code; and (iii) (A) the beneficial owner of the Note provides a signed written
statement to SRAC or its agent, under penalties of perjury, that certifies that
it is not a United States
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Person and provides its name and address, (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 on behalf of the beneficial owner provides an
intermediary certificate to SRAC or its agent under penalties of perjury that
such a statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
payor with a copy thereof, or (C) a securities clearing organization that is the
last intermediary in the chain before SRAC or its agent (a "qualified clearing
organization") electronically provides an intermediary certificate to SRAC or
its agent under penalties of perjury that such a statement has been received
from the beneficial owner by it or by an intermediary that is a member of the
qualified clearing organization and agrees to furnish (or to cause the relevant
member intermediary to furnish) promptly upon the request of SRAC or the
Internal Revenue Service such statement. A statement described in this paragraph
is effective only with respect to interest payments made to the certifying
Holder after the issuance of the statement in the calendar year of its issuance
and the two immediately succeeding calendar years.
U.S. INCOME TAX. Except for the possible imposition of United States
withholding tax (see "United States Tax Considerations--Foreign Holders--U.S.
Withholding Tax") and backup withholding tax (see "United States Tax
Considerations--Backup Withholding"), payments of principal of and interest
(including accrued Original Issue Discount, if any) on (and premium, if any, on)
a Note to a Holder who is not a United States Person will not be subject to
United States federal income tax, and gains from the sale, redemption or other
disposition of a Note will not be subject to United States federal income tax,
provided that:
(a) The Holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such Holder, if such Holder is an estate or
trust; or a partner of such Holder, if such Holder is a partnership) shall
not be or have been engaged in a trade or business, or be or have been
present in, or have or have had a permanent establishment in the United
States;
(b) There shall not have been a present or former connection between
such Holder (or between the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such Holder, if such Holder is an estate or
trust; or a partner of such Holder, if such Holder is a partnership) and the
United States, including, without limitation, such Holder's status as a
citizen or former citizen thereof or resident or former resident thereof;
and
(c) The Holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such Holder, if such Holder is an estate or
trust; or a partner of such Holder, if such Holder is a partnership) is not
and has not been, for United States tax purposes, (i) a personal holding
company, (ii) a corporation that accumulates earnings to avoid United States
federal income tax, or (iii) a person treated as making an election the
effect of which is to make payments of principal of and interest (including
accrued Original Issue Discount, if any) on (and premium, if any, on) Notes
subject to United States federal income tax.
If a Holder who is not a United States Person is engaged in a trade or
business in the United States and interest (including accrued Original Issue
Discount, if any), gain or income in respect of a Note of such Holder is
effectively connected with the conduct of such trade or business, the Holder,
although exempt from the withholding tax discussed in the preceding paragraphs,
may be subject to United States income tax on such interest (including accrued
Original Issue Discount, if any), gain or income at the statutory rates provided
for United States Persons after deduction of deductible expenses allocable to
such effectively connected interest, gain or income. In addition, if such a
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
as adjusted for certain items, unless a lower rate applies under a United States
income tax treaty with the Holder's country of residence. For this purpose,
interest (including accrued Original Issue Discount, if any), gain or income in
respect of a Note will be included in earnings and profits subject to the branch
tax if the interest (including accrued Original Issue Discount, if any), gain or
income is effectively connected with the conduct of the United States trade or
business of the Holder.
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U.S. ESTATE TAX. A Note held by an individual who at the time of death is
not a citizen or resident of the United States will generally not be subject to
United States federal estate tax if the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of SRAC and interest (including accrued Original Issue Discount, if
any) on the Note is not effectively connected with a United States trade or
business of the individual.
BACKUP WITHHOLDING
A 31% "backup" withholding tax and information reporting requirements apply
to certain payments of principal of and interest (including payments of Original
Issue Discount, if any) on (and premium, if any, on) an obligation, and to
proceeds of the sale of an obligation before maturity, to certain noncorporate
United States Holders, if such Holders fail to provide correct taxpayer
identification numbers and other information or fail to comply with certain
other requirements. SRAC, its paying agent, or a broker, as the case may be,
will be required to withhold from any payment that is subject to backup
withholding, a tax equal to 31% of such payment unless the Holder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations and certain other conditions are met.
