<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus Dated February 23, 1998)
U.S. $2,000,000,000
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. $2,000,000,000 aggregate initial public offering price or its equivalent in
foreign currencies (based on the applicable exchange rate at the time of
offering), of its Medium-Term Notes Series V due at least 9 months from the date
of issue, as selected by the purchaser and agreed to by SRAC. The Notes may be
denominated in U.S. dollars or in such foreign currencies as may be designated
by SRAC at the time of offering. The specific currencies, interest rates
(including whether fixed or floating) and maturity dates of the Notes will be
set forth in Pricing Supplements to this Prospectus Supplement.
Purchasers of the Notes are required to pay for them in the currency
specified in the Pricing Supplement by delivery of the requisite amount of the
Specified Currency to an Agent, unless other arrangements have been made.
Principal of and interest on the Notes are generally payable by SRAC in the
Specified Currency. See "Currency Exchange and Other Information" and
"Description of Notes."
Except as described herein, interest on Fixed Rate Notes will be payable
February 15 and August 15 of each year (or on either of such dates or on such
other dates as specified therein and in the applicable Pricing Supplement) and
at maturity. Interest on Floating Rate Notes will be payable on the dates
specified therein and in the applicable Pricing Supplement.
The Notes will not be redeemable prior to their Maturity Date unless either
a Redemption Commencement Date or one or more Stated Redemption Dates are
specified in the applicable Pricing Supplement. See "Description of
Notes--Redemption. "
The Notes will be issued only in a minimum denomination of U.S. $1,000 or
the approximate equivalent thereof in the Specified Currency and (except as
otherwise specified in the applicable Pricing Supplement) will initially be
Book-Entry Notes represented by one or more Global Notes registered in the name
of the depository's nominee as described herein. An interest in a Global Note
will be shown on, and transfers thereof will be effected only through, records
maintained by the depository and its participants. Notes will be issued in fully
registered, certificated form to owners of beneficial interests therein or their
nominees, rather than to the depository's nominee, only as specified in the
applicable Pricing Supplement, or under the limited circumstances described
herein. See "Description of Notes--General" and "Description of
Notes--Book-Entry Notes."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
INITIAL PUBLIC AGENTS' PROCEEDS TO
OFFERING PRICE(1) COMMISSIONS(2)(3) SRAC(1)(2)(3)(4)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............. 100% .125%-.750% 99.250%-99.875%
Total(5).............. $2,000,000,000 $2,500,000-$15,000,000 $1,985,000,000-$1,997,500,000
</TABLE>
================================================================================
(1) Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued at 100% of their principal amount.
(2) SRAC will pay to Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated or
Salomon Brothers Inc (the "Agents") a commission of from .125% to .750% (or
such other rate as may from time to time be negotiated between such Agent
and SRAC), depending on maturity, of the principal amount of any Note sold
through such Agent. SRAC has agreed to indemnify each Agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) In addition to offers made by Agents, it is anticipated that SRAC will offer
Notes directly to certain institutional investors in jurisdictions in which
SRAC and its employees may be registered or qualified to do so or in
transactions in which they are exempt from such registration or
qualification. For sales made directly by SRAC, no commissions will be
payable and the proceeds to SRAC will be the initial public offering price.
(4) Before deducting estimated expenses of $1,100,000 payable by SRAC, including
$25,000 of estimated expenses of the Agents to be reimbursed by SRAC.
(5) Or the equivalent thereof in foreign currencies or currency units.
------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
SEARS ROEBUCK ACCEPTANCE CORP.
February 23, 1998
<PAGE> 2
The Agents have agreed to use their reasonable efforts to solicit offers to
purchase Notes from time to time on behalf of SRAC. Notes may be sold to each of
the Agents, as principal, at discounts equal to the commissions applicable to
sales by Agents of Notes or, if so indicated in the applicable Pricing
Supplement, at negotiated discounts, for resale in negotiated transactions, at
fixed public offering prices or at varying prices related to prevailing prices
determined at the time of resale. The Agents may act as agents for sales of
Notes, or may offer the Notes they have purchased as principals, to or through
dealers, and such dealers may receive compensation from the Agents. SRAC
reserves the right to sell the Notes directly on its own behalf, and it is
anticipated that SRAC will offer the Notes directly to certain institutional
investors. SRAC also reserves the right to withdraw, cancel or modify the
offering contemplated hereby without notice. No termination date for the
offering of the Notes has been established. SRAC or the soliciting Agent may
reject any order. See "Plan of Distribution."
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, ANY ACCOMPANYING
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
NEITHER THIS PROSPECTUS SUPPLEMENT, ANY ACCOMPANYING PRICING SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT, ANY ACCOMPANYING PRICING SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SRAC SINCE THE
DATE HEREOF OR THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes.
Specifically, the Agents may over-allot in connection with the offering, may bid
for, and purchase, the Notes in the open market and may impose penalty bids. In
addition, the Agents may engage in passive market making. For a description of
these activities, see "Plan of Distribution."
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Interim Financial Information............................... S-3
Currency Exchange and Other Information..................... S-4
Description of Notes........................................ S-4
Foreign Currency Risks...................................... S-16
United States Tax Considerations............................ S-17
Plan of Distribution........................................ S-24
Legal Opinion............................................... S-25
PROSPECTUS
Available Information....................................... 3
Reports to Holders of Debt Securities....................... 3
Incorporation of Certain Documents by Reference............. 3
Sears Roebuck Acceptance Corp............................... 4
Use of Proceeds............................................. 4
Summary Financial Information............................... 5
Ratio of Earnings to Fixed Charges.......................... 6
Description of Debt Securities.............................. 6
Plan of Distribution........................................ 10
Legal Opinion............................................... 10
Experts..................................................... 10
</TABLE>
S-2
<PAGE> 3
INTERIM FINANCIAL INFORMATION
The following table sets forth certain summary financial information of
Sears Roebuck Acceptance Corp. (the "Company" or "SRAC") for the nine-month
periods ended September 27, 1997 and September 28, 1996. The summary information
is unaudited, but in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the results of
operations of the Company have been included. The operating results for the
nine-month period ended September 27, 1997 are not necessarily indicative of
results to be expected for the full year. The summary information should be read
in conjunction with the financial statements incorporated in the Prospectus by
reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED)
-----------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Operating Results
Total revenues.............................................. $ 667 $ 486
Interest and related expenses............................... 532 385
Total expenses.............................................. 533 386
Income taxes................................................ 47 35
Net income.................................................. 87 65
Financial Position (period end)
Assets
Notes of Sears............................................ $14,162 $11,677
Receivable balances purchased from Sears.................. 85 96
Total assets.............................................. 14,384 12,200
Liabilities
Commercial paper.......................................... 4,031 4,660
Agreements with bank trust departments.................... -- 71
Intermediate-term loans................................... 300 945
Medium-term notes......................................... 5,358 3,773
Discrete underwritten debt................................ 2,550 998
Total liabilities......................................... 12,410 10,540
Sears, Roebuck and Co. investment in the Company
Capital stock (including capital in excess of par
value).................................................... 585 385
Retained income........................................... 1,389 1,275
Other Pertinent Data
Contractual Credit Facilities (quarter-end)................. $ 5,040 $ 5,040
</TABLE>
During the nine months ended September 27, 1997, the Company's revenues
increased 37% to $667 million from $486 million in the comparable 1996 period.
The increase in revenue is attributable to a $3.0 billion increase in SRAC's
average earning assets compared to the first nine months of 1996 in response to
Sears funding requirements.
The Company's interest and related expenses increased 38% to $532 million
from $385 million for the nine months ended September 27, 1997 as compared to
the comparable 1996 period. The Company's cost of short-term funds averaged
5.53% compared to 5.50% for the same period in 1996. The Company's short-term
borrowings averaged $3.7 billion compared to the respective 1996 level of $4.6
billion. The Company's long-term debt averaged $7.6 billion compared with $4.1
billion in the first nine months of 1996.
The Company's net income of $87 million for the first nine months of 1997
reflects an increase of 34% over the comparable 1996 period amount of $65
million. The Company's ratio of earnings to fixed charges was 1.25 compared to
1.26 for the comparable 1996 period.
S-3
<PAGE> 4
CURRENCY EXCHANGE AND OTHER INFORMATION
Purchasers are required to pay for the Medium-Term Notes Series V (the
"Notes") in the currency specified in the applicable Pricing Supplement (the
"Specified Currency"). Currently, there are limited facilities in the United
States for conversion of U.S. dollars into foreign currencies, and vice versa.
However, since December 31, 1989, the Federal Reserve Board no longer objects to
the establishment by U.S. banks of non-U.S. dollar denominated checking or
savings account facilities in the United States. Principal and interest payments
in respect of the Notes will be made in the Specified Currency unless such
Specified Currency is unavailable due to circumstances beyond the control of
SRAC. See "Foreign Currency Risks" and "Description of Notes."
References herein to "U.S. dollars" or "U.S. $" or "$" are to the currency
of the United States of America.
DESCRIPTION OF NOTES
The following description, which sets forth the particular terms of the
Notes offered hereby (referred to in the Prospectus as the "Offered Debt
Securities"), except to the extent otherwise specified in the applicable Pricing
Supplement, supplements the description of the general terms and provisions of
Debt Securities set forth in the Prospectus, to which description reference is
hereby made. The applicable Pricing Supplement may specify different or
additional terms. Reference should be made to the Prospectus and the Indenture
under which the Notes will be issued for the definitions of certain capitalized
terms used herein.
GENERAL
The Notes are to be issued under an Indenture (the "Indenture"), dated as
of May 15, 1995, between SRAC and The Chase Manhattan Bank, as Trustee. A copy
of the Indenture has been filed with the Commission and is hereby incorporated
by reference as part of the Registration Statement.
The authorized denominations of Notes denominated in U.S. dollars will be
U.S. $1,000 and any larger amount in integral multiples of $1,000. The
authorized denominations of Notes denominated in a Specified Currency other than
U.S. dollars will be the equivalent, as determined by the Market Exchange Rate
(as defined below) on the Business Day (as defined below) immediately preceding
the date on which SRAC accepts an offer to purchase such Notes, of U.S. $1,000
(rounded to an integral multiple of 1,000 units of such Specified Currency) and
any larger amount in integral multiples of 1,000 units. The Market Exchange Rate
on a given date for a given Specified Currency is the noon buying rate in the
City of New York for cable transfers for such Specified Currency as certified
for customs purposes by the Federal Reserve Bank of New York; provided, however,
that in the case of European Currency Units, Market Exchange Rate shall mean the
rate of exchange determined by the Council of European Communities (or any
successor thereto) as published on such date or the most recently available date
in the Official Journal of the European Communities (or any successor
publication).
