<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 17, 1998)
U.S. $1,850,000,000
SEARS ROEBUCK ACCEPTANCE CORP.
MEDIUM-TERM NOTES SERIES V
DUE AT LEAST 9 MONTHS FROM DATE OF ISSUE
------------------------
Sears Roebuck Acceptance Corp. ("SRAC") may offer from time to time up to
U.S.$1,850,000,000 (or its equivalent in foreign currencies) of its Medium-Term
Notes Series V (the "Notes"). SRAC will describe the currencies, interest rates
(including whether the interest rate is fixed or floating) and maturity dates of
the Notes in pricing supplements to this prospectus supplement. Each Note will
have the following terms:
- A maturity date, which will be at least 9 months from the date the Note is
issued;
- A fixed or floating interest rate. (Certain Notes issued at a discount may
not bear interest.) SRAC may determine the interest on floating rate Notes
by using any of the following indexes, as specified in the applicable
pricing supplement, or by using any other rate that SRAC describes in the
applicable pricing supplement:
- CD Rate - LIBOR
- CMT Rate - Prime Rate
- Commercial Paper Rate - Treasury Rate
- Federal Funds Rate
- A currency in which the Note will be denominated, which may be U.S.
dollars or any foreign currency; and
- An interest payment date or dates.
Unless SRAC indicates otherwise in this prospectus supplement or in the
applicable pricing supplement:
- SRAC will not have the right to redeem the Notes prior to their maturity
date;
- SRAC will issue the Notes only in a minimum denomination of U.S.$1,000 or
the approximate equivalent in the foreign currency specified in the
pricing supplement;
- SRAC will issue the Notes at 100% of their principal amounts; and
- SRAC will issue the Notes in book-entry form only.
SRAC may offer and sell Notes:
- through its Agents (Goldman, Sachs & Co., Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated or Salomon Smith Barney Inc.) or through another agent as
specified in the applicable pricing supplement;
- directly to certain institutional investors in jurisdictions where SRAC or
its employees are registered or qualified to make direct offers or in
transactions that do not require registration or qualification; or
- to an Agent as principal for resale to other investors or dealers.
You must pay for the Notes in the currency specified in the applicable
pricing supplement by delivering the purchase price to an Agent or, if SRAC
sells directly to you, to SRAC, unless you make other payment arrangements.
YOU SHOULD REVIEW THE RISKS OF INVESTING IN NOTES DENOMINATED IN A FOREIGN
CURRENCY, AS SET FORTH IN "FOREIGN CURRENCY RISKS" ON PAGE 6 OF THIS PROSPECTUS
SUPPLEMENT.
SRAC estimates that it will receive between $1,836,125,000 and
$1,847,687,500 in proceeds from the sale of the Notes. The precise amount SRAC
receives will depend on the total amount of commissions it pays, or discounts it
offers, to the Agents. SRAC will pay commissions to its Agents, or sell Notes to
its Agents at discounts, ranging from .125% to .750% of the principal amount of
each Note sold or purchased by the Agent (or another percentage that SRAC
negotiates with the Agents). The percentage will depend on the maturity date of
the Note sold or purchased by the Agent. On direct sales by SRAC, SRAC's
proceeds will equal the aggregate public offering price of the Notes sold. Out
of its total proceeds, SRAC will pay approximately $1,100,000 in expenses. These
expenses include approximately $25,000 of Agents' expenses that SRAC will
reimburse.
------------------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission nor have these organizations
determined if this prospectus supplement, the prospectus or any pricing
supplement is accurate and complete. Any representation to the contrary is a
criminal offense.
------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
SEARS ROEBUCK ACCEPTANCE CORP.
September 17, 1998
<PAGE> 2
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. SRAC
has not authorized anyone to provide you with different information.
SRAC is not offering to sell or soliciting offers to buy any securities
other than the registered securities to which this prospectus supplement and the
accompanying prospectus relate, nor is it offering to sell or soliciting offers
to buy securities in any jurisdiction where the offer is not permitted.
SRAC does not claim that the information contained in the prospectus and
prospectus supplement are accurate as of any date other than the dates on their
respective covers.
------------------------
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
About this Prospectus Supplement and Pricing Supplements.... S-4
Interim Financial Information............................... S-5
Financial Changes........................................... S-5
Currency Exchange and Other Information..................... S-6
Foreign Currency Risks...................................... S-6
Exchange Rates and Exchange Controls...................... S-6
Governing Law and Judgments............................... S-7
Description of Notes........................................ S-8
General................................................... S-8
Interest Rate............................................. S-8
General................................................ S-8
Fixed Rate Notes....................................... S-9
Floating Rate Notes.................................... S-9
General Information.................................. S-9
Interest Reset Dates, Interest Payment Dates and
Record Dates........................................ S-12
Payment of Principal and Interest......................... S-13
Redemption................................................ S-13
Payment Currency.......................................... S-14
Indexed Notes............................................. S-14
Book-Entry Notes.......................................... S-14
The Depository Trust Company........................... S-15
Book-Entry Format...................................... S-15
Certificated Notes..................................... S-15
Modification or Amendment of the Indenture................ S-16
United States Tax Considerations............................ S-16
United States Holders..................................... S-17
Definition of a United States Holder................... S-17
Payments of Interest and Original Issue Discount....... S-17
Payments in Foreign Currency........................... S-19
Sale, Redemption or Other Disposition of Notes......... S-20
Exchange of Foreign Currency........................... S-21
Foreign Holders........................................... S-21
U.S. Withholding Tax................................... S-21
U.S. Income Tax........................................ S-22
U.S. Estate Tax........................................ S-23
Backup Withholding........................................ S-23
Plan of Distribution........................................ S-24
Legal Opinion............................................... S-26
Glossary.................................................... S-27
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
General Terms............................................. 6
Certain Restrictions...................................... 8
Defaults.................................................. 8
Modification or Amendment of the Indenture................ 9
Defeasance................................................ 9
Termination of Certain Obligations..................... 9
Discharge of the Indenture............................. 11
Regarding the Trustee..................................... 11
Plan of Distribution........................................ 11
Legal Opinion............................................... 12
Experts..................................................... 12
</TABLE>
S-3
<PAGE> 4
ABOUT THIS PROSPECTUS SUPPLEMENT
AND PRICING SUPPLEMENTS
This prospectus supplement sets forth certain terms of the Notes that SRAC
may offer. It supplements the "Description of Debt Securities" in the
prospectus. This prospectus supplement supersedes the prospectus to the extent
it contains information that is different from the information in the
prospectus.
Each time SRAC offers Notes, it will attach a pricing supplement to this
prospectus supplement. The pricing supplement will contain the specific
description of the Notes SRAC is offering and the terms of the offering. The
pricing supplement will supersede this prospectus supplement to the extent it
contains information that is different from the information contained in this
prospectus supplement.
It is important for you to read and consider all information contained in
this prospectus supplement and the accompanying prospectus and pricing
supplement in making your investment decision. You should also read and consider
the information contained in the documents identified in "Available Information"
in the prospectus.
S-4
<PAGE> 5
INTERIM FINANCIAL INFORMATION
The following table contains summary financial information regarding SRAC
for the 26-week periods ended July 4, 1998 and June 28, 1997. The summary
information has not been audited, but, in the opinion of SRAC's management, this
information includes all the adjustments that are necessary to fairly present
the operating results and financial position of SRAC. The data for the 26-week
period ended July 4, 1998 is not necessarily indicative of the expected year-end
data. You should read this summary information in conjunction with SRAC's
financial statements that are incorporated by reference in the prospectus.
<TABLE>
<CAPTION>
26 WEEKS ENDED
(UNAUDITED)
-----------------------------
JULY 4, 1998 JUNE 28, 1997
------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Operating Results
Total revenues.............................................. $ 610 $ 433
Interest expense and amortization of debt
discount/premium.......................................... 484 345
Total expenses.............................................. 486 346
Income taxes................................................ 43 31
Net income.................................................. 81 56
Financial Position
Assets
Notes of Sears............................................ $16,576 $12,910
Receivable balances purchased from Sears.................. 90 82
Total assets.............................................. 16,881 13,105
Liabilities
Commercial paper.......................................... 3,304 3,298
Agreements with bank trust departments.................... -- 69
Intermediate-term loans................................... -- 715
Medium-term notes......................................... 6,436 5,302
Discrete underwritten debt................................ 4,542 1,902
Total liabilities......................................... 14,438 11,362
Stockholder's Equity
Capital stock (including capital in excess of par
value)................................................. 935 385
Retained income........................................... 1,508 1,358
Total stockholder's equity................................ 2,443 1,743
Other Pertinent Data
Contractual credit facilities (period end).................. 5,040 5,000
</TABLE>
FINANCIAL CHANGES
This discussion compares SRAC's financial results for the 26-week period
ended July 4, 1998 (the "current period") with its results for the 26-week
period ended June 28, 1997 (the "prior period").
SRAC generated revenues of $610 million during the current period. This is
an increase of 41% from the $433 million in revenues it generated during the
prior period. SRAC attributes the increase in revenue to a $4.4 billion increase
in SRAC's average earning assets in the current period over the prior period.
Average earning assets increased in response to Sears funding requirements.
SRAC incurred $484 million in interest and related expenses during the
current period. This is an increase of 40% from the $345 million it incurred
during the prior period. SRAC attributes most of this increase in interest and
related expenses to increases in its average long-term debt. SRAC's average
long-term debt of $10.3 billion in the current period reflects an increase of
43% over its
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<PAGE> 6
average long-term debt of $7.2 billion in the prior period. SRAC's average
short-term borrowings also increased in the current period to $4.5 billion,
compared to $3.9 billion during the prior period. During the current period,
SRAC's cost of short-term funds averaged 5.60%, while it averaged 5.48% during
the prior period.
SRAC's net income of $81 million for the current period is a 45% increase
over its net income of $56 million for the prior period. SRAC's ratio of
earnings to fixed charges for the current period was 1.26 compared to 1.25 for
the prior period.
CURRENCY EXCHANGE AND OTHER INFORMATION
You must pay for the Notes in the currency that SRAC specifies in the
applicable pricing supplement. Currently, the United States has limited
facilities to convert U.S. dollars into foreign currencies, and vice versa.
However, you may establish non-U.S. dollar denominated checking or savings
accounts at U.S. banks in the United States. SRAC will pay principal and
interest to you in the currency it specifies in the applicable pricing
supplement unless that currency is unavailable due to circumstances beyond
SRAC's control. See "Foreign Currency Risks" and "Description of Notes" in this
prospectus supplement.
"U.S. dollars," "U.S.$," and "$" in this prospectus supplement refer to the
currency of the United States of America.
FOREIGN CURRENCY RISKS
Foreign currency rates of exchange and other factors affecting the risks of
investing in securities denominated in foreign currencies change continuously.
This prospectus supplement summarizes certain risks of investing in Notes
denominated in a foreign currency. You should consult your own financial and
legal advisors about the risks of investing in these Notes. The Notes, when
denominated in a foreign currency, are not an appropriate investment for
investors who do not have experience with foreign currency transactions.
The information in this prospectus supplement is directed to prospective
purchasers who are United States residents. If you are a resident of a country
other than the United States, you should consult your own financial and legal
advisors to discuss matters that may affect your purchase, holding or receipt of
payments of principal and interest on the Notes. SRAC disclaims any
responsibility for advising you on these matters.
EXCHANGE RATES AND EXCHANGE CONTROLS
Investments in securities denominated in foreign currencies have
significant risks that are not associated with investments denominated in U.S.
dollars. These risks include, without limitation, the possibility that rates of
exchange between the U.S. dollar and foreign currencies may change significantly
and the possibility that either the Unites States or foreign governments will
impose or modify foreign exchange controls. 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 you may expect that volatility to
continue in the future. Historical fluctuations in any particular exchange rate
do not necessarily indicate, however, the type of fluctuations in the rate that
may occur during the term of any Note. If the currency specified by SRAC for a
particular Note were to depreciate against the U.S. dollar, the effective yield
of the Note would decrease below its coupon rate and in certain circumstances
could result in a loss to the investor.
Governments have imposed exchange controls in the past and may do so in the
future. Exchange controls could affect exchange rates and limit the availability
of a foreign currency specified in a pricing supplement at the time a payment on
a Note is due in that currency. Even if
S-6
<PAGE> 7
governments do not impose exchange controls, it is possible that a foreign
currency will not be available at the time a payment is due in that currency. If
the specified currency is unavailable, SRAC will make required payments in U.S.
dollars as described in the prospectus on the basis of the market exchange rate
in effect on the date of the payment. If the market exchange rate is not
available on that date, then SRAC will make the payment on the basis of the last
available market exchange rate. See "Description of Notes--Payment Currency" in
this prospectus supplement, and "Description of Debt Securities--General Terms"
in the prospectus.