In the case of payments of principal of and interest (including payments of
Original Issue Discount, if any) on (and premium, if any, on) Notes by SRAC or
paying agents of SRAC to Holders who are not United States Persons, temporary
Treasury regulations provide that backup withholding and information reporting
will not apply if the Holder has provided the required certification of its
non-United States status under penalties of perjury or has otherwise established
an exemption (provided that neither SRAC nor its paying agent has actual
knowledge that the Holder is a United States Person or the conditions of any
other exemption are not in fact satisfied). In addition, if payment is collected
by a foreign office of a custodian, nominee or other agent acting on behalf of
an owner of a Note, such custodian, nominee or other agent will not be required
to apply backup withholding to its payments to such owner. However, in such case
if the custodian, nominee or other agent is a United States Person, a controlled
foreign corporation for United States federal income tax purposes, or a foreign
person 50% or more of whose gross income is from a United States trade or
business for a specified three-year period, such custodian, nominee or other
agent will be subject to certain information reporting requirements with respect
to such payment unless such custodian, nominee or other agent has evidence in
its records that the Holder is not a United States Person and no actual
knowledge that such evidence is false or the Holder otherwise establishes an
exemption or is an exempt recipient. An exempt recipient includes a bank,
corporation or Financial Institution.
Under current regulations, payments of the proceeds of the sale of a Note by
a Holder who is not a United States Person to or through a foreign office of a
broker will not be subject to backup withholding. Payments by foreign offices of
a broker that is a United States Person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or more of
whose gross income is from a United States trade or business for a specified
three-year period are currently subject to certain information reporting
requirements, unless the payee is an exempt recipient or the broker has evidence
in its records that the payee is not a United States Person and no actual
knowledge that such evidence is false. Payments of the proceeds of a sale to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the payee certifies under penalty of
perjury that he is not a United States Person and provides his name and address
or the payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or a credit against such Holder's United
States federal income tax, provided that the required information is furnished
to the United States Internal Revenue Service.
The foregoing is based on the Internal Revenue Code of 1986, as amended,
regulations, rulings, administrative pronouncements and judicial decisions as of
the date hereof. Subsequent developments in these areas could have a material
effect on this opinion.
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PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by SRAC through the Agents, each
of which has agreed to use its reasonable efforts to solicit purchases of the
Notes. It is also anticipated that SRAC will offer Notes directly to brokers or
dealers, investment companies (or separate accounts), insurance companies,
banks, savings and loan associations, trust companies or similar institutions,
and trusts for which a bank, savings and loan association, trust company or
investment adviser is the trustee or authorized to make investment decisions.
SRAC will pay each Agent a commission ranging from .125% to .750% (or at such
other rate as may from time to time be negotiated between such Agent and SRAC)
of the principal amount of Notes sold through such firm as Agent, depending on
maturity. Commissions with respect to Notes with a stated maturity greater than
30 years will be negotiated between SRAC and the Agent at time of purchase and
set forth in the applicable Pricing Supplement. SRAC has also agreed to
reimburse the Agents for certain of their expenses.
SRAC may also sell the Notes to any Agent, as principal, at negotiated
discounts for resale to investors or other purchasers. SRAC reserves the right
to sell Notes directly on its own behalf in those jurisdictions where it and its
employees may be registered or qualified to do so or in transactions in which
they are exempt from such registration or qualification. No commission will be
payable on any sales made directly by SRAC.
Each Agent may act as an agent for sales of Notes, or may offer the Notes
they have purchased as principal, to or through dealers and, unless otherwise
specified in the applicable Pricing Supplement, such dealers may receive
compensation in the form of discounts, concessions or commissions from the
Agents not in excess of 66 2/3% of the discount or commission received by the
Agent from SRAC.
Unless otherwise indicated in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage equal to the
commission applicable to an agency sale of a Note of identical maturity, and may
be resold by the Agent to investors and other purchasers from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices related to prevailing prices determined at
the time of sale or may be resold to or through certain dealers as described
above. After an initial public offering of Notes purchased by an Agent as
principal which are to be resold to investors and other purchasers on a fixed
public offering price basis, the offering and other selling terms may be varied
by such Agent. The applicable Pricing Supplement may set forth further
information with respect to distribution of the Notes.
SRAC will have the sole right to accept offers to purchase Notes and may
reject any proposed purchase of Notes. Each Agent will have the right, in its
discretion reasonably exercised, to reject any offer received by it. Payment of
the purchase price of Notes will be required to be made in immediately available
funds.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). SRAC has agreed to
indemnify the Agents against certain liabilities, including liabilities under
the Securities Act.
The Notes are a new issue of securities with no established trading market.