The Maturity Date (as defined below) of the Notes will be at least nine
months from the date of issue, each as selected by the purchaser and agreed to
by SRAC. The Notes will constitute a single series of Debt Securities under the
Indenture, which is unlimited in aggregate principal amount. The aggregate
amount of Notes that may be offered hereunder will be reduced by the aggregate
initial public offering price of any other Debt Securities issued by SRAC
pursuant to the Registration Statement that includes the accompanying
Prospectus.
The Notes are issuable in registered form only, without coupons, as
Book-Entry Notes initially represented by one or more global notes (each a
"Global Note") registered in the name of Cede & Co. ("Cede"), as the nominee of
The Depository Trust Company ("DTC," and, together with any
S-4
<PAGE> 5
successor depository selected by SRAC, the "Depository"), except that Notes in
fully registered, certificated form ("Certificated Notes") will be issued to,
and registered in the names of, owners of beneficial interests therein or their
nominees if so specified in the applicable Pricing Supplement or under the
limited circumstances described under "Book-Entry Notes." All Book-Entry Notes
having the same terms, including, but not limited to, Interest Payment Dates,
interest rate, Maturity Date, and redemption or repayment provisions may be
represented by a single Global Note. A beneficial interest in a Global Note will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depository and its participants. Payments of principal and
interest on Book-Entry Notes will be made by the Trustee to the Depository. See
"--Book-Entry Notes."
Unless previously redeemed or repaid, a Note will mature on the date (the
"Maturity Date") that is specified on the face thereof and in the applicable
Pricing Supplement.
The Notes will be unsecured obligations of SRAC and will be identical
except for currency denomination, interest rate, Interest Payment Dates,
Maturity Date, issue date and applicable redemption or repayment provisions. The
Notes will not be subject to any sinking fund.
Notes will be sold in individual issues of Notes having such interest rates
or interest rate formulas, Maturity Dates and dates of original issuance as
shall be selected by the initial purchasers and agreed to by SRAC. Each Note
will bear interest at a fixed rate or at a rate determined by reference to one
or more of the Commercial Paper Rate, the Prime Rate, LIBOR, the Treasury Rate,
the CD Rate, the CMT Rate or the Federal Funds Rate, or such other interest rate
formula as is set forth in the applicable Pricing Supplement, as adjusted by the
Spread or Spread Multiplier, if any, applicable to such Note (as such terms are
defined below). See "Description of Notes--Interest Rate."
The term "Business Day" as used herein means each Monday, Tuesday,
Wednesday, Thursday or Friday (a) 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 in which the principal
corporate trust office of the Trustee is located, and (b) with respect to Notes
denominated in a Specified Currency other than U.S. dollars, any such day that
is not a legal holiday for banking institutions in any of the City of
Wilmington, Delaware, the City of Chicago, Illinois, the City of New York, New
York, or the principal financial center of the country of the Specified Currency
(which in the case of European Currency Units will be Brussels), and (c) with
respect to LIBOR Notes, that is a day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market and that is not a legal
holiday for banking institutions in any of the City of Wilmington, Delaware, the
City of Chicago, Illinois or the City of New York, New York.
INTEREST RATE
Each Note will bear interest from and including its date of issue or from
and including the most recent Interest Payment Date to which interest on such
Note has been paid or duly provided for at the fixed rate per annum, or at the
rate per annum determined pursuant to the interest rate formula, stated therein
and in the applicable Pricing Supplement until the principal thereof is paid or
made available for payment in accordance with the terms thereof. Interest will
be payable on each Interest Payment Date and at maturity as specified below
under "Payment of Principal and Interest."
Each Note will bear interest at either (a) a fixed rate (a "Fixed Rate
Note") or (b) a variable rate (a "Floating Rate Note") determined by reference
to the specified Interest Rate Basis (as defined below), which will be adjusted
by adding or subtracting any applicable Spread or multiplying by any applicable
Spread Multiplier. A Floating Rate Note may also have either or both of the
following: (a) a maximum numerical interest rate limitation, or ceiling, on the
rate of interest which may accrue during any interest period (a "Maximum Rate");
and (b) a minimum numerical interest rate limitation, or floor, on the rate of
interest which may accrue during any interest period (a "Minimum Rate"). The
"Spread" is the number of basis points, if any, specified in the applicable
Pricing Supplement as being applicable to the interest rate for such Floating
Rate Note and the
S-5
<PAGE> 6
"Spread Multiplier" is the percentage, if any, specified in the applicable
Pricing Supplement as being applicable to the interest rate for such Floating
Rate Note. "Market Day" means (a) with respect to any Note, any day which is not
a legal holiday for banking institutions in the City of New York, and (b) with
respect to any LIBOR Note, any such day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market. "Index Maturity" means,
with respect to a Floating Rate Note, the period to maturity of the instrument
or obligation on which the interest rate formula is based, as specified in the
applicable Pricing Supplement. Unless otherwise provided in the applicable
Pricing Supplement, The Chase Manhattan Bank will be the calculation agent (the
"Calculation Agent") with respect to Floating Rate Notes.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be one or
more of: (a) the Commercial Paper Rate, in which case such Floating Rate Note
will be a Commercial Paper Rate Note; (b) the Prime Rate, in which case such
Floating Rate Note will be a Prime Rate Note; (c) LIBOR, in which case such
Floating Rate Note will be a LIBOR Note; (d) the Treasury Rate, in which case
such Floating Rate Note will be a Treasury Rate Note; (e) the CD Rate, in which
case such Floating Rate Note will be a CD Rate Note; (f) the CMT Rate, in which
case such Floating Rate Note will be a CMT Rate Note; (g) the Federal Funds
Rate, in which case such Floating Rate Note will be a Federal Funds Rate Note;
or (h) such other interest rate formula as is set forth in such Pricing
Supplement. The applicable Pricing Supplement for a Floating Rate Note will
specify the Interest Rate Basis and, if applicable, the Calculation Agent, the
Index Maturity, the Spread, the Spread Multiplier, the Maximum Rate, the Minimum
Rate, the Interest Payment Dates, the Regular Record Dates, the Interest
Determination Dates (including the date as of which the Initial Interest Rate is
set (the "Initial Interest Determination Date")) and the Interest Reset Dates
with respect to such Note.
The initial rate of interest (the "Initial Interest Rate") on each Floating
Rate Note will be set on the Initial Interest Determination Date and reset
daily, weekly, monthly, quarterly, semi-annually or annually (each an "Interest
Reset Date"), as specified in the applicable Pricing Supplement. Except for the
Initial Interest Determination Date, the Interest Reset Date will be, in the
case of Floating Rate Notes which reset daily, each Market Day; in the case of
Floating Rate Notes (other than Treasury Rate Notes) which reset weekly, the
Wednesday of each week; in the case of Treasury Rate Notes which reset weekly,
the Tuesday of each week; in the case of Floating Rate Notes which reset
monthly, the third Wednesday of each month; in the case of Floating Rate Notes
which reset quarterly, the third Wednesday of February, May, August and
November; in the case of Floating Rate Notes which reset semi-annually, the
third Wednesday of two months of each year as specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset annually,
the third Wednesday of one month of each year as specified in the applicable
Pricing Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Market Day with respect to such Floating Rate
Note, the Interest Reset Date for such Floating Rate Note shall be postponed to
the next day that is a Market Day with respect to such Floating Rate Note,
except that in the case of a LIBOR Note, if such Market Day is in the next
succeeding calendar month, such Interest Reset Date shall be the immediately
preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
for a Prime Rate Note (the "Prime Interest Determination Date"), for a LIBOR
Note (the "LIBOR Interest Determination Date"), for a CD Rate Note (the "CD
Interest Determination Date"), for a CMT Rate Note (the "CMT Interest
Determination Date") and for a Federal Funds Rate Note (the "Federal Funds
Interest Determination Date") will be the second Market Day preceding such
Interest Reset Date, except in the case of the Initial Interest Determination
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note (the "Treasury Interest Determination
S-6
<PAGE> 7
Date") will be the day of the week in which such Interest Reset Date falls on
which Treasury bills would normally be auctioned, except in the case of the
Initial Interest Determination Date. Treasury bills are usually sold at auction
on the Monday of each week, unless that day is a legal holiday, in which case
the auction is usually held on the following Tuesday, except that such auction
may be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Treasury
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week, except in the case of the Initial Interest
Determination Date. If an auction date shall fall on any Interest Reset Date for
a Treasury Rate Note, then such Interest Reset Date shall instead be the first
Market Day immediately following such auction date, except in the case of the
Initial Interest Determination Date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% or (.0987655)), and all U.S. dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with one-
half cent being rounded upwards).
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate that will become effective on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," if applicable, pertaining to any Interest Determination Date
will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, except in the case of the Initial Interest Determination Date, for
which the Calculation Date will be the Initial Interest Determination Date as
specified in the applicable Pricing Supplement, or (ii) the Business Day
immediately preceding the applicable Interest Payment Date, Maturity Date or
Redemption Date.
Interest rates will be determined by the Calculation Agent as follows:
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
such Commercial Paper Rate Notes and in the applicable Pricing Supplement.
"Commercial Paper Rate" means, with respect to any Interest Reset Date, the
Money Market Yield (calculated as described below) of the per annum rate (quoted
on a bank discount basis) for the relevant Commercial Paper Interest
Determination Date for commercial paper having the specified Index Maturity as
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System
("H.15(519)") under the heading "Commercial Paper -- Nonfinancial," or such
other heading representing commercial paper of non-financial issuers whose bond
rating is "AA," or the equivalent, from a nationally recognized statistical
rating agency. In the event that such rate is not published prior to 9:00 A.M.,
New York City time, on the relevant Calculation Date, then the Commercial Paper
Rate with respect to such Interest Reset Date shall be the Money Market Yield of
such rate on such Commercial Paper Interest Determination Date for commercial
paper having the specified Index Maturity as published by the Federal Reserve
Bank of New York in its daily statistical release, "Composite 3:30 P.M.