If SRAC denominates Notes in a foreign currency, the applicable pricing
supplement will contain information about the specified currency, including
information about any current foreign exchange controls that apply to the
foreign currency. SRAC will furnish that information for information only and
you should not regard it as indicative of the range of, or trends in,
fluctuations in currency exchange rates that may occur in the future.
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 only in U.S. dollars. It is not clear, however, whether in
granting that judgment, the court would use the rate of conversion into U.S.
dollars that would be in effect on the date of default, the date the judgment
was rendered, or some other date.
S-7
<PAGE> 8
DESCRIPTION OF NOTES
The following description supplements the "Description of Debt Securities"
in the prospectus. The pricing supplement for your Notes may specify different
or additional terms.
GENERAL
SRAC will issue the Notes under the indenture dated as of May 15, 1995,
between SRAC and The Chase Manhattan Bank. SRAC has filed a copy of the
indenture with the Securities and Exchange Commission; the indenture is
incorporated into this prospectus supplement and the prospectus by reference.
Each Note will mature at least 9 months from the date it is issued. SRAC
may only redeem or repay a Note before its maturity date if it specifies that it
may do so in the applicable pricing supplement. SRAC may not issue more than
$2,000,000,000 of Medium-Term Notes Series V, which will constitute a single
series of debt securities under the indenture.
The Notes will be unsecured obligations of SRAC and will be identical
except for currency denomination, interest, interest payment dates, maturity
date, issue date and applicable redemption provisions. SRAC will not have to
deposit funds into a sinking fund before the maturity date for any Note.
SRAC will sell the Notes in individual issues. SRAC and each Note's initial
purchaser will mutually agree to the interest rate, maturity date and issue date
for the Note. SRAC will only pay interest and principal on the Notes on
"Business Days" (as defined in the Glossary).
SRAC will pay principal, any premium and interest on each Note in the
currency in which the Note is denominated. Unless SRAC specifies otherwise in
the applicable pricing supplement, SRAC will issue the Notes:
- in a minimum denomination of U.S.$1,000, or in integral multiples of
U.S.$1,000, if the Notes are denominated in U.S. dollars; or
- in a minimum denomination equivalent to U.S.$1,000, rounded to an
integral multiple of 1,000 units of the currency in which the Notes are
denominated, and in any larger amount in integral multiples of 1,000
units of that currency, if the Notes are denominated in a currency other
than U.S. dollars.
SRAC will determine the market exchange rate for the applicable currency as
of the day before it accepts a purchase order for a Note, and will determine the
minimum denomination for that Note based on that market exchange rate. The
market exchange rate for a currency on a particular date is the noon buying rate
in The City of New York for cable transfers of that currency as certified for
customs purposes by the Federal Reserve Bank of New York. For European Currency
Units, the market exchange rate is the rate of exchange determined by the
Council of European Communities (or its successor) as published on the date or
the most recently available date in the Official Journal of the European
Communities or any successor publication.
INTEREST RATE
GENERAL
Each Note will bear interest at either a fixed or floating rate for the
periods:
- from and including the date the Note was issued to, but excluding, the
first interest payment date;
- from and including each interest payment date to, but excluding, the next
interest payment date; and
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<PAGE> 9
- from and including the final interest payment date to, but excluding, the
maturity date or redemption date.
SRAC will pay interest (other than defaulted interest) on the interest
payment dates to those who are registered holders of Notes on the applicable
record date as described in "Description of Notes--Interest Rate--Fixed Rate
Notes" and "Description of Notes--Interest Rate--Floating Rate Notes--Interest
Reset Dates, Interest Payment Dates and Record Dates" in this prospectus
supplement. Cede & Co. will be the initial registered holder of the global
Notes. See "Description of Notes--Book-Entry Notes" in this prospectus
supplement. SRAC will pay interest due on a redemption date or maturity date to
the same person to whom it is paying the principal amount. However, if SRAC
would have made a regular interest payment on the redemption or maturity date,
it will make that regular interest payment to the registered holder as of the
applicable record date, even if it is not the same person to whom it is paying
the principal amount.
If SRAC originally issues a Note between a record date and an interest
payment date, it will make the first payment of interest on the interest payment
date following the next record date to the registered owner on that record date.
Payments of interest on any Note on any interest payment date, maturity
date or redemption date will include interest accrued to, but excluding, the
interest payment date, maturity date or redemption date.
FIXED RATE NOTES
Fixed rate Notes will bear interest at the rate specified in the applicable
pricing supplement.
Unless SRAC specifies otherwise in the applicable pricing supplement, the
interest payment dates for fixed rate Notes will be February 15 and August 15 of
each year. If an interest payment date (or maturity or redemption date) for any
fixed rate Note falls on a day that is not a Business Day, SRAC will pay the
interest (or interest and principal) on the next Business Day. However, interest
on the payment will not accrue for the period from the original interest payment
date (or maturity or redemption date) to the date SRAC makes the payment. SRAC
will calculate the interest based on a 360-day year of twelve 30-day months.
The record date for fixed rate Notes is February 1 for a February 15
interest payment date, August 1 for an August 15 interest payment date and the
date that is 15 calendar days before any other interest payment date, whether or
not those dates are Business Days.
FLOATING RATE NOTES
General Information. Floating rate Notes will bear interest based on an
index specified in the applicable pricing supplement. Unless SRAC provides
otherwise in the applicable pricing supplement, The Chase Manhattan Bank will be
the "Calculation Agent" that calculates the interest on floating rate Notes.
Each floating rate Note must have the following terms, which will be set
forth in the pricing supplement for that Note:
- the interest rate basis or index to be used to determine the Note's
interest rate;
- the "Index Maturity," which means the period to maturity of the
instrument or obligation on which the interest rate formula is based. For
example, LIBOR may be different for one-month U.S. dollar deposits and
for three-month U.S. dollar deposits. If the pricing supplement for a
Note specifies LIBOR as the index and three months as the Index Maturity,
SRAC would pay interest on the Note based on LIBOR for three-month U.S.
dollar deposits;
- the frequency of changes of the interest rate on the Note (i.e., daily,
weekly, monthly, quarterly, semi-annually or annually);
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<PAGE> 10
- the dates as of which the Calculation Agent will determine the new
interest rate (the "Interest Determination Dates"), if these Interest
Determination Dates differ from those described in this prospectus
supplement;
- the dates on which the interest rate will change (the "Interest Reset
Dates"); and
- the Calculation Agent for the Notes, if The Chase Manhattan Bank is not
the Calculation Agent.
Each floating rate Note may also have the following terms, which will also
be set forth in the pricing supplement for that Note, if applicable:
- the "Spread," which is the number of basis points that the Calculation
Agent will add to or subtract from the interest rate determined for a
particular Interest Determination Date. For example, if a Note bears
interest at LIBOR plus .01%, and the Calculation Agent determines that
LIBOR is 5.00% per year, the Note will bear interest at 5.01% per year
until the next Interest Reset Date;
- the "Spread Multiplier," which is the number by which the Calculation
Agent will multiply the interest rate determined for a particular
Interest Determination Date. For example, if a Note bears interest at 90%
of LIBOR, and the Calculation Agent determines that LIBOR is 5.00% per
year, the Note will bear interest at 4.50% per year until the next
Interest Reset Date;
- the "Maximum Rate," or the ceiling on the rate of interest that may
accrue on the Note during any interest period; and
- the "Minimum Rate," or the floor on the rate of interest that may accrue
during any interest period.
The Calculation Agent will round all percentages resulting from any
interest rate calculations to the nearest one hundred-thousandth of a percentage
point, if necessary, with five millionths of a percentage point rounded upward
(for example, the Calculation Agent will round 9.876545% to 9.87655%). The
Calculation Agent will also round all U.S. dollar amounts used in or resulting
from such calculations to the nearest cent (with one-half cent being rounded
upward).
If you own a floating rate Note, you may ask the Calculation Agent to
provide you with the current interest rate at any time. You may also ask the
Calculation Agent to provide you with the interest rate that will apply as of
the next Interest Reset Date if the Calculation Agent has determined the rate.
The Calculation Agent's determination of any interest rate will be final and
binding unless it is clearly wrong.
The following table sets forth the most common interest rate indexes that
SRAC may use, the source in which SRAC expects the index rate to be published,
and the "Interest Determination Date" and calculation basis for Notes with
interest rates based on each index. The Glossary to this prospectus supplement
sets out with greater specificity the procedures to determine interest rates
based on each index, and SRAC encourages you to review the Glossary provisions
that describe how the Calculation Agent will determine the interest rate for
your Note.
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<TABLE>
<CAPTION>
PRIMARY SOURCE INTEREST
INDEX OF RATE DETERMINATION DATE CALCULATION BASIS*
----- -------------- ------------------ ------------------
<S> <C> <C> <C>
CD Rate................... H.15(519)** under the Second Market Day*** Actual/360
heading "CDs (Secondary preceding the Interest
Market)" Reset Date
CMT Rate.................. The page of the Dow Jones Second Market Day Actual/Actual
Telerate Service specified preceding the Interest
in the applicable pricing Reset Date
supplement (or page 7052,
if no page is specified),
under the caption ". . .
Treasury Constant
Maturities . . . Federal
Reserve Board Release H.15
. . . Mondays
Approximately 3:45 PM"
under the column for the
CMT Designated Maturity
Index****
Commercial Paper Rate..... H.15(519) under the Second Market Day Actual/360
heading "Commercial preceding the Interest
Paper--Nonfinancial' Reset Date
Federal Funds Rate........ H.15(519) under the Second Market Day Actual/360
heading "Federal Funds preceding the Interest
(Effective)" Reset Date
LIBOR..................... Page 3750 of the Dow Jones Second Market Day Actual/360
Telerate Service preceding the Interest
Reset Date
Prime Rate................ H.15(519) under the Second Market Day Actual/360
heading "Bank Prime Loan" preceding the Interest
Reset Date
Treasury Rate............. H.15(519) under the The day the federal Actual/Actual
heading "U.S. Government government auctions
Securities/Treasury Bills/ Treasury bills for the
Auction Average week in which the Interest
(Investment)" Reset Date falls
(generally Monday, but may
be either the following
Tuesday or the preceding
Friday if Monday is a
legal holiday)
</TABLE>
- ---------------
* The Calculation Agent will compute the interest for any period by
multiplying the interest rate for the period by
- the number of days in the period divided by 360 ("Actual/360") or
- the number of days in the period divided by the actual number of days in
the year ("Actual/Actual").
** "Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System.
*** A "Market Day" for any Note other than a LIBOR-based Note is any day that
is not a legal holiday for banks in The City of New York. A "Market Day"
for any LIBOR-based Note is any day on which the London interbank market
transacts business related to U.S. dollar deposits.
**** "CMT Designated 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)
that SRAC specifies in the applicable pricing supplement.
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Interest Reset Dates, Interest Payment Dates and Record Dates. The
Calculation Agent will generally determine the initial interest rate as if the
issue date of the Note were an Interest Reset Date. The record date for floating
rate Notes is the close of business on the date that is 15 calendar days before
the interest payment date, whether or not that date is a Business Day. The
"Interest Reset Dates" and interest payment dates are determined by the
frequency with which SRAC resets the interest rate, as follows:
<TABLE>
<CAPTION>
FREQUENCY OF
INTEREST RESET INTEREST RESET DATE* INTEREST PAYMENT DATE**
-------------- -------------------- -----------------------
<S> <C> <C>
Daily Each Business Day Third Wednesday of each month or
third Wednesday of February,
May, August and November of each
year, as indicated in the
applicable pricing supplement
Weekly (other than Treasury Wednesday of each week Third Wednesday of each month or
Rate-based Notes) third Wednesday of February,
May, August and November of each
year, as indicated in the
applicable pricing supplement
Weekly (Treasury Rate-based Tuesday of each week Third Wednesday of each month or
Notes) third Wednesday of February,
May, August and November of each
year, as indicated in the
applicable pricing supplement
Monthly Third Wednesday of each month Third Wednesday of each month or
third Wednesday of February,
May, August and November of each
year, as indicated in the
applicable pricing supplement
Quarterly Third Wednesday of February, Third Wednesday of February,
May, August and November of each May, August and November of each
year year
Semi-Annually Third Wednesday of the two Third Wednesday of the two
months of each year that SRAC months of each year that SRAC
specifies in the applicable specifies in the applicable
pricing supplement pricing supplement
Annually Third Wednesday of the month of Third Wednesday of the month of
each year that SRAC specifies in each year that SRAC specifies in
the applicable pricing the applicable pricing
supplement supplement
</TABLE>
- ---------------
* If an Interest Reset Date falls on a day that is not a Business Day, SRAC
will postpone the Interest Reset Date to the next Business Day. However, if
the postponement would cause the Interest Reset Date for a LIBOR-based Note
to be in the next calendar month, SRAC will move the Interest Reset Date to
the immediately preceding Business Day. For Treasury Rate-based Notes, if an
auction date falls on the day that would be an Interest Reset Date, the
Interest Reset Date will be the first Business Day after the auction.