The Agents have informed SRAC that they intend to make a market in the Notes,
but are under no obligation to do so and such market making may be discontinued
at any time. No assurance can be given as to the liquidity of a trading market
for the Notes.
LEGAL OPINION
The legality of the Notes was passed upon for the Company by Robert J.
Pence, Vice President, Law of Sears. At July 31, 1996, Mr. Pence owned 564 Sears
common shares, including shares credited to his account in The Savings and
Profit Sharing Fund of Sears Employees as of July 31, 1996, and had options
granted under Sears employee stock plans relating to 4,720 Sears common shares.
S-22
<PAGE>
SEARS ROEBUCK ACCEPTANCE CORP.
DEBT SECURITIES
---------------
Sears Roebuck Acceptance Corp. ("SRAC") from time to time may offer up to
$4,711,750,000 aggregate initial offering price of its debt securities
consisting of debentures, notes and/or other unsecured evidences of indebtedness
(the "Debt Securities"). If so provided in the accompanying Prospectus
Supplement, the Debt Securities of any series may be represented in whole or in
part by one or more Global Securities ("Global Securities") registered in the
name of a depository's nominee and, if so represented, beneficial interests in
such Global Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the depository and its participants. The
Debt Securities may be offered as separate series in amounts, at prices and on
terms to be set forth in supplements to this Prospectus. It is anticipated that
SRAC will sell Debt Securities directly to institutional investors and may sell
Debt Securities to or through underwriters, and also may sell Debt Securities
directly to other purchasers or through agents. See "Plan of Distribution." The
accompanying Prospectus Supplement or Prospectus Supplements (the "Prospectus
Supplement") sets forth the names of any underwriters or agents involved in the
sale of the Debt Securities in respect of which this Prospectus is being
delivered, the principal amounts, if any, to be purchased by underwriters and
the compensation, if any, of such underwriters or agents.
The terms of the Debt Securities, including, where applicable, the specific
designation, aggregate principal amount, denominations, maturity, premium, if
any, rate (which may be fixed or variable) and time of payment of interest, if
any, terms for redemption at the option of SRAC or the Holder, terms for sinking
fund payments, the initial public offering price, the names of, and the
principal amounts, if any, to be purchased by underwriters and the compensation
of such underwriters, deferred pricing arrangements, if any, and the other terms
in connection with the offering and sale of the Debt Securities in respect of
which this Prospectus is being delivered, are set forth in the accompanying
Prospectus Supplement.
As used herein, Debt Securities shall include securities denominated in U.S.
dollars or, at the option of SRAC if so specified in the applicable Prospectus
Supplement, in any other currency or in composite currencies or in amounts
determined by reference to an index.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
August 22, 1996
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES 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 NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.................................................................. 3
Reports to Holders of Debt Securities.................................................. 3
Incorporation of Certain Documents by Reference........................................ 3
Sears Roebuck Acceptance Corp.......................................................... 4
Use of Proceeds........................................................................ 4
Summary Financial Information.......................................................... 5
Ratio of Earnings to Fixed Charges..................................................... 6
Description of Debt Securities......................................................... 6
Plan of Distribution................................................................... 10
Legal Opinion.......................................................................... 10
Experts................................................................................ 10
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
SRAC and Sears, Roebuck and Co. ("Sears"), SRAC's parent, are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith file reports and other
information with the Securities and Exchange Commission (the "Commission").
Sears also files proxy statements with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, at Room 1024, 450 Fifth Street N.W.,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and Suite 1400, Citicorp Center, 500 W. Madison Street, Chicago, Illinois
60661-2511; and copies of such materials can be obtained from the public
reference section of the Commission, 450 Fifth Street N.W., Washington, D.C.
20549, at prescribed rates.The Commission also maintains a Web Site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission
(http://www.sec.gov). Reports and other information concerning SRAC can also be
inspected at the office of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005. Reports, proxy statements and other information
concerning Sears can also be inspected at the offices of the New York Stock
Exchange, Inc., the Chicago Stock Exchange Incorporated, 440 South LaSalle
Street, Chicago, Illinois 60605, and the Pacific Stock Exchange, Inc., 301 Pine
Street, San Francisco, California 94104.
Additional information regarding SRAC, Sears and the Debt Securities is
contained in the Registration Statement and the exhibits relating thereto, filed
with the Commission under the Securities Act of 1933, as amended (the "Act").