Quotations for U.S. Government Securities" or any successor publication
published by the Federal Reserve Bank of New York ("Composite Quotations") under
the heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, the Commercial Paper Rate with respect to such Interest Reset Date
shall be calculated
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<PAGE> 8
by the Calculation Agent and shall be the Money Market Yield of the arithmetic
mean of the offered per annum rates (quoted on a bank discount basis), as of
11:00 A.M., New York City time, on such Commercial Paper Interest Determination
Date, of three leading dealers of commercial paper in the City of New York
selected by the Calculation Agent for commercial paper of the specified Index
Maturity placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized statistical rating agency; provided,
however, that if fewer than three dealers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the Commercial
Paper Rate with respect to such Interest Reset Date will be the Commercial Paper
Rate in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" means the rate for which is quoted on a bank discount
basis, a yield (expressed as a percentage) calculated in accordance with the
following formula:
D X 360
Money Market Yield = --------------------- X 100
360 - (D X M)
where "D" refers to the per annum rate for a security, quoted on a bank discount
basis and expressed as a decimal; and "M" refers to the number of days in the
period for which accrued interest is being calculated.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any) and
will be payable on the dates specified on the face of such Prime Rate Notes and
in the applicable Pricing Supplement.
"Prime Rate" means, with respect to any Interest Reset Date, the rate set
forth for the relevant Prime Interest Determination Date in H.15(519) under the
heading "Bank Prime Loan". In the event that such rate is not published prior to
9:00 A.M., New York City time, on the relevant Calculation Date, then the Prime
Rate with respect to such Interest Reset Date will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the display
designated as page "USPRIME1" on the Reuter Monitor Money Rates Service (or such
other page as may replace the USPRIME1 page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks)
("Reuters Screen USPRIME1 Page") as such bank's prime rate or base lending rate
as in effect for such Prime Interest Determination Date as quoted on the Reuters
Screen USPRIME1 Page on such Prime Interest Determination Date. If fewer than
four such rates appear on the Reuters Screen USPRIME1 Page on such Prime
Interest Determination Date, the Prime Rate with respect to such Interest Reset
Date will be the arithmetic mean of the prime rates or base lending rates
(quoted on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on such Prime Interest Determination
Date by three major banks in the City of New York selected by the Calculation
Agent; provided, however, that if fewer than three banks selected as aforesaid
by the Calculation Agent are quoting as mentioned in this sentence, the Prime
Rate with respect to such Interest Reset Date will be the Prime Rate in effect
on such Prime Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) and will be
payable on the dates specified on the face of such LIBOR Notes and in the
applicable Pricing Supplement.
"LIBOR" with respect to any Interest Reset Date will be determined by the
Calculation Agent in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
the rate for deposits in U.S. dollars having the specified Index Maturity,
commencing on the second Market Day
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immediately following such LIBOR Interest Determination Date (or, in the
case of the Initial Interest Determination Date, on such Initial Interest
Determination Date), that appears on the display designated as page "3750"
on the Dow Jones Telerate Service (or such other page as may replace 3750
on that service for the purposes of displaying London interbank offered
rates of major banks) ("Telerate Page 3750") as of 11:00 A.M., London time,
on such LIBOR Interest Determination Date. If such rate does not appear on
Telerate Page 3750, LIBOR with respect to such Interest Reset Date will be
determined as described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which no
such rate appears on the Telerate Page 3750 as described in (i) above,
LIBOR will be determined on the basis of the rates at approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date at which
deposits in U.S. dollars having the specified Index Maturity are offered to
prime banks in the London interbank market by four major banks in the
London interbank market selected by the Calculation Agent commencing on the
second Market Day immediately following such LIBOR Interest Determination
Date (or, in the case of the Initial Interest Determination Date, on such
Initial Interest Determination Date), and in a principal amount equal to an
amount of not less than U.S. $1,000,000 that in the Calculation Agent's
judgment is representative for a single transaction in such market at such
time (a "Representative Amount"). The Calculation Agent will request the
principal London office of each of such banks to provide a quotation of its
rate. If at least two such quotations are provided, LIBOR with respect to
such Interest Reset Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR with respect to such Interest
Reset Date will be the arithmetic mean of the rates quoted at approximately
11:00 A.M., New York City time, on such LIBOR Interest Determination Date
by three major banks in the City of New York, selected by the Calculation
Agent, for loans in U.S. dollars to leading European banks having the
specified Index Maturity commencing on the Interest Reset Date and in a
Representative Amount; provided, however, that if fewer than three banks
selected as aforesaid by the Calculation Agent are quoting as mentioned in
this sentence, LIBOR with respect to such Interest Reset Date will be the
LIBOR in effect on such LIBOR Interest Determination Date.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
and will be payable on the dates specified on the face of such Treasury Rate
Notes and in the applicable Pricing Supplement.
"Treasury Rate" means, with respect to any Interest Reset Date, the rate
for the auction on the relevant Treasury Interest Determination Date of direct
obligations of the United States ("Treasury bills") having the specified Index
Maturity as published in H.15(519) under the heading "U.S. Government
Securities/Treasury Bills/Auction Average (Investment)" or, if not so published
by 9:00 A.M., New York City time, on the relevant Calculation Date, the auction
average rate (expressed as a bond equivalent, on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) for such auction as
otherwise announced by the United States Department of the Treasury. In the
event that the results of such auction of Treasury bills having the specified
Index Maturity are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date, or if no such auction is held during
such week, then the Treasury Rate shall be the rate set forth in H.15(519) for
the relevant Treasury Interest Determination Date for the specified Index
Maturity under the heading "U.S. Government Securities/Treasury Bills/Secondary
Market." In the event such rate is not so published by 3:00 P.M., New York City
time, on the relevant Calculation Date the Treasury Rate with respect to such
Interest Reset Date shall be calculated by the Calculation Agent and shall be a
yield to maturity (expressed as a bond equivalent, on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates as of approximately 3:30 P.M., New York City
time, on such Treasury Interest Determination Date, of three primary United
States government securities dealers
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in the City of New York selected by the Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the specified Index
Maturity; provided, however, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the Treasury Rate with respect to such Interest Reset Date will be the Treasury
Rate in effect on such Treasury Interest Determination Date.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any) and will
be payable on the dates specified on the face of such CD Rate Notes and in the
applicable Pricing Supplement.
"CD Rate" means, with respect to any Interest Reset Date, the rate for the
relevant CD Interest Determination Date for negotiable certificates of deposit
having the specified Index Maturity as published in H.15(519) under the heading
"CDs (Secondary Market)." In the event that such rate is not published prior to
9:00 A.M., New York City time, on the relevant Calculation Date, then the CD
Rate with respect to such Interest Reset Date shall be the rate on such CD
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the CD Rate with respect to such Interest Reset Date shall be
calculated by the Calculation Agent and shall be the arithmetic mean of the
secondary market offered rates, as of 10:00 A.M., New York City time, on such CD
Interest Determination Date, of three leading nonbank dealers of negotiable U.S.
dollar certificates of deposit in the City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks with a remaining maturity closest to the specified Index
Maturity in a denomination of U.S. $5,000,000; provided, however, that if fewer
than three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the CD Rate with respect to such Interest Reset Date
will be the CD Rate in effect on such CD Interest Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread or Spread Multiplier, if any) and will
be payable on the dates specified on the face of such CMT Rate Notes and in the
applicable Pricing Supplement.
"CMT Rate" means, with respect to any Interest Reset Date, the rate for the
relevant CMT Interest Determination Date displayed on the Designated CMT
Telerate Page (as defined below) under the caption "...Treasury Constant
Maturities... Federal Reserve Board Release H.15 . . . Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index (as defined
below) for (i) if the Designated CMT Telerate page is 7055, the rate on such CMT
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the week, or the month, as applicable, ended immediately preceding the
week in which the related CMT Interest Determination Date occurs. If such rate
is no longer displayed on the relevant page, or if not displayed by 3:00 P.M.,
New York City time, on the relevant Calculation Date, then the CMT Rate for such
CMT Interest Determination Date will be such treasury constant maturity rate for
the Designated CMT Maturity Index as published in the relevant H.15(519). If
such rate is no longer published, or if not published by 3:00 P.M., New York
City time, on the relevant Calculation Date, then the CMT Rate for such CMT
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not published by 3:00 P.M., New York
City time, on the relevant
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Calculation Date, then the CMT Rate for the CMT Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on the CMT Interest Determination
Date reported, according to their written records, by three leading primary
United States government securities dealers (each, a "Reference Dealer") in the
City of New York (which may include the Agents or their affiliates) selected by
the Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus one year.
If three or four (and not five) of such Reference Dealers are quoting as
described above, then the CMT Rate will be based on the arithmetic mean of the
offer prices obtained and neither the highest nor the lowest of such quotes will
be eliminated. If the Calculation Agent cannot obtain three such Treasury Note
quotations, the CMT Rate for such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on the
arithmetic mean of the secondary market offer side prices as of approximately
3:30 P.M., New York City time, on the CMT Interest Determination Date of three
Reference Dealers in the City of New York (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect on such CMT Interest Determination Date. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the quotes
for the Treasury Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
such Federal Funds Rate Notes and in the applicable Pricing Supplement.
"Federal Funds Rate" means, with respect to any Interest Reset Date, the
rate on the relevant Federal Funds Interest Determination Date for Federal Funds
as published in H.15(519) under the heading "Federal Funds (Effective)." In the
event that such rate is not published prior to 9:00 A.M., New York City time, on
the relevant Calculation Date, then the Federal Funds Rate with respect to
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such Interest Reset Date will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, the Federal Funds Rate with respect to such Interest Reset Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean of
the rates, as of 9:00 A.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in the City of New York
selected by the Calculation Agent; provided, however, that if fewer than three
brokers selected as aforesaid by the Calculation Agent are quoting as mentioned
in this sentence, the Federal Funds Rate with respect to such Interest Reset
Date will be the Federal Funds Rate in effect on such Federal Funds Interest
Determination Date.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of, premium, if any, and interest on the Notes is payable by
SRAC in the Specified Currency. Interest payable on any Interest Payment Date
(other than Defaulted Interest) shall be payable to the person who is the
registered Holder at the close of business on the immediately preceding Regular
Record Date. Cede & Co. will initially be the registered Holder of the Global
Notes. See "--Book-Entry Notes." The "Regular Record Date" with respect to any
Floating Rate Note shall be the date 15 calendar days prior to each Interest
Payment Date, whether or not such date shall be a Business Day, and the "Regular
Record Date" with respect to any Fixed Rate Note shall be the February 1 or
August 1 next preceding any February 15 or August 15 Interest Payment Date and
the date 15 calendar days prior to any other Interest Payment Date, regardless
of whether such date shall be a Business Day. Interest payable on a Redemption
Date or Maturity Date (other than a Redemption Date or Maturity Date occurring
on an Interest Payment Date) will be paid to the same person to whom the
principal amount is payable. The first payment of interest on any Note
originally issued between a Regular Record Date and an Interest Payment Date
will be made on the Interest Payment Date following the next succeeding Regular
Record Date to the registered owner on such next succeeding Regular Record Date.