** SRAC will also pay interest on each Note on the maturity date or redemption
date of that Note. If an interest payment date (other than the maturity date
or redemption date) for a floating rate Note falls on a day that is not a
Business Day, SRAC will postpone the interest payment date to the next
Business Day. However, if the postponement would cause the interest payment
date for a Libor-based Note to be in the next calendar month, SRAC will move
the interest payment date to the immediately preceding Business Day. If the
maturity date or redemption date for a floating rate Note falls on a day that
is not a Business Day, SRAC will pay the principal and interest on the next
Business Day. The Calculation Agent will not include the interest payment
date in calculating the interest due on that date.
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PAYMENT OF PRINCIPAL AND INTEREST
For information about the payment of principal and interest on book-entry
Notes, see "Description of Notes--Book-Entry Notes" in this prospectus
supplement.
If SRAC issues Notes in fully certificated form, SRAC, through the trustee,
will pay interest by wire transfer to you if:
- you own $10,000,000 or more in aggregate principal amount of certificated
Notes with the same interest payment date; and
- you deliver bank account information to the trustee at its corporate
trust office in The City of New York on or before the record date for the
interest payment date, designating in writing an account located in the
country issuing the currency in which the Note is denominated or another
country that is satisfactory to SRAC and the trustee.
SRAC, through the trustee, will, subject to applicable laws and regulations, and
until you notify the trustee to the contrary, pay interest to you by wire
transfer to the designated account. If SRAC does not pay interest by wire
transfer for any reason, it will mail a check to you at your address as it
appears on the security register on the applicable record date. See "Description
of Notes--Payment Currency" and "Important Currency Exchange Information" in
this prospectus supplement.
SRAC, through the trustee, will pay principal by wire transfer to you if
you own $10,000,000 or more in aggregate principal amount of certificated Notes
with the same maturity date or redemption date. SRAC will pay you by check
unless you have filed proper wire transfer instructions with the trustee or
given wire instructions to the trustee at presentment. To receive payment upon
redemption or at maturity of a U.S. dollar-denominated certificated Note, you
must present and surrender your Note on or before the applicable redemption date
or maturity date. To receive payment upon redemption or at maturity of a Note
denominated in a foreign currency, you must present and surrender the Note at
least two Business Days before the applicable redemption date or maturity date.
If you do not present and surrender your Note denominated in a foreign currency
two Business Days before the applicable redemption date or maturity date, SRAC
will pay the principal and interest due upon redemption or at maturity (unless
the redemption date or maturity date is an interest payment date) two Business
Days after you present and surrender your Note. This date will be after the
applicable redemption date or maturity date, and you will not receive any
additional interest because of this delay.
SRAC will pay any administrative costs imposed by banks in connection with
sending payments by wire transfer, but you must pay any tax, assessment or
governmental charge imposed upon your payments.
REDEMPTION
SRAC may not redeem any Note prior to its maturity date unless, in the
applicable pricing supplement for the Note, it either:
- identifies a date after which it may redeem the Note at its option at any
time; or
- identifies a specific date or dates on which it may redeem the Notes at
its option or on which you may require SRAC to redeem your Note at your
option.
If SRAC may redeem the Note at its option or you may require SRAC to redeem your
Note at your option, SRAC will specify the price or prices at which the
redemption may occur in the applicable pricing supplement. The Note's redemption
date will be the date on which the Note actually is redeemed.
If SRAC specifies in a pricing supplement that it has the right to redeem
your Note after a certain date, then SRAC may redeem the Note, in whole or in
part, at any time after that date by giving the registered holder of the Note at
least 30 but not more than 60 calendar days' notice.
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SRAC will redeem the Note at the applicable redemption price, plus accrued and
unpaid interest to the redemption date. If SRAC specifies in the pricing
supplement for your Note that it has the right to redeem that Note on a
specified date or dates, or that you have the right to require SRAC to redeem
that Note on a specified date or dates, then the Note will be redeemable in
whole or in part on the specified date or dates if SRAC gives the registered
holder, or the registered holder gives SRAC, at least 30 but not more than 60
calendar days' notice. The pricing supplement for a Note with these specified
dates will specify whether the option to redeem may be exercised by SRAC, by you
or both. SRAC will redeem global Notes in accordance with the applicable
depository procedures, and any notices will also be given in accordance with
those procedures.
PAYMENT CURRENCY
If a Note is denominated in a currency other than U.S. dollars, and that
currency is not available due to exchange controls or other circumstances beyond
SRAC's control, SRAC may make payments on the Note in U.S. dollars. SRAC will
determine the amount of the U.S. dollar payment by using the most recently
available market exchange rate for that currency. (The "market exchange rate"
for a currency is described under the heading "Description of Notes--General" in
this prospectus supplement.) Payments under these circumstances in U.S. dollars
will satisfy SRAC's payment obligations on the Note and will not constitute a
default under the indenture.
INDEXED NOTES
SRAC may determine the principal amount of or the amount of interest
payable on certain of its Notes by reference to currencies, currency units,
commodity prices, financial or non-financial indexes or other factors. SRAC will
indicate in the applicable pricing supplement if it will determine the amount of
principal or interest payable in this manner. If you own these indexed Notes,
you may receive a principal amount at maturity that is greater than or less than
the face amount of the Notes, depending upon the fluctuation of the relative
value, rate or price of the specified index. If applicable, SRAC will include in
the applicable pricing supplement information about how it will determine the
principal amount payable at maturity, the 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, certain additional risk factors
and certain additional United States federal income tax considerations.
BOOK-ENTRY NOTES
SRAC has obtained the information in this section concerning The Depository
Trust Company ("DTC") and DTC's book-entry system from sources that it believes
to be reliable, but SRAC takes no responsibility for the accuracy of this
information.
Unless it specifies otherwise in the applicable pricing supplement, SRAC
will initially issue the Notes in registered form only, without coupons, as
book-entry Notes represented by one or more global Notes registered in the name
Cede & Co., as the nominee for DTC. All book-entry Notes having the same terms,
including the same interest payment dates, interest rate, maturity date and
redemption provisions, may be represented by a single global Note. Unless and
until SRAC issues Notes in fully certificated form under the limited
circumstances described below:
- you will not be entitled to receive a certificate representing your
interest in the Notes;
- all references in this prospectus supplement or in the prospectus to
actions by holders will refer to actions taken by DTC upon instructions
from its Participants (as defined below); and
- all references in this prospectus supplement or the prospectus to
payments to holders will refer to payments to DTC or Cede & Co., as the
registered holder of the Notes, for distribution to you in accordance
with DTC procedures.
Unless SRAC specifies otherwise in the pricing supplement, you may purchase
book-entry Notes only in a minimum denomination of $1,000 and in integral
multiples of $1,000.
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THE DEPOSITORY TRUST COMPANY
DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
- a "clearing agency" registered under the provision of Section 17A of the
Securities Exchange Act of 1934.
DTC holds securities that its 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 Direct Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. "Direct
Participants" of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. "Indirect
Participants," such as securities brokers and dealers, banks, and trust
companies, can also access the DTC system if they maintain a custodial
relationship with a Direct Participant. If you are not a Direct Participant or
an Indirect Participant and you wish to purchase, sell or otherwise transfer
ownership of, or other interests in, Notes, you must do so through a Direct
Participant or an Indirect Participant. 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. The
Securities and Exchange Commission has on file a set of the rules applicable to
DTC and its Direct Participants.
BOOK-ENTRY FORMAT
Under the book-entry format, the trustee will pay interest, principal or
premium to Cede & Co., as nominee of DTC. DTC will forward the payment to the
Direct Participants, who will then forward the payment to the Indirect
Participants or to you as the beneficial owner. You may experience some delay in
receiving your payments under this system.
DTC is required to make book-entry transfers on behalf of its Direct
Participants and is required to receive and transmit payments of principal,
premium, if any, and interest on the Notes. Any Direct Participant or Indirect
Participant with which you have an account is similarly required to make book-
entry transfers and to receive and transmit payments with respect to the Notes
on your behalf.
The trustee will not recognize you as a holder under the indenture, and you
can only exercise the rights of a holder indirectly through DTC and its Direct
Participants. DTC has advised SRAC that it will only take action regarding a
Note if one or more of the Direct Participants to whom the Note is credited
direct DTC to take such action. DTC can only act on behalf of its Direct
Participants. Your ability to pledge Notes to non-Direct Participants, and to
take other actions, may be limited because you will not possess a physical
certificate that represents your Notes.
CERTIFICATED NOTES
For Notes that SRAC initially issued as book-entry Notes, SRAC will
re-issue Notes to you or your nominees, in fully certificated form, rather than
to DTC or its nominees, only if:
- SRAC advises the trustee in writing that DTC is no longer willing or able
to discharge its responsibilities properly, and the trustee or SRAC is
unable to locate a qualified successor; or
- SRAC, at its option, elects to terminate the book-entry system through
DTC.
If either of the two above events occur, DTC is required to notify all
Direct Participants that Notes in fully certificated form are available through
DTC. DTC will then surrender the global note
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representing the Notes along with instructions for re-registration. The trustee
will re-issue the Notes in fully certificated form and will recognize the
registered holders of the certificated Notes as holders under the indenture.
MODIFICATION OR AMENDMENT OF THE INDENTURE
To determine whether holders of the requisite principal amount of Notes
have consented to a modification or alteration of the indenture, the trustee
will calculate the U.S. dollar equivalent of the principal amount of Notes
denominated in foreign currencies. This U.S. dollar equivalent will be based on
the market exchange rate for each foreign currency on the latest date for which
that rate was determined on or before the date for determining the holders that
may give the required consent. (The "market exchange rate" for a currency is
described under the heading "Description of Notes--General" in this prospectus
supplement.) (Section 2.11) See "Description of Debt Securities--Modification or
Amendment of the Indenture" in the prospectus.
UNITED STATES TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of purchasing, owning and disposing of a Note applies to you only
if you are the initial holder of the Note and you acquire it for a price equal
to the initial issue price of the Note.
This summary is based upon the opinion of Baker & McKenzie, SRAC's special
United States federal income tax counsel. For purposes of this summary, with
respect to book-entry Notes, the term "holder" refers only to the person
acquiring a beneficial ownership interest in the book-entry Notes, and with
respect to certificated Notes, the term "holder" refers to the registered
holder. This summary deals only with Notes held as capital assets and does not
deal with special tax situations such as:
- dealers in securities or currencies;
- United States holders (as defined below) whose functional currency is not
the United States dollar;
- persons holding Notes as a hedge against currency risks; or
- persons holding Notes as part of a larger integrated financial
transaction.
This summary is based on United States federal income tax law, including
the United States Internal Revenue Code of 1986, as amended (the "Code") as of
the date of this prospectus supplement. Subsequent developments in United States
federal income tax law, which may be applied retroactively, could have a
material effect on the United States federal income tax consequences of
purchasing, owning and disposing of Notes as set forth in this summary. Before
you purchase Notes, you should consult your own tax advisor about how the United
States federal income tax law or any other laws, including the laws of any other
taxing jurisdiction, will apply to your particular situation.
If SRAC issues any of the following types of Notes, it will describe their
federal income tax consequences and other special considerations in the
applicable pricing supplement:
- Notes that provide for SRAC to pay principal in amounts that will be
determined by reference to an index;
- Notes with a term of 12 months or less that are issued at an Issue Price
(as defined below) that is less than their Stated Redemption Price at
Maturity (as defined below), that will give rise to Original Issue
Discount (as defined below) for federal income tax purposes; and
- Notes denominated in more than one currency.
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Federal tax laws may deem certain notes issued with Original Issue Discount
(as defined below) and certain floating rate notes, in either case with a
maturity date more than five years from the issue date, to be "high yield
original issue discount obligations" for federal income tax purposes. If you
purchase Notes that are high yield original issue discount obligations, the
applicable pricing supplement will describe the United States federal income and
estate tax consequences.