For further information pertaining to SRAC, Sears and the Debt Securities,
reference is made to the Registration Statement, and the exhibits thereto, which
may be inspected without charge at the office of the Commission at 450 Fifth
Street N.W., Washington, D.C. 20549, and copies thereof may be obtained from the
Commission at prescribed rates.
REPORTS TO HOLDERS OF DEBT SECURITIES
Holders of Debt Securities will receive annual reports containing
information, including financial information that has been audited and reported
on by independent public accountants, about SRAC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Reports on Form 10-K for the year ended December 30, 1995 filed
by SRAC and Sears, the Quarterly Reports on Form 10-Q for the quarterly periods
ended March 30 and June 29, 1996 filed by SRAC and Sears, and the Current
Reports on Form 8-K for February 7 and July 18, 1996 filed by Sears and for
January 23, March 26 and June 28, 1996 filed by SRAC with the Commission
pursuant to Section 13 of the Exchange Act, are incorporated in and made part of
this Prospectus by reference.
All documents filed by SRAC or Sears with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Debt
Securities (other than those portions of such documents described in paragraphs
(i), (k) and (l) of Item 402 of Regulation S-K promulgated by the Commission)
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents.
SRAC WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). WRITTEN OR TELEPHONE REQUESTS FOR
SUCH COPIES SHOULD BE DIRECTED TO SEARS ROEBUCK ACCEPTANCE CORP., 3711 KENNETT
PIKE, GREENVILLE, DELAWARE 19807, ATTENTION: VICE PRESIDENT, FINANCE
(302/888-3100).
3
<PAGE>
SEARS ROEBUCK ACCEPTANCE CORP.
SRAC is a wholly-owned finance subsidiary of Sears and was incorporated in
1956 under the laws of Delaware. Its general offices are located at 3711 Kennett
Pike, Greenville Delaware 19807 (302/888-3100). SRAC raises funds primarily from
the direct placement of commercial paper with corporate and institutional
investors and through intermediate-term loans, discrete underwritten debt and
medium-term notes. SRAC uses borrowing proceeds to acquire short-term notes of
Sears and purchase outstanding customer receivable balances from Sears. Sears,
which is a multi-line retailer that conducts Domestic and International
merchandising operations, uses the funds obtained from SRAC for general funding
purposes. SRAC, and not Sears, will be the sole obligor on the Debt Securities.
SRAC's income is derived primarily from the earnings on its investment in
the notes and receivable balances of Sears. The interest rate on Sears notes is
presently calculated so that SRAC maintains an earnings to fixed charge ratio of
at least 1.25. The yield on the investment in Sears notes is related to SRAC's
borrowing costs and, as a result, SRAC's earnings fluctuate in response to
movements in interest rates and changes in Sears short-term borrowing
requirements. Subject to the provisions of the Indenture relating to the Debt
Securities, SRAC will be required to maintain a ratio of earnings to fixed
charges (determined in accordance with Item 503(d) of Regulation S-K promulgated
by the Commission) of not less than 1.10 for any fiscal quarter and cause Sears
to maintain ownership of all voting stock of SRAC as long as any Debt Securities
are outstanding, and Sears has agreed to pay SRAC such amounts as may be
necessary for such purpose and to maintain such ownership. See "Description of
Debt Securities."
At July 31, 1996, SRAC had ten employees.