Except as provided below, interest will be payable (i) in the case of Fixed
Rate Notes, on February 15 and August 15 of each year (or on either of such
dates or on such other dates as specified in the applicable Pricing Supplement);
(ii) in the case of Floating Rate Notes that reset daily, weekly or monthly, on
the third Wednesday of each month or on the third Wednesday of February, May,
August and November of each year (as indicated in the applicable Pricing
Supplement); (iii) in the case of Floating Rate Notes that reset quarterly, on
the third Wednesday of February, May, August and November of each year; (iv) in
the case of Floating Rate Notes that reset semi-annually, on the third Wednesday
of the two months of each year specified in the applicable Pricing Supplement;
(v) in the case of Floating Rate Notes that reset annually, on the third
Wednesday of the month specified in the applicable Pricing Supplement (each an
"Interest Payment Date"); and (vi) in each case, at maturity.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date.
If an Interest Payment Date with respect to any Floating Rate Note would
otherwise fall on a day that is not a Business Day with respect to such Note,
such Interest Payment Date will be the next succeeding Business Day (or, in the
case of a LIBOR Note, if such day falls in the next calendar month, the next
preceding Business Day).
If the Maturity Date of any Note falls on a day that is not a Business Day,
the payment of interest and principal may be made on the next succeeding
Business Day with the same force and effect as if made on the Maturity Date, and
no interest on such payment shall accrue for the period from and after the
Maturity Date.
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Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date, Maturity Date or Redemption Date will
include interest accrued to but excluding such Interest Payment Date, Maturity
Date or Redemption Date, provided, however, that if the Interest Reset Dates
with respect to any Floating Rate Note are daily or weekly, interest payable on
such Floating Rate Note on any Interest Payment Date, other than interest
payable on the date on which principal on any such Floating Rate Note is
payable, will include interest accrued to but excluding the day following the
next preceding Regular Record Date.
Unless otherwise specified in the applicable Pricing Supplement with
respect to a Floating Rate Note, accrued interest from the date of issue or from
the last date to which interest has been paid is calculated by multiplying the
face amount of such Floating Rate Note by an accrued interest factor. Such
accrued interest factor is computed by adding the interest factor calculated for
each day from the date of issue, or from the last date to which interest has
been paid, to but excluding the date for which accrued interest is being
calculated. The interest factor (expressed as a decimal) for each such day is
computed by dividing the interest rate (expressed as a decimal) applicable to
such date by 360, in the case of Commercial Paper Rate Notes, Prime Rate Notes,
LIBOR Notes, CD Rate Notes or Federal Funds Rate Notes, or by the actual number
of days in the year, in the case of Treasury Rate Notes and CMT Rate Notes. The
applicable interest rate on any Interest Reset Date will be the interest rate as
reset on such date. The applicable interest rate on any other day will be the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate). Interest on Fixed Rate Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Payment of interest will be made by wire transfer to any Holder of
$10,000,000 or more in aggregate principal amount of Certificated Notes having
the same Interest Payment Date, and payments of principal will be made by wire
transfer to any Holder of $10,000,000 or more in aggregate principal amount of
Certificated Notes having the same Maturity Date or Redemption Date or
repayment, if the Holder thereof shall have designated in writing to the Trustee
an account with a bank located in the country issuing the Specified Currency or
such other country as shall be satisfactory to SRAC and the Trustee. If any
payment of interest is to be made by wire transfer, such information must be
received by the Trustee at its corporate trust office in the City of New York on
or prior to the Regular Record Date for an Interest Payment Date. The Trustee
will, subject to applicable laws and regulations and until it receives notice to
the contrary, make such payment to such Holder by wire transfer to the
designated account. If a payment of interest is not made by wire transfer for
any reason, payment will be made by check. Checks for payment of interest on an
Interest Payment Date will be mailed to the Holder at the address of such Holder
appearing on the Security Register on the applicable Regular Record Date. See
"Payment Currency" and "Important Currency Exchange Information."
To receive payment upon redemption, repayment or at maturity of a U.S.
dollar denominated Certificated Note, a Holder must make presentation and
surrender of such Note on or before the Redemption Date or Maturity Date, as
applicable. Payment will be by check unless proper wire transfer instructions
are on file with the Trustee or are received at presentment. To receive payment
upon redemption, repayment or at maturity of a Note denominated in a Foreign
Currency, a Holder must make presentation and surrender not less than two
Business Days prior to the Redemption Date or Maturity Date, as applicable. Upon
presentation and surrender of a Note denominated in a Foreign Currency at any
time after the date two Business Days prior to the Redemption Date or Maturity
Date, as applicable, SRAC will pay the principal and interest due upon
redemption, repayment or at maturity (unless the Redemption Date or Maturity
Date is an Interest Payment Date) two Business Days after such presentation and
surrender.
SRAC will pay any administrative costs imposed by banks in connection with
sending payments by wire transfer, but any tax, assessment or governmental
charge imposed upon payments will be borne by the Holders of the Notes in
respect of which payments are made.
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For further information concerning payments of principal and interest on
Book-Entry Notes, see "--Book-Entry Notes."
REDEMPTION
The Notes will not be redeemable prior to their Stated Maturity Date unless
either (i) a date from and after which the Notes are redeemable at the option of
SRAC (a "Redemption Commencement Date"), or (ii) a date or dates on which the
Notes are redeemable at the option of SRAC, or repayable at the option of the
Holder, or both (each such date, a "Stated Redemption Date"), is specified in
the applicable Pricing Supplement. If the Notes are redeemable at the option of
SRAC or repayable at the option of the Holder, the price or prices at which such
redemption may occur (each, a "Redemption Price") will also be specified in the
applicable Pricing Supplement. Any date on which Notes are actually redeemed or
repaid shall be a "Redemption Date."
If a Redemption Commencement Date is specified in a Pricing Supplement with
respect to any Notes, such Notes will be redeemable at the option of SRAC, in
whole or in part, at any time upon not less than 30 nor more than 60 days'
notice, at the applicable Redemption Price, plus accrued and unpaid interest to
the Redemption Date. If one or more Stated Redemption Dates are specified in a
Pricing Supplement with respect to any Note, such Note will be redeemable or
repayable in whole or in part on each such Stated Redemption Date, and such
Pricing Supplement will specify the notice period during which the option to
redeem or to be repaid may be exercised, the methods by which a notice of
redemption or repayment may be delivered and whether the option to redeem or to
be repaid may be exercised by SRAC, the Holder of such Note or both. Redemption
or repayment of Global Notes (and notice thereof) shall be made in accordance
with applicable procedures of the depository.
PAYMENT CURRENCY
If the principal of, premium, if any, or interest on any Note is payable in
a Specified Currency other than U.S. dollars and such Specified Currency is not
available due to the imposition of exchange controls or other circumstances
beyond its control, SRAC will be entitled to satisfy its obligations to Holders
of the Notes by making such payment in U.S. dollars on the basis of the most
recently available Market Exchange Rate. Any payment made under such
circumstances in U.S. dollars where the required payment is in a Specified
Currency other than U.S. dollars will not constitute a default under the
Indenture.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date at least nine months from the date of original issue or
on which the amount of interest payable on an Interest Payment Date will be
determined by reference to currencies, currency units, commodity prices,
financial or non-financial indices or other factors (the "Indexed Notes"), as
indicated in the applicable Pricing Supplement. Holders of Indexed Notes may
receive a principal amount at maturity that is greater than or less than the
face amount of such Notes depending upon the fluctuation of the relative value,
rate or price of the specified index. Specific information pertaining to the
method for determining the principal amount payable at maturity or amount of
interest payable, a historical comparison of the relative value, rate or price
of the specified index and the face amount of the Indexed Note and certain
additional United States federal income tax considerations will be described in
the applicable Pricing Supplement.
BOOK-ENTRY NOTES
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that SRAC believes to be reliable, but SRAC takes
no responsibility for the accuracy thereof.
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Book-Entry Notes will initially be represented by one or more Global Notes
registered in the name of the nominee of DTC except as set forth below.
Book-Entry Notes will be available for purchase in minimum denominations of
$1,000 and any larger amount in integral multiples of $1,000 in book-entry form.
SRAC has been informed by DTC that DTC's nominee will be Cede & Co., as nominee
of DTC. Accordingly, Cede & Co. is expected to be the registered Holder of the
Global Notes. Unless and until Certificated Notes are issued under the limited
circumstances described herein, no person acquiring an interest in the
Book-Entry Notes (a "Book-Entry Note Owner") will be entitled to receive a
certificate representing such person's interest in the Book-Entry Notes, all
references herein or in the Prospectus to actions by Holders shall refer to
actions taken by DTC upon instructions from its Participants (as defined below),
and all references herein or in the Prospectus to payments to Holders shall
refer to payments to DTC or Cede & Co., as the registered Holder of the Global
Notes, for distribution to Book-Entry Note Owners in accordance with DTC
procedures.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers (including the Agents),
banks, trust companies, clearing corporations and certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The Rules applicable to
DTC and its Participants are on file with the Securities and Exchange
Commission.
Book-Entry Note Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Notes may do so only through Participants and Indirect
Participants. In addition, Book-Entry Note Owners will receive all payments of
principal, premium, if any, and interest from the Trustee through Participants
and, if applicable, Indirect Participants. Under a book-entry format, Book-Entry
Note Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co., as nominee of DTC. DTC
will forward such payments to its Participants which thereafter will forward
them to Indirect Participants or Book-Entry Note Owners. Book-Entry Note Owners
will not be recognized by the Trustee as Holders, as such term is used in the
Indenture, and Book-Entry Note Owners will only be permitted to exercise the
rights of Holders indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Notes and is
required to receive and transmit payments of principal, premium, if any, and
interest on the Book-Entry Notes. Participants and Indirect Participants with
which Book-Entry Note Owners have accounts with respect to the Book-Entry Notes
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Book-Entry Note Owners.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a Book-Entry
Note Owner to pledge Book-Entry Notes to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect
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of such Book-Entry Notes, may be limited due to the lack of a physical
certificate for such Book-Entry Notes.