Unless SRAC states otherwise in the applicable pricing supplement, in the
opinion of Baker & McKenzie SRAC may properly characterize all Notes issued
under the indenture as indebtedness of SRAC for all United States federal income
tax purposes. SRAC intends to characterize the Notes as debt. SRAC's
characterization of the Notes will be binding on you, unless you disclose a
different characterization on your federal income tax return. The Internal
Revenue Service will not be bound by SRAC's or your characterization of the
Notes.
UNITED STATES HOLDERS
The following summary applies to you only if you are a United States holder
(as defined below).
DEFINITION OF A UNITED STATES HOLDER
A United States holder is a holder of a Note who is, or which is, a United
States person. A United States person is:
- a citizen or resident of the United States or the areas subject to its
jurisdiction, including the Commonwealth of Puerto Rico (the "United
States");
- a corporation or partnership organized under the laws of the United
States or of any State (unless, in the case of a partnership, future
Treasury regulations otherwise provide);
- an estate, the income of which is subject to United States federal income
taxation regardless of the source of that income; or
- a trust, if a United States court is able to exercise primary supervision
over the trust's administration and one or more United States persons has
the authority to control all of the trust's substantial decisions.
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT
Subject to the discussion in the following paragraphs:
- if you use the cash method of accounting for tax purposes, you will be
taxed on the interest on your Note, other than Original Issue Discount,
at the time it is paid to you; and
- if you use the accrual method of accounting for tax purposes, you will be
taxed on the interest on your Note, other than Original Issue Discount,
at the time it accrues.
The federal government will tax your interest as ordinary interest income,
whether SRAC pays it in a foreign currency or in U.S. dollars.
If SRAC issues Notes at a discount from their Stated Redemption Price at
Maturity, and the discount is equal to or more than the product of one-fourth of
one percent of the Stated Redemption Price at Maturity multiplied by the number
of full years to maturity, the Notes will be "Original Issue Discount Notes."
The difference between the Issue Price and their Stated Redemption Price at
Maturity will be the "Original Issue Discount." The "Issue Price" of the Notes
will be the first price at which a substantial amount of the Notes are sold to
the public (i.e., excluding sales of Notes to underwriters, placement agents,
wholesalers, or similar persons). The "Stated Redemption Price at
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Maturity" will include all payments under the Notes other than payments of
Stated Interest. "Stated Interest" is:
- interest based on a fixed rate; or
- unless otherwise stated in the applicable pricing supplement, interest
based on a floating rate
that is, in either case, payable unconditionally at intervals of one year or
less during the entire term of the Notes.
If you own an Original Issue Discount Note, you must include in gross
income in each taxable year during which you own the Note, regardless of your
method of accounting for tax purposes:
- a portion of the Original Issue Discount calculated on a yield to
maturity basis; and
- the Stated Interest, if any, paid on the Note.
You should be aware that you generally will be required to include increasingly
greater portions of the Original Issue Discount in your gross income over time
before you receive the cash attributable to the Original Issue Discount, because
you must calculate Original Issue Discount on a yield to maturity basis.
If you own an Original Issue Discount Note, you must include in your gross
income the sum of the daily portions of the Original Issue Discount for each day
you own the Note during the taxable year. To determine the daily portion of the
Original Issue Discount, you must select accrual periods, subject to the
following restrictions:
- accrual periods may be any length, but no longer than one year;
- accrual periods may vary in length over the term of the Note; and
- each scheduled payment of principal or interest must occur on either the
final day of an accrual period or on the first day of an accrual period.
The daily portion is determined by allocating to each day of the selected
accrual period a ratable portion of the Original Issue Discount determined for
the period. The amount of the Original Issue Discount determined for an accrual
period equals:
- the product of:
- the Adjusted Issue Price (i.e., the issue price of the Note, plus the
amount of Original Issue Discount accrued during all prior accrual
periods, minus the amount of any payment other than Stated Interest
paid under the Note); and
- the yield to maturity for the Note (computed based upon the accrual
period selected and assuming the compounding of interest at the close
of each accrual period), properly adjusted for the length of the
accrual period;
- minus the amount payable as Stated Interest, if any, on the Note during
the accrual period.
If, for example, on January 1, 1999, SRAC issued a 2% Note at an issue
price of $920, with interest payable annually and the principal amount of $1000
payable in full on January 1, 2002, and a yield to maturity of 4.934%, and
assuming the holder selects a 12-month accrual period, the holder
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would determine the Original Issue Discount for the 12-month accrual periods
ending on December 31, 1999, December 31, 2000 and December 31, 2001 as follows:
<TABLE>
<S> <C>
Issue Date............................. 1/1/99
Issue Price............................ $920.00
Redemption Price at Maturity........... $1000.00
Stated Interest........................ 2.000% per annum
Yield To Maturity...................... 4.934% per annum
Original Issue Discount................ $1000.00 - $920.00 = $80.00
Accrual Period 1/1 - 12/31/99:
Adjusted Issue Price 1/1/99............ $920.00
Stated Interest for Accrual Period..... $1000.00 X 2.00% = $20.00
Original Issue Discount for Accrual
Period............................... ($920.00 X 4.934%) - $20.00 = $25.393
Accrual Period 1/1 - 12/31/00:
Adjusted Issue Price 1/1/00............ $920.00 + $25.393 = $945.393
Stated Interest for Accrual Period..... $1000.00 X 2.00% = $20.00
Original Issue Discount for Accrual
Period............................... ($945.393 X 4.934%) - $20.00 = $26.646
Accrual Period 1/1 - 12/31/01:
Adjusted Issue Price 1/1/01............ $945.393 + $26.646 = $972.039
Stated Interest for Accrual Period..... $1000.00 X 2.00% = $20.00
Original Issue Discount for Accrual
Period............................... ($972.039 X 4.934%) - $20.00 = $27.961
</TABLE>
The daily portion of Original Issue Discount for each day of the accrual period
is the amount of the Original Issue Discount for the period divided by the
number of days in the period. In the previous example, the daily portion for the
accrual period ending December 31, 1999 would be $25.393 divided by 360, or
$0.0705.
The face of each Original Issue Discount Note will set forth the following:
- issue date;
- issue price;
- yield to maturity;
- amount of Original Issue Discount; and
- any other information required by Treasury regulations.
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. You must determine yourself, however, the amount of Original Issue
Discount income that you must report to the Internal Revenue Service each year.
PAYMENTS IN FOREIGN CURRENCY
If you own a Note that bears interest in a foreign currency, you must
report the U.S. dollar value of any payment you receive in a foreign currency.
If you use a cash basis of tax accounting, you must determine the U.S. dollar
value of the payment of interest, other than Original Issue Discount, by using
the spot exchange rate for that currency on the date you receive your payment,
even if you do not actually convert the payment to U.S. dollars.
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If you use an accrual basis of tax accounting, you must determine the U.S.
dollar value of any interest, other than Original Issue Discount, that accrues
in a foreign currency by using:
- the average spot rate during the accrual period (or the portion within
your taxable year, if the accrual period spans two taxable years); or
- at your election, the spot rate on either:
- the last day of the accrual period (or on the last day of the taxable
year, if the accrual period spans two taxable years); or
- the day of receipt of the interest, if that day is within five days of
the end of the applicable accrual period.
If you elect to use the spot rate on the last day of the accrual period or the
day you receive the interest, you generally must use the same method to
determine the U.S. dollar value of all other interest you accrue in foreign
currency on debt instruments during or after the year you make this election.
When you receive the interest payment on your Note in foreign currency or
transfer your Note, you will recognize foreign currency gain or loss equal to
the difference between:
- the U.S. dollar value of the amount of interest accrued, determined as
discussed above; and
- the U.S. dollar value of the interest paid to you or included in the
price received by you on disposition of the Note, determined by using the
spot rate on the payment date or the date of disposition of the Note, as
applicable, whether or not the payment is in fact converted to U.S.
dollars on that date.
Treasury regulations provide similar rules for calculating foreign currency
gain or loss with respect to accrued Original Issue Discount whether you use a
cash basis or an accrual basis of tax accounting. Original Issue Discount will
accrue in the currency in which the Note is denominated, and you must report the
U.S. dollar value of the accrued Original Issue Discount. You may determine the
U.S. dollar value by using the method described above in the context of accrued
interest denominated in a foreign currency.
When you receive the accrued Original Issue Discount or you transfer your Note,
you will recognize foreign currency gain or loss equal to the difference
between:
- the U.S. dollar value of the amount of accrued Original Issue Discount,
determined as discussed above; and
- the U.S. dollar value of the amount of Original Issue Discount paid to
you or included in the price received by you on disposition of the Note,
determined by using the spot rate on the payment date or the date of
disposition of the Note, as applicable, whether or not the payment is in
fact converted to U.S. dollars on that date.
You must treat the foreign currency gain or loss you recognize when you
receive a foreign currency payment as ordinary income or loss. In accordance
with current Treasury regulations, you may not treat your foreign currency gain
or loss as interest income or expense.
SALE, REDEMPTION OR OTHER DISPOSITION OF NOTES
Your original tax basis in a Note will be its U.S. dollar cost. Your
original tax basis in a Note will increase by the net amount of accrued Original
Issue Discount you include in income and will decrease by payments you receive
with respect to a Note, other than Stated Interest.
Although Treasury regulations have not directly addressed the issue, if
your Note is denominated in a foreign currency, your original tax basis likely
will increase by the U.S. dollar value of the net amount of accrued Original
Issue Discount income in units of foreign currency and will decrease by (i)
payments treated as receipts of accrued Original Issue Discount translated at
the appropriate translation rates for the relevant accrual period and (ii)
payments treated as receipts of principal
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translated at the spot rate on the date of acquisition of the Note. In
accordance with current Treasury regulations, you must treat payments in units
of foreign currency that you receive on a Note 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, you will recognize capital gain or loss
when you sell or otherwise dispose of your Note, or SRAC redeems your Note,
equal to the difference between:
- the amount realized on the sale, redemption or other disposition; and
- your tax basis in the Note.
If your Note is denominated in a foreign currency, the amount you realize on a
sale or redemption will equal the U.S. dollar value of the sale proceeds or
principal payment, determined at the spot rate on the date of sale, redemption
or other disposition of the Note. Except to the extent described in the next
paragraph, your gain or loss will be long-term capital gain or loss if, at the
time of the sale or payment, you have held the Note for more than one year.
Notwithstanding the above, you must treat as ordinary income or loss the
portion of the gain or loss you recognize when you sell or SRAC redeems the Note
that is attributable to changes in exchange rates. You must calculate your
foreign currency gain or loss with respect to principal by multiplying the
principal amount in units of foreign currency by the change in spot rates
between the date you acquired the Note and the date you sold or SRAC redeemed
the Note. For purposes of computing foreign currency gain or loss, the principal
amount of a Note will be your purchase price for the Note in units of foreign
currency. You will realize foreign currency gain or loss with respect to the
principal of and accrued but unpaid interest on a Note (including accrued but
unpaid Original Issue Discount, if any) only to the extent of the total gain or
loss you realize on the sale or redemption.
EXCHANGE OF FOREIGN CURRENCY
You will have a tax basis in the foreign currency you receive as interest
on a Note or on the sale or redemption of a Note equal to the U.S. dollar value
of the foreign currency, determined using the spot rate at the time you receive
the interest or at the time you sell or SRAC redeems the Note. If you purchase
foreign currency, you will generally have a tax basis equal to the U.S. dollar
cost of purchasing the foreign currency. You should treat any gain or loss you
recognize when you sell or otherwise dispose of the foreign currency (including
using it to purchase Notes or exchanging it for U.S. dollars) as ordinary income
or loss.
FOREIGN HOLDERS
The following summary applies to you if you are not a United States holder
(as defined above).
U.S. WITHHOLDING TAX
Under current United States federal income tax laws, and subject to the
discussion below, United States federal withholding tax will not apply to
payments by SRAC or any paying agent of SRAC (in its capacity as such) of
principal of and interest (including payments of Original Issue Discount, if
any) on your Note in accordance with the "portfolio interest" exception of the
Code, provided:
- you, or a partnership you are a member of, do 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;
- you are not a controlled foreign corporation for United States tax
purposes with respect to which SRAC is a "related person" as defined
under the Code; and
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- you provide a signed written statement, under penalties of perjury, that
can reliably be related to you, certifying that you are not a United
States person and providing your name and address to:
(A) SRAC or its agent;
(B) a securities clearing organization, bank (including, after December
31, 1999, certain regulated Unites States branches of a foreign bank
or a foreign insurance company) or other financial institution that
holds customers' securities in the ordinary course of its trade or
business (a "Financial Institution"), if that institution:
- holds the Note on your behalf;
- provides an intermediary certificate to SRAC or its agent under
penalties of perjury confirming that the institution (or a
Financial Institution between you and the institution) has
received your signed written statement; and
- furnishes a copy of your signed written statement to SRAC or its
agent; or
(C) after December 31, 1999, a specified withholding partnership or
qualified intermediary that provides a duly completed withholding
certificate to SRAC or its agent.