USE OF PROCEEDS
The net proceeds to be received by SRAC from the sale of the Debt Securities
offered hereby will be added to its general funds and initially used to reduce
short-term indebtedness. As indicated under "Sears Roebuck Acceptance Corp.,"
SRAC's principal business is the purchase of short-term notes of Sears; also, on
occasion, SRAC purchases customer receivable balances from Sears Domestic credit
operations. SRAC expects to incur additional indebtedness, but the amount and
nature thereof have not yet been determined and will depend on economic
conditions and certain capital requirements of Sears. It is anticipated that
Sears and its subsidiaries will continue their practice of short-term borrowing
and will, from time to time, incur additional long-term debt and engage in
securitization programs in which credit card receivables are sold in public or
private transactions. Sears also may, from time to time, issue equity
securities.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial information of SRAC
for the five fiscal years ended December 30, 1995. The summary information
should be read in conjunction with the financial statements of SRAC and the
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
OPERATING RESULTS
Total revenues................................... $ 510.3 $ 282.7 $ 337.5 $ 696.5 $ 1,100.8
Expenses
Interest and related expenses.................. 404.6 218.5 236.1 482.8 825.9
Total Expenses................................. 407.0 220.4 276.7 532.3 894.1
Income taxes..................................... 36.2 22.1 21.3 56.1 70.3
Net income....................................... 67.1 40.2 39.5 108.1 136.4
FINANCIAL POSITION
Assets
Notes of Sears................................. $ 8,396.4 $ 6,842.5 $ 3,403.9 $ 10,493.6 $ 12,214.5
Customer receivable balances purchased from
Sears........................................ 81.2 81.5 88.0 963.4 1,042.8
Total assets................................... 8,634.3 7,031.2 4,145.8 12,415.2 14,676.2
Liabilities
Commercial paper............................. $ 4,450.6 $ 4,912.9 $ 2,475.0 $ 8,515.3 $ 10,205.8
Agreements with bank trust departments....... 137.0 87.4 139.8 397.9 510.1
Intermediate-term loans........................ 895.0 845.0 -- -- 204.0
Medium-term notes.............................. 1,383.5 -- -- -- --
Discrete underwritten debt..................... 498.9 -- -- -- --
Loan agreements with SOFNV..................... -- -- 379.8 332.1 683.2
Total liabilities.............................. 7,389.5 5,853.5 3,008.3 9,287.0 11,656.1
Sears, Roebuck and Co. investment in SRAC
Capital stock (including capital in excess of
par value)................................... 35.0 35.0 35.0 365.2 365.2
Retained income................................ 1,209.8 1,142.7 1,102.5 2,763.0 2,654.9
Debt as percentage of equity..................... 592% 496% 263% 296% 384%
OTHER PERTINENT DATA
Commercial paper
Average daily outstandings..................... $ 4,963 $ 3,615 $ 3,812 $ 9,328 $ 10,543
Agreements with bank trust departments Average
daily outstandings............................. 154 124 402 747 643
Total credit facilities (year-end)............... 5,720 5,132 4,200 10,812 11,801
</TABLE>
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for SRAC for the six-month period
ended June 29, 1996 and for each of the years ended December 30, 1995, and
December 31, 1994, 1993, 1992 and 1991 was 1.26, 1.26, 1.29, 1.26, 1.34 and
1.25, respectively. Earnings consist of net income plus fixed charges and income
taxes. Fixed charges consist of interest costs and amortization of debt discount
and expense; rental expense is insignificant with no effect on the calculation.
The interest rate paid by Sears to SRAC on its investment in Sears notes is
presently calculated to produce earnings sufficient to cover SRAC's fixed
charges at least 1.25 times.
The ratio of income to fixed charges for Sears and its consolidated
subsidiaries for each of the fiscal years ended December 30, 1995, and December
31, 1994, 1993, and 1991 was 2.15, 2.06, 1.66 and 1.16, respectively, and for
the six- and twelve-month periods ended June 29, 1996 was 1.96 and 2.25,
respectively. For the year ended December 31, 1992, earnings did not cover fixed
charges by $2,869 million. In the computation of the ratio of income to fixed
charges for Sears and its consolidated subsidiaries, income consists of income
from continuing operations less undistributed net income of unconsolidated
subsidiaries plus fixed charges (excluding capitalized interest) and federal and
state income taxes. Fixed charges consist of interest costs plus the portion of
operating lease rentals which is estimated to represent the interest element in
such rentals.
DESCRIPTION OF DEBT SECURITIES
The following descriptions of the terms of the Debt Securities set forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Debt Securities") and the
extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Offered Debt Securities.
The Debt Securities are to be issued under one of the Indentures (each, an
"Indenture") referred to in the following sentence, a copy of the form of which
has been filed as an exhibit to the Registration Statement. SRAC has entered
into an Indenture with The Chase Manhattan Bank, N.A., as Trustee, and may enter
into Indentures with one or more other Trustees eligible to act as Trustee under
an Indenture pursuant to the Trust Indenture Act of 1939, as amended (each, a
"Trustee"). The particular Indenture under which any series of Debt Securities
is to be issued, and the identity of the Trustee under such Indenture, will be
identified in the Prospectus Supplement relating to such series of Debt
Securities. The following summaries of certain provisions of the Debt Securities
and the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Whenever
particular provisions or defined terms in the Indenture are referred to herein,
such provisions or defined terms are incorporated by reference.
GENERAL
The Debt Securities will be unsecured obligations of SRAC.