DTC has advised SRAC that it will take any action permitted to be taken by
a Holder under the Indenture only at the direction of one or more Participants
to whose account with DTC the Book-Entry Notes are credited.
Certificated Notes will be issued to Book-Entry Note Owners or their
nominees, rather than to DTC or its nominees, only if (i) SRAC advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to the Book-Entry Notes, and the
Trustee or SRAC is unable to locate a qualified successor, or (ii) SRAC, at its
option, elects to terminate the book-entry system through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Certificated Notes. Upon surrender by DTC of a
Global Note representing the Book-Entry Notes and instructions for re-
registration, the Trustee will issue the Book-Entry Notes in the form of
Certificated Notes, and thereafter the Trustee will recognize the registered
holders of such Certificated Notes as Holders under the Indenture.
MODIFICATION OR AMENDMENT OF THE INDENTURE
For the purpose of determining whether the consent of Holders of the
requisite percentage of principal amount of Notes to a modification or
alteration of the Indenture has been obtained, the principal amount of Notes
denominated in a Foreign Currency will be the amount in U.S. dollars based upon
the Market Exchange Rate for such Foreign Currency on the latest date for which
such rate was established on or before the date for determining the Holders
entitled to perform such act. (Section 2.11). See "Description of Debt
Securities--Modification or Amendment of the Indenture" in the Prospectus.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls. An investment in securities
denominated in foreign currencies entails significant risks that are not
associated with investments denominated in U.S. dollars. Such risks ("Foreign
Currency Risks") include, without limitation, the possibility of significant
changes in rates of exchange between the U.S. dollar and the various foreign
currencies and the possibility of the imposition or modification of foreign
exchange controls by either the United States or foreign governments. Foreign
Currency Risks generally depend on economic and political events over which SRAC
has no control. In recent years, rates of exchange between the U.S. dollar and
certain foreign currencies have been highly volatile and such volatility may be
expected in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
the rate that may occur during the term of any Note. On a U.S. dollar basis,
depreciation of the currency specified in a Note against the U.S. dollar would
result in a decrease in the effective yield of such Note below its coupon rate
and in certain circumstances could result in a loss to the investor.
FACTORS PRODUCING FOREIGN CURRENCY RISKS, INCLUDING RATES OF EXCHANGE,
CHANGE CONTINUOUSLY. THIS PROSPECTUS SUPPLEMENT CONTAINS A SUMMARY OF CERTAIN
RISKS OF AN INVESTMENT IN THE NOTES THAT RESULT FROM THE NOTES BEING DENOMINATED
IN A FOREIGN CURRENCY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN THE NOTES. THE
NOTES, WHEN DENOMINATED IN OTHER THAN U.S. DOLLARS, ARE NOT AN APPROPRIATE
INVESTMENT FOR INVESTORS THAT ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN
CURRENCY TRANSACTIONS.
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The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and SRAC disclaims any
responsibility to advise prospective purchasers who are residents of countries
other than the United States with respect to any matters that may affect the
purchase, holding or receipt of payments of principal and interest on the Notes.
Such persons should consult their own financial and legal advisors with regard
to such matters.
Governments have imposed from time to time and may in the future impose
exchange controls, which could affect exchange rates, as well as the
availability of a Specified Currency at the time of an interest payment on a
Note. Even if there were no actual exchange controls, it is possible that the
Specified Currency for any particular Note would not be available at the time of
such payments. In that event, SRAC will make required payments in U.S. dollars
on the basis of the Market Exchange Rate on the date of such payment, or if such
rate of exchange is not then available, on the basis of the last available
Market Exchange Rate. See "Description of Notes--Payment Currency."
With respect to any Note denominated in other than U.S. dollars, the
Pricing Supplement will include information with respect to the applicable
Specified Currency (which supplement shall include information with respect to
applicable current foreign exchange controls, if any). The information therein
concerning rates of exchange is furnished as a matter of information only and
should not be regarded as indicative of the range of, or trends, in fluctuations
in currency exchange rates that may occur in the future.
Governing Law and Judgments. The Notes will be governed by and construed in
accordance with the laws of the State of Delaware. If an action based on the
Notes resulted in a judgment against SRAC in a court in the United States, it is
likely that the court would grant judgment relating to the Notes only in U.S.
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into U.S. dollars would be that in effect on the date of default,
the date the judgment was rendered, or some other date.
UNITED STATES TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of the ownership of Notes is based upon the opinion, set forth in
full below, of Baker & McKenzie, special United States tax counsel to SRAC. For
purposes of this discussion of United States Tax Considerations, with respect to
Book-Entry Notes, the term "Holder" refers only to Book-Entry Note Owners, and
with respect to Certificated Notes, the term "Holder" refers to the registered
Holder. The discussion deals only with Notes held as capital assets and does not
deal with special tax situations, such as dealers in securities or currencies,
Holders whose functional currency is not the United States dollar, or persons
holding Notes as a hedge against currency risks or as part of a larger
integrated financial transaction. Persons considering the purchase of Notes
should consult their own tax advisors concerning the application of United
States federal income tax laws to their particular situations and any
consequences arising under the laws of any other taxing jurisdiction.
Notes may be issued under the Indenture providing for payments of principal
in amounts to be determined by reference to an index. Notes may also be issued
under the Indenture with a term of 12 months or less at issue prices of less
than their stated redemption price at maturity, giving rise to original issue
discount for federal income tax purposes. Notes may also be issued under the
Indenture which are denominated in more than one currency. Federal income tax
consequences and other special considerations applicable to any such Notes will
be described in the Pricing Supplement relating thereto. Certain Notes bearing
original issue discount and certain Floating Rate Notes, in either case with a
maturity date more than five years from the issue date, may constitute "high
yield original issue discount obligations" for federal income tax purposes. The
United States federal income and estate tax consequences for Holders of Notes
constituting high yield original issue discount obligations will be discussed in
the Pricing Supplements relating to any such Notes.
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Unless otherwise stated in a Pricing Supplement, in the opinion of Baker &
McKenzie, all Notes issued under the Indenture will be properly characterized as
indebtedness of SRAC, and SRAC will so characterize all such Notes for all
United States federal income tax purposes. This characterization by SRAC will be
binding on every Holder of a Note, unless the Holder discloses its inconsistent
characterization on such Holder's federal income tax return. The Internal
Revenue Service will not be bound by the characterization of the Notes by SRAC
and the Holders.
UNITED STATES HOLDERS
As used herein, "United States Holder" means a Holder of a Note who is, or
which is, a United States Person. A "United States Person" is (i) a citizen or
resident of the United States of America (including the States and the District
of Columbia), its territories, possessions and other areas subject to its
jurisdiction, including the Commonwealth of Puerto Rico (the "United States"),
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State (unless, in the case of a
partnership, future Treasury regulations otherwise provide) and (iii) an estate
or trust, the income of which is subject to United States federal income
taxation regardless of its source.
Payments of Interest and Original Issue Discount. Stated interest on a Note
(whether in a foreign currency or U.S. dollars) will be taxable to a United
States Holder as ordinary interest income at the time it accrues or is paid in
accordance with the United States Holder's method of accounting for tax
purposes, subject to the discussion in the succeeding paragraphs.
If Notes are issued at a discount from their stated redemption price at
maturity equal to or more than one-fourth of one percent of the stated
redemption price at maturity multiplied by the number of full years to maturity,
such Notes will be original issue discount obligations ("Original Issue Discount
Notes"). The difference between the issue price and the stated redemption price
at maturity of each such Original Issue Discount Note will constitute original
issue discount ("Original Issue Discount"). The stated redemption price at
maturity will include all payments other than interest based on a fixed rate or,
unless otherwise stated in a Pricing Supplement, a floating rate, payable
unconditionally at intervals of one year or less during the entire term of the
Original Issue Discount Notes ("Stated Interest").
Each initial Holder of an Original Issue Discount Note will be required to
include in gross income in each taxable year during which the Original Issue
Discount Note is held, a portion of the Original Issue Discount calculated on a
yield to maturity basis in addition to Stated Interest, if any, paid on such
Note, regardless of the United States Holder's method of accounting for tax
purposes. A United States Holder should be aware that, because of the above
original issue discount rules, such Holder will be required to include
increasingly greater amounts of Original Issue Discount in gross income in each
successive accrual period in advance of the receipt of the cash attributable to
such Original Issue Discount income.
A United States Holder of an Original Issue Discount Note must include in
gross income the sum of the daily portions of Original Issue Discount with
respect to an Original Issue Discount Note for each day during the taxable year
such Holder holds such Note. The daily portion is determined by allocating to
each day of the accrual period a ratable portion of an amount equal to the
excess of (i) the Adjusted Issue Price (as defined below) of the Original Issue
Discount Note at the beginning of the accrual period multiplied by the yield to
maturity of such Note (determined by compounding at the close of each accrual
period and adjusted for the length of the accrual period) over (ii) the amount
payable as Stated Interest, if any, on such Note during such accrual period.
United States Holders may accrue Original Issue Discount using accrual periods
of any length, and such accrual periods may vary in length over the term of the
Original Issue Discount Note, provided that each accrual period must be no
longer than one year and each scheduled payment of principal or interest must
occur either on the final day of an accrual period or on the first day of any
accrual period.
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The "Adjusted Issue Price" of an Original Issue Discount Note at the start
of any accrual period is the issue price of the Original Issue Discount Note
increased by the amount of Original Issue Discount accrued during all prior
accrual periods. A United States Holder of an Original Issue Discount Note must
include in income accrued Original Issue Discount regardless of whether such
Holder uses a cash receipts and disbursements method of tax accounting or an
accrual basis of tax accounting.
The face of each Original Issue Discount Note will set forth the issue
date, issue price, yield to maturity, amount of Original Issue Discount and any
other information required by Treasury regulations. SRAC will furnish to the
Internal Revenue Service the amount of Original Issue Discount, the issue date
and any additional information required by Treasury regulations. Holders,
including subsequent Holders, will be required to determine for themselves the
reportable amount of Original Issue Discount income for a year.
For a Holder who uses a cash receipts and disbursements basis of tax
accounting, if a receipt of payment of stated interest is denominated in a
foreign currency, the amount of interest income will be the U.S. dollar value of
the foreign currency payment amount translated at the spot rate on the payment
date, regardless of whether the payment is in fact converted to U.S. dollars.