Your signed written statement will be generally effective only with
respect to interest payments made to you after you signed the statement
in the calendar year in which you sign it and the two (or, for
statements provided after December 31, 1999, the three) immediately
following calendar years.
U.S. INCOME TAX
Except for the possible application of United States withholding tax (see
"United States Tax Considerations--Foreign Holders--U.S. Withholding Tax" in
this prospectus supplement) and backup withholding tax (see "United States Tax
Considerations--Backup Withholding" in this prospectus supplement), you will not
have to pay United States federal income tax on payments of principal and
interest (including accrued Original Issue Discount, if any) on your Note, or on
gains from the sale, redemption or other disposition of your Note, provided you
(or the fiduciary, settler, or beneficiary of, or a person holding a power over
you, if you are an estate or trust; or any of your partners, if you are a
partnership):
- are not and have not been engaged in a trade or business in the United
States;
- are an individual and have not been present in the United States for 183
days or more in the taxable year of sale or certain other conditions are
met;
- do not have and have not had a permanent establishment in the United
States;
- do not have and have not had a present or former connection with the
United States, including, without limitation, the status as a citizen or
former citizen or resident or former resident of the United States; and
- are not and have not been, for United States federal income 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 that subjects your payments of principal
and interest (including accrued Original Issue Discount, if any) on your
Note to United States federal income tax.
If you are engaged in a trade or business in the United States and interest
(including accrued Original Issue Discount, if any), gain or any other income in
respect of your Note is effectively connected with the conduct of your trade or
business, you may be subject to United States income tax on the interest, gain
or income even though it is exempt from the withholding tax discussed in the
preceding paragraphs. You will have to pay this income tax at the statutory
rates provided for
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United States persons after you deduct any deductible expenses allocable to your
effectively connected interest, gain or income. In addition, if you are a
foreign corporation, you may be subject to a branch profits tax equal to 30% of
your effectively connected earnings and profits for the taxable year, as
adjusted for certain items, unless a lower rate applies to you under a United
States income tax treaty with your country of residence. For this purpose, you
must include interest (including accrued Original Issue Discount, if any), gain
or income on your Note in the earnings and profits subject to the branch tax if
these amounts are effectively connected with the conduct of your United States
trade or business.
U.S. ESTATE TAX
If you are an individual and are not a citizen or resident of the United
States at the time of your death, your Note will generally not be subject to the
United States federal estate tax, unless:
- you actually or constructively own 10% or more of the total combined
voting power of all classes of stock of SRAC; or
- your interest (including accrued Original Issue Discount, if any) on the
Note is effectively connected with your conduct of a United States trade
or business.
BACKUP WITHHOLDING
If you do not provide a correct taxpayer identification number and other
information, or do not comply with certain other requirements or otherwise
establish an exemption, SRAC, its paying agent, or a broker, as the case may be,
will be required to withhold from payments to you a tax equal to 31% of each
payment. This "backup" withholding tax applies to certain payments of principal,
and interest (including payments of Original Issue Discount, if any) on a Note
and to proceeds from the sale or disposition of a Note before maturity.
Temporary Treasury regulations, which are currently effective, provide that
backup withholding and information reporting will not apply to payments of
principal and interest (including payments of Original Issue Discount, if any)
on Notes by SRAC or its paying agents to you if you certify under penalties of
perjury that you are not a United States person or otherwise establish an
exemption, provided neither SRAC nor its paying agents has actual knowledge that
you are a United States person or that the conditions of any other exemption are
not in fact satisfied.
If a foreign office of a custodian, nominee or other agent collects your
payment on your behalf, that custodian, nominee or other agent will not be
required to apply backup withholding to its payments to you. However, if that
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, the custodian, nominee or other
agent will be subject to certain information reporting requirements with respect
to that payment unless:
- the custodian nominee or other agent has evidence in its records that you
are not a United States person and does not have actual knowledge that
the evidence is false;
- you are an exempt recipient, such as a bank, corporation or Financial
Institution; or
- you otherwise establish an exemption.
Payments to you on a Note by the United States office of a custodian, nominee or
other agent on your behalf will be subject to information reporting and backup
withholding unless you certify under penalties of perjury that you are not a
United States person and provide your name and address or otherwise establish an
exemption.
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Final and temporary Treasury regulations, which are currently effective,
provide that backup withholding will not apply to payments of the proceeds of
your sale of a Note if:
- you are not a United States person; and
- you sell your Note to or through a foreign office of a broker.
Certain information reporting requirements will apply to payments of such
proceeds 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, unless:
- you are an exempt recipient; or
- the broker has evidence in its records that you are not a United States
person and no actual knowledge that the evidence is false.
Information reporting and backup withholding requirements will apply to payments
of the proceeds of a sale to or through the United States office of a broker
unless:
- you certify under penalties of perjury that you are not a United States
person and provide your name and address; or
- you otherwise establish an exemption.
Final Treasury regulations, which are effective January 1, 2000, provide
that backup withholding and information reporting will not apply to payments of
principal and interest (including payments of Original Issue Discount, if any)
on Notes to you if you are not a United States person and you qualify for the
"portfolio interest" exception to United States withholding tax as described in
"United States Tax Considerations--Foreign Holders--U.S. Withholding Tax" in
this prospectus supplement, regardless of the identity of the payor and
regardless of whether the payment is collected by a United States or foreign
office of a custodian, nominee or other agent acting on your behalf.
Final Treasury regulations, which are effective January 1, 2000, provide
that information reporting and, except in certain cases, backup withholding will
apply to payments to you, even if you are not a United States person, of the
proceeds of the sale of a Note to or through a foreign office of a broker that
is a "U.S. payor" or a "U.S. middleman" (including a person who is a United
States person, a controlled foreign corporation for United States federal income
tax purposes, a foreign partnership if at any time during the year it is either
more than 50% owned (as measured by income or capital interests) by United
States persons or engaged in a United States trade or business, 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), unless:
- you are an exempt recipient; or
- the broker has evidence in its records that you are not a United States
person and has no actual knowledge or reason to believe that the evidence
is unreliable.
If you provide the Internal Revenue Service with the information it
requires, you will receive a refund or a credit against your United States
federal income tax liability for any amounts withheld from your payments under
the backup withholding rules.
PLAN OF DISTRIBUTION
SRAC is offering the Notes on a continuing basis through the Agents, each
of which has agreed to use its reasonable efforts to solicit purchases of the
Notes. SRAC also anticipates that it 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
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or authorized to make investment decisions. SRAC will pay to each Agent a
commission ranging from .125% to .750% of the principal amount of Notes sold
through the Agent (or another rate that SRAC and an Agent may negotiate). SRAC
has also agreed to reimburse the Agents for some 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 jurisdictions where it and its
employees are or may become registered or qualified to do so or in transactions
in which they are exempt from having to register or qualify. SRAC will not pay
commissions on any sales it makes directly.
Each Agent may act as an agent for sales of Notes, or may offer the Notes
it has purchased as principal to investors and dealers. Unless SRAC states
otherwise in the applicable pricing supplement, the Agents may compensate these
dealers in the form of discounts or concessions not in excess of 66 2/3% of the
discount that SRAC gave to the Agent.
Unless SRAC indicates otherwise in the applicable pricing supplement:
- Agents will purchase Notes as principal at a price equal to 100% of the
principal amount of the Notes less a percentage equal to the commission
that SRAC would pay on an agency sale of a Note of identical maturity;
and
- Agents may resell Notes that they purchase as principal 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
- Agents may resell Notes they purchase as principal to or through certain
dealers as described above.
After an Agent purchases Notes as principal in an initial public offering for
resale to investors and other purchasers on a fixed public offering price basis,
the Agent may vary the offering and other selling terms. SRAC may set forth
further information about the distribution of Notes in the applicable pricing
supplement.
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases to prevent or retard a decline in the market price of
the Notes. Syndicate short positions involve the sale by the Agents of a greater
number of Notes than they are required to purchase from SRAC in the offering.
The Agents may reclaim selling concessions allowed to syndicate members or other
broker-dealers for the Notes sold in the offering if the Agents repurchase these
Notes in stabilizing transactions or in transactions to cover short positions.
These activities may stabilize, maintain or otherwise affect the market price of
the Notes, which may be higher than the price that might otherwise prevail in
the open market. The Agents may begin and discontinue these activities at any
time and may effect these transactions in the over-the-counter market or
otherwise.
SRAC has the sole right to accept offers to purchase Notes and may reject
any proposed purchase of Notes. Each Agent has the right, in its reasonable
discretion, to reject any offer it receives. SRAC and the Agents will require
payment of the purchase price for the Notes in immediately available funds.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended. SRAC has agreed to indemnify the Agents
against certain liabilities, including liabilities under the Securities Act.
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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 they are under no obligation to do so and may discontinue market making at
any time. SRAC can give you no assurance as to the liquidity of a trading market
for the Notes.
LEGAL OPINION
Nancy K. Bellis, an Assistant General Counsel of Sears, is passing upon the
legality of the Notes for SRAC.
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GLOSSARY
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday:
- that is not a legal holiday for banking institutions in any of the City
of Wilmington, Delaware; the City of Chicago, Illinois; The City of New
York, New York; or the city where the trustee has its principal corporate
trust office; or
- with respect to Notes denominated in a currency other than U.S. dollars,
that is not a legal holiday for banking institutions in any of the City
of Wilmington, Delaware; the City of Chicago, Illinois; The City of New
York, New York; the city where the trustee has its principal corporate
trust office; or the principal financial center (or centers) of the
country (or countries) that issues the specified currency of the Notes;
or
- with respect to LIBOR Notes, that is a day on which the London interbank
market transacts dealings in U.S. dollar deposits and that is not a legal
holiday for banking institutions in any of the City of Wilmington,
Delaware; the City of Chicago, Illinois; The City of New York, New York;
or the city where the trustee has its principal corporate trust office.
"Calculation Date" means, unless SRAC specifies otherwise in the applicable
pricing supplement, the earlier of (i) the tenth calendar day after each
Interest Determination Date, or, if the tenth calendar day is not a Business
Day, the next succeeding Business Day, or (ii) the Business Day immediately
before the applicable interest payment date, maturity date or redemption date.
"CD Rate" means, initially or for any Interest Reset Date, the rate
determined by the Calculation Agent for the applicable Interest Determination
Date as follows:
- if the Board of Governors of the Federal Reserve System publishes a rate
by 9:00 a.m., New York City time, on the Calculation Date in H.15(519)
under the heading "CDs (Secondary Market)" for the Interest Determination
Date for negotiable certificates of deposit with the specified Index
Maturity, then the CD Rate will be that rate;
- if the Board of Governors of the Federal Reserve System does not publish
the rate described above by 9:00 a.m., New York City time, on the
Calculation Date, then the CD Rate will be the rate set forth in H.15
Daily Update under the heading "CDs (Secondary Market)" for the Interest
Determination Date for negotiable certificates of deposit with the
specified Index Maturity, if the Board of Governors of the Federal
Reserve System publishes the rate by 3:00 p.m., New York City time, on
the Calculation Date;
- if the Board of Governors of the Federal Reserve System does not publish
the rate described above by 3:00 p.m., New York City time, on the
Calculation Date, the Calculation Agent will select three leading nonbank
dealers of negotiable U.S. dollar certificates of deposit in The City of
New York to provide quotations of their secondary market offered rates,
as of 10:00 a.m., New York City time, on the Interest Determination Date,
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. If at least three dealers
provide the requested quotations, the CD Rate will be the arithmetic mean
of these quotations;
- if fewer than three dealers provide quotations as described above, the CD
Rate will be the CD Rate in effect on the Interest Determination Date.
"CMT Designated 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) that
SRAC specifies in the applicable pricing supplement with respect to which the
CMT Rate will be calculated.
"CMT Designated Telerate Page" means the display on the Dow Jones Telerate
Service (or a successor 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
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maturities as reported in H.15(519). If SRAC does not specify the page in the
applicable pricing supplement, the CMT Designated Telerate Page will be page
7052, or its successor, for the most recent week.