The Indenture does not limit the amount of Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms of the
Offered Debt Securities: (i) the title of the Offered Debt Securities; (ii) any
limit on the aggregate principal amount of the Offered Debt Securities; (iii)
the date or dates on which the Offered Debt Securities will mature; (iv) the
price (expressed as a percentage
6
<PAGE>
of the aggregate principal amount thereof) at which the Offered Debt Securities
will be issued; (v) the rate or rates (which may be fixed or variable) per annum
at which the Offered Debt Securities will bear interest, if any; (vi) the date
from which such interest, if any, on the Offered Debt Securities will accrue,
the dates on which such interest, if any, will be payable, the date on which
payment of such interest, if any, will commence and the Regular Record Dates for
such Interest Payment Dates, if any; (vii) the date or dates, if any, after or
on which and the price or prices at which the Offered Debt Securities may,
pursuant to any optional or mandatory redemption, conversion or exchange
provisions, be redeemed, converted or exchanged at the option of SRAC or of the
Holder thereof and the other detailed terms and provisions of such optional or
mandatory redemption; (viii) any subordination provisions; (ix) the dates, if
any, on which and the price or prices at which the Offered Debt Securities will,
pursuant to any mandatory sinking fund provisions, or may, pursuant to any
optional sinking fund provisions, be redeemed by SRAC, and the other detailed
terms and provisions of such sinking fund; (x) if other than the principal
amount thereof, the amount of Offered Debt Securities which shall be payable
upon declaration of acceleration of the Maturity thereof; (xi) the terms of any
warrants attached to the Offered Debt Securities; (xii) the currency or
currencies, including European Currency Units or other composite currencies, in
which Offered Debt Securities may be purchased and in which principal, premium,
if any, and interest, if any, on the Offered Debt Securities will be payable;
(xiii) any index used to determine the amount of payments of principal, premium,
if any, and interest, if any, on the Offered Debt Securities; (xiv) whether the
Offered Debt Securities are issuable in whole or in part as one or more Global
Securities and, in such case, the name of the Depository for such Global
Security or Global Securities; (xv) the place or places, if other than as set
forth in the Indenture, where the principal, premium, if any, and interest, if
any, on the Offered Debt Securities will be payable; and (xvi) any other terms
relating to the Offered Debt Securities not inconsistent with the Indenture but
which may modify or delete any provision of the Indenture insofar as it applies
to such series; provided that no term thereof shall be modified or deleted if
imposed under the Trust Indenture Act and that any modification or deletion of
the rights, duties or immunities of the Trustee shall have been consented to in
writing by the Trustee.
Principal, premium, if any, and interest, if any, will be payable, and the
Debt Securities (other than Debt Securities represented by Global Securities)
will be transferable, at the office or agency of SRAC maintained for such
purposes in the Borough of Manhattan of The City of New York, and at such other
places, if any, in the city in which the principal executive offices of SRAC or
the city in which the principal corporate trust office of the Trustee are
located, as SRAC may designate, which, except as otherwise specified in the
Prospectus Supplement relating to a particular series of Offered Debt
Securities, will initially include the principal corporate trust office of the
Trustee in the Borough of Manhattan of The City of New York and the principal
executive offices of SRAC in Greenville, Delaware. Unless other arrangements are
made, interest on the Debt Securities (other than Debt Securities represented by
Global Securities) will be paid by checks mailed to the Holders at their
registered addresses. (SECTIONS 1.1, 2.5, 3.1, 3.2) Information with respect to
payment of principal, premium, if any, and interest, if any, on, and transfers
of beneficial interests in, Debt Securities represented by Global Securities
will be set forth in the Prospectus Supplement relating thereto.