For a Holder who uses an accrual basis of tax accounting, if an accrual of
interest is denominated in a foreign currency, the amount of interest income
will be the U.S. dollar value of the amount of interest accrued in foreign
currency translated at the appropriate accrual translation rate. The
"appropriate accrual translation rate" is the average spot rate in effect during
such accrual period or, at the Holder's election, the spot rate on the last day
of such accrual period (or on the day of receipt of such interest if such day is
within five days of the end of the applicable accrual period). If the latter
translation convention is elected, such convention will apply with respect to
all other debt instruments held by the Holder during or after the taxable year
for which the election is made. Upon receipt of the interest payment in foreign
currency or upon disposition of the Note, a Holder will recognize currency gain
or loss with respect to the accrued interest equal to the difference between the
Holder's accrued foreign currency interest income translated at the appropriate
accrual translation rate and the U.S. dollar value of the foreign currency
payment translated at the spot rate on the payment date, regardless of whether
the payment is in fact converted to U.S. dollars.
In the case of Original Issue Discount Notes, Treasury regulations provide
similar rules for both cash basis and accrual basis United States Holders for
calculating currency gain or loss with respect to accrued Original Issue
Discount. Original Issue Discount will accrue in the currency in which the Note
is denominated and will be translated into U.S. dollars at the appropriate
accrual translation rate. Upon receipt of the accrued Original Issue Discount or
the disposition of the Note, such a Holder will recognize currency gain or loss
with respect to the accrued Original Issue Discount equal to the difference
between the Holder's accrued Original Issue Discount income translated at the
appropriate accrual translation rate and the U.S. dollar value of the foreign
currency payment translated at the spot rate on the payment date or the date of
disposition.
Currency gain or loss recognized by a Holder upon receipt of a foreign
currency payment will be treated as ordinary income or loss. In accordance with
current Treasury regulations, currency gain or loss will not be treated as
interest income or expense.
If a United States Holder acquires a Note (including an Original Issue
Discount Note) other than upon original issue for an amount less than the
principal amount or, in the case of an Original Issue Discount Note, less than
the Revised Issue Price (defined as the sum of the issue price of the Note and
the aggregate amount of Original Issue Discount includible in gross income for
all periods prior to the acquisition without regard to acquisition premium) of
such Original Issue Discount Note on the date of acquisition, the Note may be
considered to be a "market discount bond." As a result, a portion of the gain on
the sale or redemption of the Note (see "United States Tax
Considerations--United States Holders--Purchase, Sale and Redemption of Notes")
equal to the amount of market discount accrued with respect to the Note while it
was held by the United States Holder will
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be treated as interest income. In addition, interest on indebtedness incurred or
continued to purchase or carry a Note that is a market discount bond, to the
extent that it exceeds in any year the interest (including Original Issue
Discount) on the Note includible in the United States Holder's income for that
year, may not be fully deductible in that year. The foregoing market discount
rules will not apply if the United States Holder elects to include in income in
each taxable year the portion of the market discount attributable to that year
(accrued on either a straight line or constant interest rate basis) with respect
to all market discount bonds acquired during or after the taxable year in which
such election is made. In the case of a Note denominated in a foreign currency,
the amount of market discount will be determined in units of foreign currency in
which the Note is denominated. Unless the Holder elects to include in income in
each taxable year such market discount, the resultant market discount is
required to be translated at the spot rate on the date of sale or redemption of
the Note. No part of such market discount is treated as currency gain or loss.
If the Holder elects to include in income in each taxable year such market
discount, the accrued market discount currently includible in income will be
translated at the average spot rate for the accrual period. Currency gain or
loss with respect to accrued market discount currently includible in income will
be determined in a manner similar to that for accrued Original Issue Discount as
discussed above.
If a United States Holder acquires a Note for an amount more than the
principal amount of the Note (or the stated redemption price at maturity of a
Note that is an Original Issue Discount Note), a Holder may elect to amortize
such bond premium under a constant yield method as an offset against the
interest income on the Note. In the case of a Note denominated in a foreign
currency, the amount of bond premium will be determined in units of the foreign
currency in which the Note is denominated. If a Holder elects to amortize such
bond premium, the amount of accrued bond premium in units of foreign currency in
each taxable year will reduce interest income in units of foreign currency for
such taxable year. Currency gain or loss will be taken into account with respect
to accrued bond premium in each taxable year by treating the portion of premium
amortized with respect to any period as a return of principal (see "United
States Tax Considerations--United States Holders--Purchase, Sale and Redemption
of Notes").
If a United States Holder acquires an Original Issue Discount Note other
than upon original issue for an amount more than the Revised Issue Price of such
Note on the date of acquisition, but less than the redemption price of such
Note, such a Holder will be required to reduce each daily portion of accrued
Original Issue Discount by an allocable portion of such acquisition premium. The
allocable portion of such acquisition premium will be equal to the daily portion
of accrued Original Issue Discount multiplied by a fraction (i) the numerator of
which is the excess of the cost of the Original Issue Discount Note incurred by
such Holder over the Revised Issue Price of such Note on the date of acquisition
and (ii) the denominator of which is the excess of the stated redemption price
of the Original Issue Discount Note at maturity over the Revised Issue Price of
such Note on the date of acquisition. In the case of an Original Issue Discount
Note denominated in a foreign currency, the amount of acquisition premium will
be determined in units of foreign currency in which the Note is denominated. The
amount of the allocable portion of acquisition premium in units of foreign
currency in each taxable year will reduce accrued Original Issue Discount in
units of foreign currency for such taxable year. Currency gain or loss will be
taken into account with respect to accrued acquisition premium in each taxable
year by treating the portion of acquisition premium amortized with respect to
any period as a return of principal (see "United States Tax
Considerations--United States Holders--Purchase, Sale and Redemption of Notes").
A Holder may elect to include in gross income its entire return on a Note
(i.e., the excess of all remaining payments to be received on the Note over the
amount paid for such Note by the Holder) based on the compounding of interest at
a constant rate. This election for a Note with amortizable bond premium or
market discount results in a deemed election to apply the same accrual
principles to all of the Holder's debt instruments with amortizable bond premium
or market discount. This election may be revoked only with the consent of the
IRS.
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Purchase, Sale and Redemption of Notes. A United States Holder's tax basis
in a Note will be its U.S. dollar cost. Such Holder's original tax basis in a
Note will be increased by (i) the net amount of accrued Original Issue Discount
included in income and (ii) the amount of accrued market discount included in
income. Such Holder's tax basis in a Note will be decreased by (i) the amount of
accrued bond premium and (ii) payments other than Stated Interest received by
the Holder with respect to a Note. Although the issue has not yet been directly
addressed by Treasury regulations, in the case of a Note denominated in a
foreign currency, such Holder's original tax basis likely will be increased by
(i) the net amount of accrued Original Issue Discount income in units of foreign
currency translated at the appropriate accrual translation rate in effect during
such accrual period and (ii) the amount of accrued market discount included in
income in units of foreign currency translated at the average spot rate in
effect during such accrual period. Such Holder's tax basis likely will be
decreased by (i) payments treated as receipts of accrued bond premium in units
of foreign currency translated at the spot rate on the date of acquisition; (ii)
payments treated as receipts of accrued Original Issue Discount translated at
the appropriate accrual translation rates, or accrued market discount translated
at the average spot rate, for the relevant accrual period; and (iii) payments
treated as receipts of principal translated at the spot rate on the date of
acquisition. In accordance with current Treasury regulations, payments in units
of foreign currency received on a Note by such a Holder will be treated first as
a receipt of Stated Interest, second as a receipt of Original Issue Discount to
the extent accrued, and finally as a receipt of principal.
Subject to the discussion below and the discussion of Notes that are market
discount bonds (see "United States Tax Considerations--United States
Holders--Payments of Interest and Original Issue Discount"), upon the sale or
redemption of a Note, a United States Holder will recognize capital gain or loss
equal to the difference between the amount realized on the sale or redemption of
the Note and the tax basis of the Note. The amount realized on a sale or
redemption of a Note denominated in a foreign currency will be equal to the sale
proceeds or redemption price in units of foreign currency translated at the spot
rate on the date of sale or redemption. Except to the extent described in the
next paragraph or described in "United States Tax Considerations--United States
Holders--Payments of Interest and Original Issue Discount," gain or loss will be
long-term capital gain or loss if at the time of the sale or redemption the Note
has been held for more than one year.
Except to the extent described in the discussion of market discount bonds
(see "United States Tax Considerations--United States Holders--Payments of
Interest and Original Issue Discount"), the portion of the gain or loss
recognized by a United States Holder on the sale or redemption of a Note that is
attributable to changes in exchange rates will be treated as ordinary income or
loss. If a United States Holder acquires a Note denominated in a foreign
currency on or after the date of original issue, such Holder's currency gain or
loss with respect to principal will be calculated by multiplying the principal
amount in units of foreign currency by the change in spot rates between the date
such Holder acquired the Note and the date it was sold or redeemed. For purposes
of computing currency gain or loss, the principal amount of a Note will be a
Holder's purchase price for the Note in units of foreign currency. The sum of
any currency gain or loss with respect to the principal of and accrued but
unpaid interest (including accrued but unpaid Original Issue Discount, if any)
on a Note will be realized only to the extent of the total gain or loss realized
on the sale or redemption.
Exchange of Foreign Currency. Foreign currency received as interest on a
Note or on the sale or redemption of a Note will have a tax basis equal to its
U.S. dollar value (translated at the spot rate) at the time such interest is
received or at the time of sale or redemption of the Note. Foreign currency
purchased will generally have a tax basis equal to the U.S. dollar cost of
acquisition. Any gain or loss recognized on a sale or other disposition of the
foreign currency (including its use to purchase Notes or its exchange for U.S.
dollars) will be ordinary income or loss.