"CMT Rate" means, initially or for any Interest Reset Date, the rate
determined by the Calculation Agent for the applicable Interest Determination
Date as follows:
- if a rate is displayed on the CMT Designated Telerate Page under the
caption ". . . Treasury Constant Maturities . . . Federal Reserve Board
Release H.15 . . . Mondays Approximately 3:45 P.M.," under the column for
the CMT Designated Maturity Index (as defined below) by 3:00 p.m., New
York City time, on the Calculation Date for (i) the Interest
Determination Date (if the CMT Designated Telerate page is 7055, or its
successor), or (ii) the week, or the month, as applicable, ended
immediately before the week in which the related Interest Determination
Date occurs (if the CMT Designated Telerate page is 7052, or its
successor), then the CMT Rate will be that rate;
- if the appropriate rate as described above is no longer displayed on the
CMT Designated Telerate Page, or if it is not displayed by 3:00 p.m., New
York City time, on the Calculation Date, then the CMT Rate will be the
treasury constant maturity rate for the CMT Designated Maturity Index as
published by the Board of Governors of the Federal Reserve System in the
relevant H.15(519), if the Board of Governors of the Federal Reserve
System publishes the treasury constant maturity rate by 3:00 p.m., New
York City time, on the Calculation Date;
- if the Board of Governors of the Federal Reserve System does not publish
the rate as described above by 3:00 p.m., New York City time, on the
Calculation Date, then the CMT Rate will be the treasury constant
maturity rate set forth in H.15 Daily Update, if the Board of Governors
publishes the rate by 3:00 p.m., New York City time, on the Calculation
Date;
- if the Board of Governors of the Federal Reserve System does not publish
the rate by 3:00 p.m., New York City time, on the Calculation Date, then
the CMT Rate will be the treasury constant maturity rate for the CMT
Designated Maturity Index (or other United States Treasury rate for the
CMT Designated Maturity Index) in effect on the Interest Determination
Date as the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury may then publish that the
Calculation Agent determines to be comparable to the rate formerly
displayed on the CMT Designated Telerate Page and published in the
relevant H.15(519), if the Board of Governors of the Federal Reserve
System or United States Department of the Treasury publishes the treasury
constant maturity rate by 3:00 p.m., New York City time, on the
Calculation Date;
- if neither the Board of Governors of the Federal Reserve System nor the
United States Department of the Treasury publishes a comparable rate by
3:00 p.m., New York City time, on the Calculation Date, then the
Calculation Agent will request quotations from five 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), based on their written records, of the secondary market
closing offer side prices as of approximately 3:30 p.m., New York City
time, on the Interest Determination Date for the most recently issued
direct noncallable fixed rate obligations of the United States ("Treasury
Notes"):
- with an original maturity of approximately the CMT Designated Maturity
Index; and
- with a remaining term to maturity of not less than the CMT Designated
Maturity Index minus one year;
- if all five Reference Dealers provide the requested quotations, then the
CMT Rate will be the arithmetic mean of the quotations, eliminating the
highest quotation (or one of the highest if two or more are equal) and
the lowest quotation (or one of the lowest if two or more are equal);
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- if fewer than five Reference Dealers, but at least three Reference
Dealers, provide the requested quotations as described above, then the
CMT Rate will be the arithmetic mean of the quotations without
eliminating the highest or the lowest quotations;
- if the Calculation Agent does not obtain at least three quotations as
described above, the Calculation Agent will request quotations of the
secondary market offer side prices as of approximately 3:30 p.m., New
York City time, on the Interest Determination Date from five Reference
Dealers in The City of New York for Treasury Notes:
- with an original maturity of the number of years that is the next
highest to the CMT Designated Maturity Index;
- with a remaining term to maturity closest to the CMT Designated
Maturity Index (if two Treasury Notes have remaining terms to maturity
equally close to the CMT Designated Maturity Index, the Calculation
Agent will use the quotations for the Treasury Note with the shorter
remaining term to maturity); and
- in an amount of at least $100,000,000;
- if five Reference Dealers provide the requested quotations, then the CMT
Rate will be the arithmetic mean of the quotations, eliminating the
highest quotation (or one of the highest if two or more are equal) and
the lowest quotation (or one of the lowest if two or more are equal);
- if fewer than five Reference Dealers, but at least three Reference
Dealers, provide the requested quotations as described above, then the
CMT Rate will be the arithmetic mean of the quotations without
eliminating the highest or the lowest quotations;
- if fewer than three dealers provide the requested quotations as described
above, the CMT Rate will be the CMT Rate in effect on the Interest
Determination Date.
"Commercial Paper Rate" means, initially or for any Interest Reset Date,
the money market yield (calculated as described below) of the per annum rate
(quoted on a bank discount basis) in effect on the Interest Determination Date
for commercial paper with the specified Index Maturity, determined as follows:
- if the Board of Governors of the Federal Reserve System publishes a rate
in H.15(519) under the heading "Commercial Paper--Nonfinancial," or
another heading representing commercial paper of non-financial issuers
whose bond rating is "AA," or the equivalent, from a nationally
recognized statistical rating agency by 9:00 a.m., New York City time, on
the Calculation Date, then the Commercial Paper Rate will be the money
market yield of that rate.
- if the Board of Governors of the Federal Reserve System does not publish
the rate as described above by 9:00 a.m., New York City time, on the
Calculation Date, then the Commercial Paper Rate will be the rate set
forth in H.15 Daily Update under the heading "Commercial
Paper--Nonfinancial," or another heading representing commercial paper of
non-financial issuers whose bond rating is "AA," or the equivalent, from
a nationally recognized statistical rating agency, if the Board of
Governors of the Federal Reserve System publishes the rate by 3:00 p.m.,
New York City time, on the Calculation Date;
- if the Board of Governors of the Federal Reserve does not publish the
rate described above by 3:00 p.m., New York City time, on the Calculation
Date, the Calculation Agent will request quotations from three leading
dealers of commercial paper in The City of New York of the
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offered per annum rates (quoted on a bank discount basis), as of 11:00
a.m., New York City time, on the Interest Determination Date, for
commercial paper:
- of the specified Index Maturity; and
- placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized statistical rating agency;
- if all three dealers provide the requested quotations, the Commercial
Paper Rate will be the money market yield of the arithmetic mean of the
quotations;
- if fewer than three dealers provide the requested quotations as described
above, the Commercial Paper Rate will be the Commercial Paper Rate in
effect on the Interest Determination Date.
The money market yield of the rate is 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 determined as described above, expressed
as a decimal; and "M" refers to the number of days in the period for which the
Calculation Agent is calculating accrued interest.
"Federal Funds Rate" means, initially or for any Interest Reset Date, the
rate determined by the Calculation Agent for the applicable Interest
Determination Date as follows:
- if the Board of Governors of the Federal Reserve System publishes a rate
for the Interest Determination Date by 9:00 a.m., New York City time, on
the Calculation Date in H.15(519) under the heading "Federal Funds
(Effective)," then the Federal Funds Rate will be that rate;
- if the Board of Governors of the Federal Reserve System does not publish
the rate as described above by 9:00 a.m., New York City time, on the
Calculation Date, then the Federal Funds Rate will be the rate set forth
in H.15 Daily Update for the Interest Determination Date under the
heading "Federal Funds (Effective)," if the Board of Governors publishes
the rate by 3:00 p.m., New York City time, on the Calculation Date;
- if the Board of Governors of the Federal Reserve System does not publish
the rate as described above by 3:00 p.m., New York City time, on the
Calculation Date, the Calculation Agent will request quotations from
three leading brokers of federal funds transactions in The City of New
York as of 9:00 a.m., New York City time, on the Interest Determination
Date for the last transaction in overnight federal funds arranged by the
brokers. If all three brokers provide the requested quotations, the
Federal Funds Rate will be the arithmetic mean of the quoted rates;
- if fewer than three brokers provide the requested quotations as described
above, then the Federal Funds Rate will be the Federal Funds Rate in
effect on the Interest Determination Date.
"H.15(519)" means "Statistical Release H.15(519), Selected Interest Rates"
or any successor publication of the Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
"Index Maturity" is defined in "Description of Notes--Floating Rate Notes"
in this prospectus supplement.
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"Interest Determination Date" is defined in "Description of Notes--Floating
Rate Notes--General Information" in this prospectus supplement.
"Interest Reset Date" is defined in "Description of Notes--Floating Rate
Notes--Interest Reset Date, Interest Payment Dates and Record Dates" in this
prospectus supplement.
"LIBOR" means, initially or for any Interest Reset Date, the rate
determined by the Calculation Agent for the applicable Interest Determination
Date as follows:
- if a rate appears on the display designated as page "3750" on the Dow
Jones Telerate Service (or any other page that may replace page 3750 on
that service or a successor service for the purposes of displaying London
interbank offered rates of major banks) ("Telerate Page 3750") as of
11:00 a.m., London time, on the Interest Determination Date, for deposits
in U.S. dollars with the specified Index Maturity, then LIBOR will be the
rate that appears on that page;
- if no rate appears on Telerate Page 3750 as described above on the
Interest Determination Date, the Calculation Agent will request the
principal London office of four major banks in the London interbank
market to provide a quotation of the rate, at approximately 11:00 a.m.,
London time, on the Interest Determination Date, at which it would offer
deposits in U.S. dollars to prime banks in the London interbank market:
- with the specified Index Maturity;
- commencing on the Interest Reset Date; and
- in a principal amount of at least $1,000,000 that, in the Calculation
Agent's judgment, is representative for a single transaction in that
market at that time (a "Representative Amount");
- if at least two banks provide the requested quotations, then LIBOR will
be the arithmetic mean of the quotations;
- if fewer than two banks provide the requested quotations as described
above, the Calculation Agent will request three major banks in The City
of New York to provide a quotation of the rate, at approximately 11:00
a.m., New York City time, on the Interest Determination Date, at which it
would offer loans in U.S. dollars to leading European Banks:
- with the specified Index Maturity;
- commencing on the Interest Reset Date; and
- in a Representative Amount;
- If all three New York banks provide the requested quotations, then LIBOR
will be the arithmetic mean of the quotations;
- if fewer than three New York banks provide the requested quotations as
described above, then LIBOR will be the LIBOR in effect on the Interest
Determination Date.
"Prime Rate" means, initially or for any Interest Reset Date, the rate
determined by the Calculation Agent for the applicable Interest Determination
Date as follows:
- if the Board of Governors of the Federal Reserve System publishes a rate
in H.15(519) under the heading "Bank Prime Loan" by 9:00 a.m., New York
City time, on the Calculation Date, then the Prime Rate will be that
rate;
- if the Board of Governors of the Federal Reserve System does not publish
the rate described above by 9:00 a.m., New York City time, on the
Calculation Date, then the Prime Rate will be the rate set forth in H.15
Daily Update under the heading "Bank Prime Loan," if the Board of
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Governors of the Federal Reserve System publishes the rate by 9:00 a.m.,
New York City time, on the Calculation Date;
- if the Board of Governors of the Federal Reserve System does not publish
the rate described above by 9:00 a.m., New York City time, on the
Calculation Date, then the rate will be the arithmetic mean of the
interest rates publicly announced by each bank that appears on the
display designated as page "USPRIME1" on the Reuter Monitor Money Rates
Services (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) on the Interest Determination Date as such
bank's prime rate or base lending rate in effect on the Interest
Determination Date, if at least four rates appear on the Reuters Screen
USPRIME1 Page;
- if fewer than four rates appear on the Reuters Screen USPRIME1 Page as
described above on the Interest Determination Date, the Calculation Agent
will request quotations from three major banks in The City of New York
for their 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 the Interest Determination Date. If all three banks
provide the requested quotations, then the Prime Rate will be the
arithmetic mean of the quoted rates;
- if fewer than three banks provide the requested quotations as described
above, then the Prime Rate will be the Prime Rate in effect on the
Interest Determination Date.
"Treasury Rate" means, initially or for any Interest Reset Date, the rate
determined by the Calculation Agent for the applicable Interest Determination
Date as follows:
- if the Board of Governors of the Federal Reserve System publishes a rate
in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)" by 9:00 a.m., New York City time, on
the Calculation Date for the auction on the relevant Interest
Determination Date of direct obligations of the United States ("Treasury
bills") with the specified Index Maturity, then the Treasury Rate will be
that rate;
- if the Board of Governors of the Federal Reserve System does not publish
the rate by 9:00 a.m., New York City time, on the Calculation Date, and
the United States Department of Treasury announces in another manner 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),
then the Treasury Rate will be the rate as announced by the United States
Department of Treasury;
- if the results of the auction of Treasury bills on the Interest
Determination Date with the specified Index Maturity are not published or
reported as provided above by 3:00 p.m., New York City time, on the
Calculation Date, or if the United States Department of the Treasury does
not hold an auction that week, then the Treasury Rate will be the rate
set forth in H.15(519) for the relevant Interest Determination Date for
Treasury bills with the specified Index Maturity under the heading "U.S.