If the principal, premium, if any, and interest, if any, will be payable in
a currency other than U.S. dollars, including European Currency Units or another
composite currency, and such currency is not available for payment due to the
imposition of exchange controls or other circumstances beyond the control of
SRAC, SRAC shall satisfy its payment obligations in U.S. dollars on the basis of
the Market Exchange Rate for such currency on the latest date for which such
rate was established on or before the date on which payment is due. (SECTION
2.12)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any registration of transfer or exchange of the Offered
Debt Securities, but SRAC may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. (SECTIONS 2.2,
2.5)
7
<PAGE>
Debt Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any such Original Issue Discount Securities will be
described in the Prospectus Supplement relating thereto. "Original Issue
Discount Security" means any security which provides for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the Maturity thereof upon the occurrence of a default and the
continuation thereof. (SECTIONS 1.1, 6.1)
CERTAIN RESTRICTIONS
The Indenture provides that SRAC will maintain a Fixed Charge Coverage Ratio
for any fiscal quarter of not less than 1.10 and that SRAC will cause Sears to
maintain ownership of all the voting stock of SRAC. "Fixed Charge Coverage
Ratio" means SRAC's ratio of earnings to fixed charges determined in accordance
with Item 503(d) of Regulation S-K promulgated by the Commission, as in effect
on the date of the Indenture. Pursuant to letter agreements between SRAC and
Sears (the "Fixed Charge Coverage and Ownership Agreement"), Sears has agreed,
for the benefit of holders of outstanding Debt Securities, that, (i) as long as
SRAC is so required to maintain such Fixed Charge Coverage Ratio, Sears will pay
SRAC such amounts which, together with any other earnings available therefor,
are sufficient for SRAC to maintain such Fixed Charge Coverage Ratio and (ii) as
long as SRAC is so required to cause Sears to maintain ownership of SRAC, Sears
will maintain such ownership. The Indenture provides that SRAC (i) will cause
Sears to observe and perform in all material respects all covenants or
agreements of Sears contained in the Fixed Charge Coverage and Ownership
Agreement and (ii) will not amend, waive, terminate or otherwise modify any
provision of the Fixed Charge Coverage and Ownership Agreement. (SECTIONS 1.1,
3.6)
DEFAULTS
The following are defaults with respect to any series of Debt Securities:
(a) failure to pay the principal amount (and premium, if any) on such series
when due and payable; (b) failure to pay any interest on such series when due,
continued for 30 days (unless the entire amount of such payment is deposited by
SRAC with the Trustee or with a paying agent prior to the expiration of 30
days); (c) failure to perform any other covenant of SRAC in the Indenture (other
than a covenant included in the Indenture solely for the benefit of any series
of Debt Securities other than that series), continued for 60 days after written
notice; (d) acceleration of $100,000,000 or more in principal amount of
indebtedness for borrowed money of SRAC (including acceleration with respect to
Debt Securities other than that series) or Sears under the terms of the
instrument under which such indebtedness is issued or secured (including the
Indenture), if such indebtedness shall not have been discharged or such
acceleration is not annulled within 30 days after written notice or prior to the
time principal owed on the outstanding Debt Securities of that series shall be
declared due and payable, except as a result of compliance with applicable laws,
orders or decrees; and (e) certain events of bankruptcy, insolvency, or
reorganization. In addition, a particular series of Debt Securities may provide
for additional events of default, as may be described in the Prospectus
Supplement. If a default shall occur and be continuing with respect to any
series of Debt Securities, the Trustee or the Holders of a majority in principal
amount of the outstanding Debt Securities of that series may declare the
principal amount of such series (or, if the Debt Securities of that series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of that series) due and payable immediately, which
declaration may, in certain instances, be annulled by the Holders of a majority
of the principal amount of outstanding Debt Securities of that series. In the
case of such declaration, there would become due and payable such principal
amount plus any accrued interest or other periodic payments. (SECTION 6.1)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder previously shall have given to the Trustee
written notice of a default and unless also the Holders of a majority of the
principal amount of
8
<PAGE>
outstanding Debt Securities of that series shall have made written request upon
the Trustee, offering reasonable indemnity, to institute such proceeding as
Trustee, and the Trustee shall have neglected or refused to institute such
proceeding within a reasonable time. However, the right of any Holder of any
Debt Security of that series to enforce the payment of principal and interest on
such Debt Security, on or after the due dates expressed in such Debt Security,
may not be impaired or affected. (SECTION 6.7)
SRAC is required to furnish annually to the Trustee statements as to the
performance or fulfillment of its covenants, agreements or conditions in the
Indenture and as to the absence of default. (SECTION 3.4)
MODIFICATION OR AMENDMENT OF THE INDENTURE
Modifications and alterations of the Indenture may be made by SRAC with the
consent of the Holders of a majority of the aggregate principal amount of the
outstanding Debt Securities of each series affected by the modification or
alteration, provided that no such change shall be made without the consent of
the Holders of each Debt Security then outstanding affected thereby which will