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FOREIGN HOLDERS
U.S. Withholding Tax. Under United States federal income tax laws now in
effect, and subject to the discussion of backup withholding which follows,
payments by SRAC or any paying agent thereof (in its capacity as such) of
principal of and interest (including payments of Original Issue Discount, if
any) on (and premium, if any, on) a Note to a Holder who is not a United States
Person will not be subject to United States federal withholding tax, provided in
the case of interest (including payments of Original Issue Discount, if any)
that (i) such Holder does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of SRAC entitled to
vote; (ii) such Holder is not a controlled foreign corporation for United States
tax purposes with respect to which SRAC is a "related person" as defined in the
Code; and (iii) (A) the beneficial owner of the Note provides a signed written
statement to SRAC or its agent, under penalties of perjury, that certifies that
it is not a United States Person and provides its name and address, (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Note on behalf of the beneficial owner
provides an intermediary certificate to SRAC or its agent under penalties of
perjury that such a statement has been received from the beneficial owner by it
or by a Financial Institution between it and the beneficial owner and furnishes
the payor with a copy thereof, or (C) a securities clearing organization that is
the last intermediary in the chain before SRAC or its agent (a "qualified
clearing organization") electronically provides an intermediary certificate to
SRAC or its agent under penalties of perjury that such a statement has been
received from the beneficial owner by it or by an intermediary that is a member
of the qualified clearing organization and agrees to furnish (or to cause the
relevant member intermediary to furnish) promptly upon the request of SRAC or
the Internal Revenue Service such statement. A statement described in this
paragraph is effective only with respect to interest payments made to the
certifying Holder after the issuance of the statement in the calendar year of
its issuance and the two immediately succeeding calendar years.
U.S. Income Tax. Except for the possible imposition of United States
withholding tax (see "United States Tax Considerations--Foreign Holders--U.S.
Withholding Tax") and backup withholding tax (see "United States Tax
Considerations--Backup Withholding"), payments of principal of and interest
(including accrued Original Issue Discount, if any) on (and premium, if any, on)
a Note to a Holder who is not a United States Person will not be subject to
United States federal income tax, and gains from the sale, redemption or other
disposition of a Note will not be subject to United States federal income tax,
provided that:
(a) The Holder (or the fiduciary, settlor, or beneficiary of, or a person
holding a power over, such Holder, if such Holder is an estate or trust; or a
partner of such Holder, if such Holder is a partnership) shall not be or have
been engaged in a trade or business, or be or have been present in, or have or
have had a permanent establishment in the United States;
(b) There shall not have been a present or former connection between such
Holder (or between the fiduciary, settlor, or beneficiary of, or a person
holding a power over, such Holder, if such Holder is an estate or trust; or a
partner of such Holder, if such Holder is a partnership) and the United States,
including, without limitation, such Holder's status as a citizen or former
citizen thereof or resident or former resident thereof; and
(c) The Holder (or the fiduciary, settlor, or beneficiary of, or a person
holding a power over, such Holder, if such Holder is an estate or trust; or a
partner of such Holder, if such Holder is a partnership) is not and has not
been, for United States tax purposes, (i) a personal holding company, (ii) a
corporation that accumulates earnings to avoid United States federal income tax,
or (iii) a person treated as making an election the effect of which is to make
payments of principal of and interest (including accrued Original Issue
Discount, if any) on (and premium, if any, on) Notes subject to United States
federal income tax.
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If a Holder who is not a United States Person is engaged in a trade or
business in the United States and interest (including accrued Original Issue
Discount, if any), gain or income in respect of a Note of such Holder is
effectively connected with the conduct of such trade or business, the Holder,
although exempt from the withholding tax discussed in the preceding paragraphs,
may be subject to United States income tax on such interest (including accrued
Original Issue Discount, if any), gain or income at the statutory rates provided
for United States Persons after deduction of deductible expenses allocable to
such effectively connected interest, gain or income. In addition, if such a
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
as adjusted for certain items, unless a lower rate applies under a United States
income tax treaty with the Holder's country of residence. For this purpose,
interest (including accrued Original Issue Discount, if any), gain or income in
respect of a Note will be included in earnings and profits subject to the branch
tax if the interest (including accrued Original Issue Discount, if any), gain or
income is effectively connected with the conduct of the United States trade or
business of the Holder.
U.S. Estate Tax. A Note held by an individual who at the time of death is
not a citizen or resident of the United States will generally not be subject to
United States federal estate tax if the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of SRAC and interest (including accrued Original Issue Discount, if
any) on the Note is not effectively connected with a United States trade or
business of the individual.
BACKUP WITHHOLDING
A 31% "backup" withholding tax and information reporting requirements apply
to certain payments of principal of and interest (including payments of Original
Issue Discount, if any) on (and premium, if any, on) an obligation, and to
proceeds of the sale of an obligation before maturity, to certain noncorporate
United States Holders, if such Holders fail to provide correct taxpayer
identification numbers and other information or fail to comply with certain
other requirements. SRAC, its paying agent, or a broker, as the case may be,
will be required to withhold from any payment that is subject to backup
withholding, a tax equal to 31% of such payment unless the Holder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations and certain other conditions are met.
In the case of payments of principal of and interest (including payments of
Original Issue Discount, if any) on (and premium, if any, on) Notes by SRAC or
paying agents of SRAC to Holders who are not United States Persons, temporary
Treasury regulations provide that backup withholding and information reporting
will not apply if the Holder has provided the required certification of its
non-United States status under penalties of perjury or has otherwise established
an exemption (provided that neither SRAC nor its paying agent has actual
knowledge that the Holder is a United States Person or the conditions of any
other exemption are not in fact satisfied). In addition, if payment is collected
by a foreign office of a custodian, nominee or other agent acting on behalf of
an owner of a Note, such custodian, nominee or other agent will not be required
to apply backup withholding to its payments to such owner. However, in such case
if the custodian, nominee or other agent is a United States Person, a controlled
foreign corporation for United States federal income tax purposes, or a foreign
person 50% or more of whose gross income is from a United States trade or
business for a specified three-year period, such custodian, nominee or other
agent will be subject to certain information reporting requirements with respect
to such payment unless such custodian, nominee or other agent has evidence in
its records that the Holder is not a United States Person and no actual
knowledge that such evidence is false or the Holder otherwise establishes an
exemption or is an exempt recipient. An exempt recipient includes a bank,
corporation or Financial Institution.
Under current regulations, payments of the proceeds of the sale of a Note
by a Holder who is not a United States Person to or through a foreign office of
a broker will not be subject to backup withholding. Payments by foreign offices
of a broker that is a United States Person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or more
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of whose gross income is from a United States trade or business for a specified
three-year period are currently subject to certain information reporting
requirements, unless the payee is an exempt recipient or the broker has evidence
in its records that the payee is not a United States Person and no actual
knowledge that such evidence is false. Payments of the proceeds of a sale to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the payee certifies under penalty of
perjury that he is not a United States Person and provides his name and address
or the payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or a credit against such Holder's United
States federal income tax, provided that the required information is furnished
to the United States Internal Revenue Service.
The foregoing is based on the Internal Revenue Code of 1986, as amended,
regulations, rulings, administrative pronouncements and judicial decisions as of
the date hereof. Subsequent developments in these areas could have a material
effect on this opinion.
PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by SRAC through the Agents,
each of which has agreed to use its reasonable efforts to solicit purchases of
the Notes. It is also anticipated that SRAC will offer Notes directly to brokers
or dealers, investment companies (or separate accounts), insurance companies,
banks, savings and loan associations, trust companies or similar institutions,
and trusts for which a bank, savings and loan association, trust company or
investment adviser is the trustee or authorized to make investment decisions.
SRAC will pay each Agent a commission ranging from .125% to .750% (or such other
rate as may from time to time be negotiated between such Agent and SRAC) of the
principal amount of Notes sold through such firm as Agent, depending on
maturity. SRAC has also agreed to reimburse the Agents for certain of their
expenses.
SRAC may also sell the Notes to any Agent, as principal, at negotiated
discounts for resale to investors or other purchasers. SRAC reserves the right
to sell Notes directly on its own behalf in those jurisdictions where it and its
employees may be registered or qualified to do so or in transactions in which
they are exempt from such registration or qualification. No commission will be
payable on any sales made directly by SRAC.
Each Agent may act as an agent for sales of Notes, or may offer the Notes
they have purchased as principal, to or through dealers and, unless otherwise
specified in the applicable Pricing Supplement, such dealers may receive
compensation in the form of discounts, concessions or commissions from the
Agents not in excess of 66 2/3% of the discount or commission received by the
Agent from SRAC.
Unless otherwise indicated in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage equal to the
commission applicable to an agency sale of a Note of identical maturity, and may
be resold by the Agent to investors and other purchasers from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices related to prevailing prices determined at
the time of sale or may be resold to or through certain dealers as described
above. After an initial public offering of Notes purchased by an Agent as
principal that are to be resold to investors and other purchasers on a fixed
public offering price basis, the offering and other selling terms may be varied
by such Agent. The applicable Pricing Supplement may set forth further
information with respect to distribution of the Notes.
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 for the purpose of preventing or retarding a decline
in the market price of the Notes; and syndicate short positions involve the sale
by the Agents of a greater number of Notes
S-24
<PAGE> 25
than they are required to purchase from the Company in the offering. The Agents
also may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the securities sold in the
offering for their account may be reclaimed by the syndicate if such Notes are
repurchased by the syndicate in stabilizing or covering transactions. 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; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
SRAC will have the sole right to accept offers to purchase Notes and may
reject any proposed purchase of Notes. Each Agent will have the right, in its
discretion reasonably exercised, to reject any offer received by it. Payment of
the purchase price of Notes will be required to be made in immediately available
funds.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). SRAC has agreed to
indemnify the Agents against certain liabilities, including liabilities under
the Securities Act.
The Notes are a new issue of securities with no established trading market.
The Agents have informed SRAC that they intend to make a market in the Notes,
but are under no obligation to do so and such market making may be discontinued
at any time. No assurance can be given as to the liquidity of a trading market
for the Notes.
LEGAL OPINION
The legality of the Notes is being passed upon for the Company by Nancy K.
Bellis, an Assistant General Counsel of Sears.
S-25
<PAGE> 26
SEARS ROEBUCK ACCEPTANCE CORP.
DEBT SECURITIES
------------------------------
Sears Roebuck Acceptance Corp. ("SRAC") from time to time may offer up to
$3,800,200,000 aggregate initial offering price of its debt securities
consisting of debentures, notes and/or other unsecured evidences of indebtedness
(the "Debt Securities"). If so provided in the accompanying Prospectus
Supplement, the Debt Securities of any series may be represented in whole or in
part by one or more Global Securities ("Global Securities") registered in the
name of a depository's nominee and, if so represented, beneficial interests in
such Global Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the depository and its participants. The
Debt Securities may be offered as separate series in amounts, at prices and on
terms to be set forth in supplements to this Prospectus. It is anticipated that
SRAC will sell Debt Securities directly to institutional investors and may sell
Debt Securities to or through underwriters, and also may sell Debt Securities
directly to other purchasers or through agents. See "Plan of Distribution." The
accompanying Prospectus Supplement or Prospectus Supplements (the "Prospectus
Supplement") sets forth the names of any underwriters or agents involved in the
sale of the Debt Securities in respect of which this Prospectus is being
delivered, the principal amounts, if any, to be purchased by underwriters and
the compensation, if any, of such underwriters or agents.