Government Securities/Treasury Bills/Secondary Market";
- if the rate described above is not published by 3:00 p.m., New York City
time, on the Calculation Date, then the Treasury Rate will be the rate
set forth in H.15 Daily Update under the heading "U.S. Government
Securities/Treasury Bills/Secondary Market," if the Board of Governors of
the Federal Reserve System publishes the rate by 3:00 p.m., New York City
time, on the Calculation Date;
- if the rate is not published by 3:00 p.m., New York City time, on the
Calculation Date, the Calculation Agent will request quotations from
three primary United States government securities dealers in The City of
New York for the secondary market bid rates as of approximately 3:30
p.m., New York City time, on the Interest Determination Date for the
issue of Treasury bills with a remaining maturity closest to the
specified Index Maturity. If all three
S-32
<PAGE> 33
securities dealers provide the requested quotations, then the Treasury
Rate will be the 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 quoted rates;
- if fewer than three securities dealers provide the requested quotations
as described above, the Treasury Rate will be the Treasury Rate in effect
on the Interest Determination Date.
S-33
<PAGE> 34
The information in this prospectus is not complete and may be changed. SRAC
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell, nor is it seeking an offer to buy, these securities in any jurisdiction
where the offer or sale is not permitted.
SEARS ROEBUCK ACCEPTANCE CORP.
DEBT SECURITIES
------------------------------
Sears Roebuck Acceptance Corp. ("SRAC") may from time to time sell up to
$7,252,200,000 aggregate initial offering price of its debt securities. These
debt securities may consist of debentures, notes or other types of unsecured
debt. The supplement accompanying this prospectus includes the specific terms of
these debt securities.
------------------------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission nor have these organizations
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
------------------------------
September 17, 1998
<PAGE> 35
SRAC HAS NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AS IF SRAC HAD AUTHORIZED IT. THIS PROSPECTUS AND THE
ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND THE ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE
INFORMATION CONTAINED IN THIS PROSPECTUS AND THE SUPPLEMENT TO THIS PROSPECTUS
IS ACCURATE AS OF THE DATES ON THEIR COVERS. WHEN SRAC DELIVERS THIS PROSPECTUS
OR A SUPPLEMENT OR MAKES A SALE PURSUANT TO THIS PROSPECTUS, SRAC IS NOT
IMPLYING THAT THE INFORMATION IS CURRENT AS OF THE DATE OF THE DELIVERY OR SALE.
------------------------------
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........................................ 11
Legal Opinion............................................... 12
Experts..................................................... 12
</TABLE>
2
<PAGE> 36
AVAILABLE INFORMATION
SRAC and Sears, Roebuck and Co. ("Sears"), SRAC's parent, are required to
file reports and other information with the Securities and Exchange Commission
(the "Commission"). Sears also files proxy statements with the Commission. You
can inspect and copy these reports, proxy statements and other information at
the public reference facilities of the Commission, in 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. You can also obtain copies of these materials from
the public reference section of the Commission at 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). You can inspect reports and other information concerning
SRAC and Sears at the office of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005. You can also inspect reports, proxy statements
and other information concerning Sears at the offices of 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.
SRAC and Sears have filed a registration statement and related exhibits
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). The registration statement contains additional information
about SRAC, Sears and the debt securities. You may inspect the registration
statement and exhibits without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and you may obtain copies from the
Commission at prescribed rates.
REPORTS TO HOLDERS OF DEBT SECURITIES
SRAC will send its annual reports to the holders of its debt securities.
These annual reports will include financial information that independent public
accountants have audited and reported on, as well as other information about
SRAC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SRAC and Sears incorporate and make part of this prospectus by reference
the following documents, filed by SRAC and Sears with the Commission pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"):
- the Annual Reports on Form 10-K for the year ended January 3, 1998, filed
by SRAC and Sears;
- the Quarterly Reports on Form 10-Q for the quarters ended April 4, 1998
and July 4, 1998, filed by SRAC and Sears;
- the Current Reports on Form 8-K for January 22 and February 18, 1998,
filed by Sears and for January 8, February 23 and March 13, 1998, filed
by SRAC; and
- 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 after the date of
this prospectus and before SRAC stops offering 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).
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write Sears Roebuck Acceptance Corp.,
3711 Kennett Pike, Greenville, Delaware 19807, Attention: Vice President,
Finance (302/888-3100).
3
<PAGE> 37
SEARS ROEBUCK ACCEPTANCE CORP.
SRAC is a wholly owned subsidiary of Sears that was incorporated under the
laws of Delaware in 1956. Its general offices are located at 3711 Kennett Pike,
Greenville, Delaware 19807 (302/888-3100). It raises funds primarily by issuing
commercial paper, medium-term notes and discrete underwritten debt and by
borrowing under intermediate-term loan agreements. It uses the proceeds from its
borrowings to acquire short-term notes of Sears and, on occasion, to purchase
outstanding receivable balances from Sears. Sears, a multi-line retailer that
conducts domestic and international merchandising and credit operations, uses
the funds it obtains from SRAC for general funding purposes. SRAC, and not
Sears, will be solely responsible for repaying the debt securities.
SRAC generates income primarily from the earnings on its investment in the
notes and receivable balances of Sears. Sears presently calculates the interest
rate on its notes so that SRAC maintains an earnings to fixed charges ratio of
at least 1.25. The yield on SRAC's investment in Sears notes is related to
SRAC's borrowing costs. As a result, movements in interest rates and changes in
Sears borrowing requirements cause SRAC's earnings to fluctuate. The indenture
relating to SRAC's debt securities requires SRAC to maintain a ratio of earnings
to fixed charges of not less than 1.10 for any fiscal quarter (determined in
accordance with Item 503(d) of Regulation S-K promulgated by the Commission) and
to cause Sears to maintain ownership of all of SRAC's voting stock as long as
any of SRAC's debt securities are outstanding. Sears has agreed to pay SRAC the
amounts that are necessary for SRAC to maintain an earnings to fixed charges
ratio of at least 1.10 and has agreed to maintain ownership of all of SRAC's
voting stock as long as any of SRAC's debt securities are outstanding. See
"Description of Debt Securities--Certain Restrictions."
As of August 1, 1998, SRAC had eight employees.
USE OF PROCEEDS
SRAC will add the net proceeds it receives from the sale of its debt
securities to its general funds and initially will use the proceeds to reduce
its short-term debt. As indicated in this prospectus under the heading "Sears
Roebuck Acceptance Corp.," SRAC's principal business is purchasing short-term
notes of Sears. Additionally, SRAC occasionally purchases receivable balances
from Sears domestic credit operations. SRAC expects to incur additional debt,
but has not yet determined how much or the terms of this debt. SRAC will make
these determinations from time to time based on economic conditions and certain
capital requirements of Sears. SRAC anticipates that Sears and its subsidiaries
will continue their practice of short-term borrowing and will occasionally incur
additional long-term debt and engage in securitization programs in which Sears
and its subsidiaries sell interests in pools of credit card receivables in
public or private transactions. Sears also occasionally may issue equity
securities.
4
<PAGE> 38
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial information of
SRAC for the last five fiscal years. You should read this summary information in
conjunction with SRAC's financial statements and the notes to the financial
statements that are incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating Results
Total revenues................................. $ 960 $ 689 $ 510 $ 283 $ 338
Interest and related expenses.................. 763 546 405 219 236
Total expenses................................. 767 548 407 221 277
Income taxes................................... 68 49 36 22 21
Net income..................................... 125 92 67 40 40
Financial Position
Assets
Notes of Sears............................... $16,561 $11,609 $8,397 $6,843 $3,404
Receivable balances purchased from Sears..... 89 76 81 82 88
Total assets................................. 16,716 12,004 8,635 7,031 4,146
Liabilities
Commercial paper............................. $ 5,249 $ 3,324 $4,451 $4,913 $2,475
Agreements with bank trust departments....... -- 82 137 87 140
Intermediate-term loans...................... 50 715 895 845 --
Medium-term notes............................ 6,033 4,834 1,384 -- --
Discrete underwritten debt................... 3,099 1,298 499 -- --
Loan agreements with Sears Overseas Finance,
N.V. ..................................... -- -- -- -- 380
Total liabilities............................ 14,554 10,317 7,390 5,854 3,008
Sears investment in SRAC
Capital stock (including capital in excess of
par value)................................ $ 735 $ 385 $ 35 $ 35 $ 35
Retained income.............................. 1,427 1,302 1,210 1,143 1,103
Debt as percentage of equity................... 667% 608% 592% 496% 263%
Other Pertinent Data
Commercial paper
Average daily outstandings................... $ 3,952 $ 4,388 $4,963 $3,615 $3,812
Agreements with bank trust departments
Average daily outstandings................... 55 98 154 124 402
Contractual credit facilities (year-end)....... 5,540 5,000 5,720 5,132 4,200
</TABLE>
5
<PAGE> 39
RATIO OF EARNINGS TO FIXED CHARGES
Sears presently calculates the interest rate on SRAC's investment in Sears
notes to provide SRAC with earnings sufficient to cover its fixed charges at
least 1.25 times. The ratios of earnings to fixed charges for SRAC and Sears for
the years ended on the dates set forth in the following table were as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28, DECEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1996 1995 1994 1993
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SRAC(1)....................... 1.25 1.26 1.26 1.29 1.26
Sears(2)...................... 2.34 2.40 2.15 2.06 1.66
</TABLE>
The ratios of earnings to fixed charges for SRAC and Sears for the 26 weeks
ended July 4, 1998 were as follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED
JULY 4, 1998
--------------
<S> <C>
SRAC(1)...................... 1.26
Sears(2)..................... 1.95
</TABLE>
- ---------------
(1) Calculated as follows:
earnings = net income + fixed charges + income taxes
---------------------------------------------------------------------------
fixed charges = interest costs + amortization of debt discount and expense
(2) Calculated as follows:
earnings = income from continuing operations (excluding undistributed net
income of unconsolidated subsidiaries) + fixed charges (excluding
capitalized interest) + income taxes
---------------------------------------------------------------------------
fixed charges = interest costs + the portion of operating lease rentals
which Sears estimates represents the interest element in such rentals
DESCRIPTION OF DEBT SECURITIES
This prospectus describes certain general terms and provisions of SRAC's
unsecured debt securities. When SRAC offers to sell a particular series of debt
securities, it will describe the specific terms of the series in a supplement to
this prospectus. SRAC will also indicate in the supplement whether the general
terms and provisions described in this prospectus apply to a particular series
of debt securities.
SRAC has entered into an indenture with The Chase Manhattan Bank, as
trustee, and will issue its debt securities under that indenture or under
another indenture into which it may enter with another eligible trustee. SRAC
will identify the trustee and the particular indenture under which it is issuing
its debt securities in the supplement to this prospectus.
The following sections summarize certain provisions of SRAC's debt
securities and indenture. This summary is qualified by and subject to the actual
provisions of the indenture under which SRAC is issuing its debt securities.
SRAC has filed the indenture with the Commission and is incorporating it by
reference in this prospectus. Where this summary refers to particular provisions
of the indenture, the provisions are incorporated by reference.
GENERAL TERMS
The debt securities will be unsecured obligations of SRAC.
SRAC can issue an unlimited amount of debt securities under the indenture,
and can issue them from time to time in one or more series.
6
<PAGE> 40
If any of the following terms apply to a particular series of debt
securities that SRAC offers to sell, the supplement to this prospectus will
describe the applicable terms:
- the title
- any limit on the aggregate principal amount
- the maturity date or dates
- the issue price
- the interest rate or rates (which may be fixed or variable)
- the date from which interest will accrue
- the interest payment dates (including the first interest payment date)
- the record dates for the interest payment dates
- any optional or mandatory redemption, conversion and exchange provisions
and whether you have or SRAC has the right to use these provisions
- any subordination provisions
- any sinking fund provisions
- the amount payable upon acceleration of the maturity date, if the amount
is not the principal amount of the debt securities
- the terms of any warrants attached to the debt securities
- the currencies that you may use to purchase the debt securities and that
SRAC may use to pay principal, any premium and interest
- any index SRAC will use to determine the amount of principal, premium and
interest payments
- whether SRAC will issue the debt securities as one or more global
securities to be held for investors by a depository and, if so, the name
of the depository
- the places where the principal, any premium and interest will be payable,
if those places are not set forth in the indenture
- any other terms that are consistent with the indenture that may modify or
delete any provision of the indenture to the extent the provision applies
to such series
SRAC will pay principal, any premium and any interest at the office of the
paying agent it maintains for such purposes in the Borough of Manhattan of The
City of New York. You may transfer debt securities (other than debt securities
represented by global securities) at the same office. SRAC may also designate
other locations for payments and transfers in the city in which its principal
executive offices are located or the city in which the principal corporate trust
office of the trustee is located. Unless SRAC specifies otherwise in the
supplement to this prospectus, the locations for payment and transfer initially
will include the principal corporate trust office of the trustee in the Borough
of Manhattan of The City of New York and SRAC's principal executive offices in
Greenville, Delaware.