(a) permit the extension of the time of payment of any payment on any such Debt
Security, or a reduction in any such payment or (b) reduce the above-stated
percentage of Holders of any series of Debt Securities whose consent is required
to modify or alter the Indenture. (ARTICLE XI)
DEFEASANCE
Unless otherwise provided for in the accompanying Prospectus Supplement,
SRAC may discharge the Indenture with respect to Debt Securities of any series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, replace mutilated, destroyed, lost and stolen Debt
Securities of such series, maintain paying agencies and hold moneys for payment
in trust) upon the deposit with the Trustee or a paying agent, in trust, of (1)
money in an amount sufficient, or (2) U.S. Government Obligations (if the Debt
Securities are denominated in U.S. dollars) or Eligible Obligations (if the Debt
Securities are denominated in a Foreign Currency) which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient, or (3) any combination thereof in an
amount sufficient, to pay the principal, premium, if any, and each installment
of interest on the Debt Securities of such series on the dates such payments are
due in accordance with the terms of the Indenture and such Debt Securities. Such
a trust may only be established if, among other things, SRAC has received a
ruling from the Internal Revenue Service or an opinion of recognized counsel who
is not an employee of SRAC, in either case to the effect that, among other
things, the Holders of the Debt Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of the Indenture and will be subject to federal income tax on the
same amount and in the same manner and at the same times, as would have been the
case if such deposit and defeasance had not occurred. Notwithstanding such
deposit, the obligations of SRAC under the Indenture to pay interest and
principal shall remain in full force and effect until the Debt Securities of
such series have been paid in full. (SECTION 13.4)
If and when a ruling from the Internal Revenue Service or an opinion of
recognized counsel can be provided without reliance upon the continuation of
SRAC's obligations regarding the payment of interest and principal, then such
obligations of SRAC shall cease upon delivery to the Trustee of such ruling or
opinion and compliance with the other conditions precedent provided for in the
Indenture. Under present ruling positions of the Internal Revenue Service, such
a ruling is not obtainable. (SECTION 13.4)
REGARDING THE TRUSTEE
The Chase Manhattan Bank, which is a Trustee under an Indenture, performs
other services for SRAC.
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PLAN OF DISTRIBUTION
GENERAL. SRAC may sell Debt Securities to or through underwriters, and also
may sell Debt Securities directly to other purchasers or through agents. It is
anticipated that SRAC will offer Debt Securities directly to brokers or dealers,
investment companies, insurance companies, banks, savings and loan associations,
trust companies or similar institutions, and trusts for which a bank, savings
and loan association, trust company or investment adviser is the trustee or
authorized to make investment decisions.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Prospectus Supplement will
describe the method of distribution of the Offered Debt Securities.
In connection with the sale of Debt Securities, underwriters may receive
compensation from SRAC or from purchasers of Debt Securities for whom they may
act as agents in the form of discounts, concessions or commissions. Underwriters
may sell Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent. Underwriters, dealers and agents that participate in the distribution of
Debt Securities may be deemed to be underwriters, and any discounts or
commissions received by them and any profit on the resale of Debt Securities by
them may be deemed to be underwriting discounts and commissions, under the Act.
Any such underwriter or agent will be identified, and any such compensation will
be described, in the Prospectus Supplement.
Under agreements which may be entered into by SRAC, underwriters, dealers
and agents who participate in the distribution of Debt Securities may be
entitled to indemnification by SRAC against certain liabilities, including
liabilities under the Act.
LEGAL OPINION
Unless otherwise specified in the accompanying Prospectus Supplement, the
legality of the Debt Securities is being passed upon for SRAC by Venrice R.
Palmer, Senior Counsel, Law Department, of Sears. At July 31, 1996, Mr. Palmer
owned 368 Sears common shares, including shares credited to his account in The
Savings and Profit Sharing Fund of Sears Employees, and had options granted
under the Sears employees stock plans relating to 3,545 shares.
EXPERTS
The annual financial statements incorporated by reference in this prospectus
and the financial statements from which the Summary Financial Information
included in this Prospectus have been derived, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports incorporated by
reference herein, and with respect to the Summary Financial Information has been
included as Exhibit 99 to the Registration Statement. Such financial statements
and Summary Financial Information have been incorporated by reference and
included herein, respectively, in reliance upon the reports of such firm and
given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information which is
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in the Quarterly
Reports on Form 10-Q for Sears and SRAC and incorporated by reference herein,
they did not audit and they did not
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express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
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SEARS ROEBUCK
ACCEPTANCE CORP.
U.S. $1,500,000,000
MEDIUM-TERM NOTES
SERIES II
PROSPECTUS
SUPPLEMENT
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
SEARS ROEBUCK ACCEPTANCE CORP.
AUGUST 30, 1996