SRAC will pay interest on its debt securities by checks mailed to you at
your registered address, unless you make other arrangements or the debt
securities are represented by a global security. (Sections 2.5, 3.1, 3.2) If the
debt securities are represented by global securities, SRAC will provide
information about payment of principal, any premium and interest and about
transfers of beneficial interests in the global securities in the supplement to
this prospectus.
7
<PAGE> 41
If SRAC has indicated in the supplement to this prospectus that it will pay
principal, any premium and interest in a currency other than U.S. dollars and
that currency is unavailable for payment due to circumstances beyond SRAC's
control, SRAC will pay the principal, any premium and interest in U.S. dollars.
The exchange rate will be the most recent noon buying rate in New York City for
cable transfers in the unavailable currency, as certified for customs purposes
by the Federal Reserve Bank of New York. However, if the unavailable currency is
the European Currency Unit, the exchange rate will be the most recent rate
determined by the Council of European Communities. (Section 2.12)
SRAC will issue its debt securities only in fully registered form, without
coupons, in denominations of $1,000 or an integral multiple of $1,000, unless
SRAC indicates otherwise in the supplement to this prospectus. (Section 2.2)
You will not have to pay a service charge to register a transfer or
exchange of debt securities. However, SRAC may require you to pay an amount
sufficient to cover any tax or other governmental charge in connection with the
transfer or exchange. (Section 2.5)
SRAC may issue debt securities at a discounted price with provisions that
permit it to pay less than the principal amount if the holders of the debt
securities accelerate the maturity date as a result of a continuing default. If
SRAC chooses to issue these discounted debt securities, it will describe the
federal income tax consequences and other special considerations in the
supplement to this prospectus.
CERTAIN RESTRICTIONS
The indenture provides that SRAC will maintain a ratio of earnings to fixed
charges in every fiscal quarter of at least 1.10 and that it will cause Sears to
maintain ownership of all of SRAC's voting stock. SRAC determines its ratio of
earnings to fixed charges in accordance with Item 503(d) of Regulation S-K
promulgated by the Commission, as in effect on the date of the indenture. SRAC
has letter agreements with Sears pursuant to which Sears has agreed, for the
benefit of the holders of SRAC's debt securities, that
- Sears will pay SRAC amounts which, when added to SRAC's other earnings,
will be sufficient for SRAC to maintain the fixed charge coverage ratio
required by the indenture and
- Sears will maintain ownership of SRAC's voting stock as long as SRAC is
required to cause Sears to do so.
The indenture provides that SRAC will cause Sears to observe and perform in
all material respects all covenants or agreements of Sears contained in the
letter agreements and will not amend, waive, terminate or otherwise modify any
provision of the letter agreements. (Section 3.6)
DEFAULTS
If any of the following occur in connection with any series of SRAC's debt
securities, SRAC will be in default under those debt securities:
- if SRAC fails to pay the principal amount and any premium on the series
when due and payable;
- if SRAC fails for 30 days after any interest payment date to pay any
interest that has become due (unless it deposits the entire amount due
with the trustee or with a paying agent within 30 days after the due
date);
- if SRAC fails to perform any of its other covenants under the indenture
that apply to that series of debt securities and does not cure that
failure for 60 days after it receives written notice that it has failed
to perform from holders of a majority of the principal amount of the
particular series of debt securities or the trustee;
8
<PAGE> 42
- if SRAC's creditors or creditors of Sears, including holders of SRAC's
debt securities from a different series, accelerate the maturity date of
$100,000,000 or more in principal amount of SRAC debt or Sears debt, and
those creditors do not rescind or annul the acceleration within 30 days
after SRAC receives written notice from holders of a majority of the
principal amount of the particular series of debt securities or the
trustee, unless the maturity date was accelerated as a result of
compliance with applicable laws, court orders or governmental decrees;
- if SRAC takes certain actions in connection with a bankruptcy, insolvency
or reorganization; or
- if SRAC does or fails to do something that the supplement to this
prospectus identifies as an event of default.
Unless the supplement to this prospectus specifies otherwise, if SRAC
defaults on a particular series of debt securities and the default is
continuing, the holders of a majority of the principal amount of the outstanding
debt securities of that series may accelerate the maturity date of those debt
securities. To accelerate the maturity date, those holders must declare that the
principal amount of the debt securities of that series is immediately due and
payable. In certain circumstances, holders of a majority of the principal amount
of outstanding debt securities of the series may annul the acceleration of the
maturity date. (Section 6.1)
Before instituting a proceeding to enforce the indenture or to obtain a
remedy provided for by the indenture:
- holders of debt securities must notify the trustee of a default in
writing;
- holders of a majority of the principal amount of outstanding debt
securities of the particular series must request in writing that the
trustee institute the proceeding;
- holders of a majority of the principal amount of outstanding debt
securities of the particular series must offer reasonable indemnity to
the trustee if the trustee institutes the proceeding; and
- the trustee must neglect or refuse to institute the proceeding within a
reasonable time.
These requirements do not prevent a holder from enforcing the payment of
principal and interest on the debt securities held by such holder, on or after
the principal or interest due dates. (Section 6.7)
MODIFICATION OR AMENDMENT OF THE INDENTURE
SRAC may amend the indenture 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 amendment. However, SRAC may not make any amendment
without the consent of the holders of each affected debt security then
outstanding if that amendment will:
- permit SRAC to extend the time of payment of any payment on the debt
securities, or to reduce the payment, or
- reduce the percentage of holders of any series of debt securities whose
consent is required to amend the indenture. (Article XI)
DEFEASANCE
Termination of Certain Obligations
Unless SRAC provides otherwise in the supplement to this prospectus, SRAC
may terminate certain of its obligations under the indenture with respect to the
debt securities of any series by depositing with the trustee or a paying agent,
in trust, any combination of the following in an amount
9
<PAGE> 43
sufficient to pay the principal, any premium and each installment of interest on
the debt securities of such series on the dates such payments are due:
- money;
- securities backed by the full faith and credit of the United States of
America that the issuer cannot call or redeem (if the debt securities
with respect to which SRAC is terminating certain of its obligations are
denominated in U.S. dollars);
- certain depository receipts for any non-callable and non-redeemable
securities backed by the full faith and credit of the United States of
America, or for a specific payment of interest on or principal of any
such securities, issued by a bank or trust company as custodian (if the
debt securities with respect to which SRAC is terminating certain of its
obligations are denominated in U.S. dollars); or
- other securities that, when deposited in trust, alone or in combination
with other items in this list, will result in a nationally recognized
rating agency rating SRAC's debt securities in the highest generic
long-term debt rating category applicable to debt issued by an issuer
that has been released from its obligations to the same extent that SRAC
has been (if the debt securities with respect to which SRAC is
terminating certain of its obligations are denominated in a foreign
currency).
As a prerequisite to establishing the trust, in addition to certain other
requirements, SRAC must receive a ruling from the Internal Revenue Service or an
opinion of counsel who is not its employee. The ruling or opinion must state
that the holders of the debt securities with respect to which SRAC is
terminating certain of its obligations will not recognize income, gain or loss
for federal income tax purposes as a result of the deposit with the trustee and
termination of these obligations. The ruling or opinion must also state that
those holders will be subject to federal income tax on the same amount, in the
same manner and at the same times as would have been the case if SRAC had not
deposited money or securities with the trustee and terminated these obligations.
SRAC must also receive an opinion of counsel stating that, after 90 days, either
the trust deposit will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or that the holders' rights would be adequately protected
despite the application of such laws to the trust funds.
Notwithstanding the deposit with the trustee or paying agent and compliance
with the additional requirements described above or in the indenture, SRAC's
obligations under the indenture to do the following with respect to a series
will remain in full force and effect until SRAC has paid the debt securities of
such series in full:
- pay principal, premium (if any) and interest;
- register the transfer or exchange of the debt securities;
- replace mutilated, destroyed, lost and stolen debt securities;
- maintain paying agencies; and
- hold monies for payment in trust. (Section 13.4)
If and when the Internal Revenue Service can provide a ruling, or counsel
can provide an opinion as described above, without reliance upon the
continuation of SRAC's obligations regarding the payment of principal, premium
(if any) and interest, then SRAC may discharge the indenture--including its
payment obligations--by delivering the ruling or opinion to the trustee and
satisfying the other conditions provided for in the indenture. (Section 13.4)
Under present ruling positions of the Internal Revenue Service, SRAC cannot
obtain such a ruling or opinion.
10
<PAGE> 44
Discharge of the Indenture
SRAC may also discharge the indenture, and all of its obligations under the
indenture, with respect to a particular series of debt securities--including its
payment obligations--if:
- all securities issued under the indenture have been canceled or delivered
to the trustee to be canceled; or
- all securities issued under the indenture that have not been canceled
- have become due and payable in accordance with their terms, or
- will become due and payable in accordance with their terms within
one year, or
- will be called for redemption within one year under arrangements
that satisfy the trustee.
To discharge the indenture in these circumstances, SRAC must deposit trust funds
with the trustee in an amount sufficient to pay all principal, interest and
premiums on the outstanding securities until they mature or are redeemed. SRAC
must also deliver a certificate of one of its officers and an opinion of
counsel, each stating that SRAC has complied with all conditions precedent to
the satisfaction and discharge of the indenture. (Section 13.1)
REGARDING THE TRUSTEE
The Chase Manhattan Bank, which is a trustee under the indenture, performs
other services for SRAC.
PLAN OF DISTRIBUTION
SRAC may sell its debt securities to or through underwriters, directly to
other purchasers or through agents. SRAC anticipates offering its debt
securities directly to brokers or dealers, investment companies, insurance
companies, banks, savings and loan associations and trust companies or similar
institutions, and to trusts for which a bank, savings and loan association,
trust company or investment adviser is the trustee or is authorized to make
investment decisions.
SRAC may distribute its debt securities from time to time in one or more
transactions:
- at a fixed price or prices, which may change
- at market prices prevailing at the time of sale
- at prices related to such prevailing market prices or
- at negotiated prices.
The supplement to this prospectus will describe the method of distribution
of any particular series of debt securities.
In connection with the sale of its debt securities, SRAC, or the purchasers
of debt securities for whom the underwriters may act as agents, may compensate
the underwriters in the form of discounts, concessions or commissions.
Underwriters may sell SRAC's debt securities to or through dealers and may
compensate the dealers in the form of discounts, concessions or commissions.
Dealers may also receive commissions from the purchasers of debt securities, for
whom they may act as agents. Pursuant to the Securities Act, the Commission may
deem underwriters, dealers and agents that participate in the distribution of
debt securities to be underwriters. The Commission also may deem any discounts,
commissions or concessions and any profit on the resale of debt securities to be
underwriting discounts and commissions under the Securities Act. The supplement
to this prospectus will identify any such underwriter or agent and will describe
any such compensation.
11
<PAGE> 45
SRAC may enter into agreements to indemnify underwriters, dealers and
agents that participate in the distribution of its debt securities against
certain liabilities, including liabilities under the Securities Act.
LEGAL OPINION
Unless otherwise specified in the supplement to this prospectus, Nancy K.
Bellis, an Assistant General Counsel of Sears, will pass upon the legality of
the debt securities for SRAC.
EXPERTS
Deloitte & Touche LLP, independent auditors, have audited the annual
financial statements that are incorporated by reference in this prospectus, as
stated in their reports that are also incorporated by reference in this
prospectus. SRAC and Sears have incorporated by reference their financial
statements in reliance upon the reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information contained in
the Quarterly Reports on Form 10-Q for Sears and SRAC, which are incorporated in
this prospectus 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 in this
prospectus, they did not audit and they did not express an opinion on such
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 Securities Act of
1933.
12
<PAGE> 46
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U.S. $1,850,000,000
SEARS ROEBUCK
ACCEPTANCE CORP.
MEDIUM-TERM NOTES SERIES V
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
SEARS ROEBUCK
ACCEPTANCE CORP.
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