The terms of the Debt Securities, including, where applicable, the specific
designation, aggregate principal amount, denominations, maturity, premium, if
any, rate (which may be fixed or variable) and time of payment of interest, if
any, terms for redemption at the option of SRAC or the Holder, terms for sinking
fund payments, the initial public offering price, the names of, and the
principal amounts, if any, to be purchased by underwriters and the compensation
of such underwriters, deferred pricing arrangements, if any, and the other terms
in connection with the offering and sale of the Debt Securities in respect of
which this Prospectus is being delivered, are set forth in the accompanying
Prospectus Supplement.
As used herein, Debt Securities shall include securities denominated in
U.S. dollars or, at the option of SRAC if so specified in the applicable
Prospectus Supplement, in any other currency or in composite currencies or in
amounts determined by reference to an index.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 23, 1998.
<PAGE> 27
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT 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 OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT
THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 3
Reports to Holders of Debt Securities....................... 3
Incorporation of Certain Documents by Reference............. 3
Sears Roebuck Acceptance Corp. ............................. 4
Use of Proceeds............................................. 4
Summary Financial Information............................... 5
Ratio of Earnings to Fixed Charges.......................... 6
Description of Debt Securities.............................. 6
Plan of Distribution........................................ 10
Legal Opinion............................................... 10
Experts..................................................... 10
</TABLE>
2
<PAGE> 28
AVAILABLE INFORMATION
SRAC and Sears, Roebuck and Co. ("Sears"), SRAC's parent, are subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and in accordance therewith file reports and other
information with the Securities and Exchange Commission (the "Commission").
Sears also files proxy statements with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, 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; and copies of such materials can be obtained 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). Reports and other information concerning SRAC can also be
inspected at the office of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005. Reports, proxy statements and other information
concerning Sears can also be inspected at the offices of the New York Stock
Exchange, Inc., the Chicago Stock Exchange Incorporated, 440 South LaSalle
Street, Chicago, Illinois 60605, and the Pacific Stock Exchange, Inc., 301 Pine
Street, San Francisco, California 94104.
Additional information regarding SRAC, Sears and the Debt Securities is
contained in the Registration Statement and the exhibits relating thereto, filed
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information pertaining to SRAC, Sears and the
Debt Securities, reference is made to the Registration Statement, and the
exhibits thereto, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof
may be obtained from the Commission at prescribed rates.
REPORTS TO HOLDERS OF DEBT SECURITIES
Holders of Debt Securities will receive annual reports containing
information, including financial information that has been audited and reported
on by independent public accountants, about SRAC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Reports on Form 10-K for the year ended December 28, 1996 filed
by SRAC and Sears, the Quarterly Reports on Form 10-Q for the quarters ended
March 29, 1997, June 28, 1997 and September 27, 1997 filed by SRAC and Sears,
and the Current Reports on Form 8-K for January 7, January 23, April 10, June 3,
June 5, June 11 and October 16, 1997 and January 22 and February 18, 1998 filed
by Sears and for February 25, May 9, May 13 and September 18, 1997 and January
8, 1998 filed by SRAC with the Commission pursuant to Section 13 of the Exchange
Act, are incorporated in and made part of this Prospectus by reference.
All documents filed by SRAC or Sears with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Debt
Securities (other than those portions of such documents described in paragraphs
(i), (k) and (I) of Item 402 of Regulation S-K promulgated by the Commission)
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents.
SRAC WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). WRITTEN OR TELEPHONE REQUESTS FOR
3
<PAGE> 29
SUCH COPIES SHOULD BE DIRECTED TO SEARS ROEBUCK ACCEPTANCE CORP., 3711 KENNETT
PIKE, GREENVILLE, DELAWARE 19807, ATTENTION: VICE PRESIDENT, FINANCE
(302/888-3100).
SEARS ROEBUCK ACCEPTANCE CORP.
SRAC is a wholly-owned subsidiary of Sears and was incorporated in 1956
under the laws of Delaware. Its general offices are located at 3711 Kennett
Pike, Greenville, Delaware 19807 (302/888-3100). SRAC raises funds primarily
from the direct placement of commercial paper with corporate and institutional
investors and through intermediate-term loans, discrete underwritten debt and
medium-term notes. SRAC uses borrowing proceeds to acquire short-term notes of
Sears and purchase outstanding receivable balances from Sears. Sears, which is a
multi-line retailer that conducts domestic and international merchandising
operations, uses the funds obtained from SRAC for general funding purposes.
SRAC, and not Sears, will be the sole obligor on the Debt Securities.
SRAC's income is derived primarily from the earnings on its investment in
the notes and receivable balances of Sears. The interest rate on Sears notes is
presently calculated so that SRAC maintains an earnings to fixed charges ratio
of at least 1.25. The yield on the investment in Sears notes is related to
SRAC's borrowing costs and, as a result, SRAC's earnings fluctuate in response
to movements in interest rates and changes in Sears borrowing requirements.
Subject to the provisions of the Indenture relating to the Debt Securities, SRAC
will be required to maintain a ratio of earnings to fixed charges (determined in
accordance with Item 503(d) of Regulation S-K promulgated by the Commission) of
not less than 1.10 for any fiscal quarter and cause Sears to maintain ownership
of all voting stock of SRAC as long as any Debt Securities are outstanding, and
Sears has agreed to pay SRAC such amounts as may be necessary for such purpose
and to maintain such ownership. See "Description of Debt Securities--Certain
Restrictions."
At December 31, 1997, SRAC had eight employees.
USE OF PROCEEDS
The net proceeds to be received by SRAC from the sale of the Debt
Securities offered hereby will be added to its general funds and initially used
to reduce short-term indebtedness. As indicated under "Sears Roebuck Acceptance
Corp.," SRAC's principal business is the purchase of short-term notes of Sears;
also, on occasion, SRAC purchases receivable balances from Sears domestic credit
operations. SRAC expects to incur additional indebtedness, but the amount and
nature thereof have not yet been determined and will depend on economic
conditions and certain capital requirements of Sears. It is anticipated that
Sears and its subsidiaries will continue their practice of short-term borrowing
and will, from time to time, incur additional long-term debt and engage in
securitization programs in which interests in pools of credit card receivables
are sold in public or private transactions. Sears also may, from time to time,
issue equity securities.
4
<PAGE> 30
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial information of
SRAC for the five fiscal years ended December 28, 1996. The summary information
should be read in conjunction with the financial statements of SRAC and the
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating Results
Total revenues................................. $ 689 $ 510 $ 283 $ 338 $ 697
Interest and related expenses.................. 546 405 219 236 483
Total expenses................................. 548 407 221 277 532
Income taxes................................... 49 36 22 21 56
Net income..................................... 92 67 40 40 108
Financial Position
Assets
Notes of Sears............................... $11,609 $8,397 $6,843 $3,404 $10,494
Receivable balances purchased from Sears..... 76 81 82 88 963
Total assets................................. 12,004 8,635 7,031 4,146 12,415
Liabilities
Commercial paper............................. $ 3,324 $4,451 $4,913 $2,475 $ 8,515
Agreements with bank trust departments....... 82 137 87 140 398
Intermediate-term loans...................... 715 895 845 -- --
Medium-term notes............................ 4,834 1,384 -- -- --
Discrete underwritten debt................... 1,298 499 -- -- --
Loan agreements with Sears Overseas Finance,
N.V. ..................................... -- -- -- 380 332
Total liabilities............................ 10,317 7,390 5,854 3,008 9,287
Sears, Roebuck and Co. investment in SRAC
Capital stock (including capital in excess of
par value)................................... $ 385 $ 35 $ 35 $ 35 $ 365
Retained income.............................. 1,302 1,210 1,143 1,103 2,763
Debt as percentage of equity................... 608% 592% 496% 263% 296%
Other Pertinent Data
Commercial paper
Average daily outstandings................... $ 4,387 $4,963 $3,615 $3,812 $ 9,328
Agreements with bank trust departments
Average daily outstandings................... 98 154 124 402 747
Contractual credit facilities (year-end)....... 5,000 5,720 5,132 4,200 10,812
</TABLE>
5
<PAGE> 31
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for SRAC for the nine-month period
ended September 27, 1997 was 1.25 and for the years ended December 28, 1996,
December 30, 1995, and December 31, 1994, 1993 and 1992 was 1.26, 1.26, 1.29,
1.26 and 1.34, respectively. Earnings consist of net income plus fixed charges
and income taxes. Fixed charges consist of interest costs and amortization of
debt discount and expense; rental expense is insignificant with no effect on the
calculation. The interest rate paid by Sears to SRAC on its investment in Sears
notes is presently calculated to produce earnings sufficient to cover SRAC's
fixed charges at least 1.25 times.
The ratio of income to fixed charges for Sears and its consolidated
subsidiaries for the nine-month period ended September 27, 1997 was 2.05 and for
the years ended December 28, 1996, December 30, 1995, and December 31, 1994 and
1993 was 2.40, 2.15, 2.06 and 1.66, respectively. For the year ended December
31, 1992, earnings did not cover fixed charges by $2,870 million. In the
computation of the ratio of income to fixed charges for Sears and its
consolidated subsidiaries, income consists of income from continuing operations
less undistributed net income of unconsolidated subsidiaries plus fixed charges
(excluding capitalized interest) and federal and state income taxes. Fixed
charges consist of interest costs plus the portion of operating lease rentals
which is estimated to represent the interest element in such rentals.
DESCRIPTION OF DEBT SECURITIES
The following descriptions of the terms of the Debt Securities set forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Debt Securities") and the
extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Offered Debt Securities.
The Debt Securities are to be issued under one of the Indentures (each, an
"Indenture") referred to in the following sentence, a copy of the form of which
has been filed as an exhibit to the Registration Statement. SRAC has entered
into an Indenture with The Chase Manhattan Bank, as Trustee, and may enter into
Indentures with one or more other Trustees eligible to act as Trustee (each, a
"Trustee") under an Indenture pursuant to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The particular Indenture under which any
series of Debt Securities is to be issued, and the identity of the Trustee under
such Indenture, will be identified in the Prospectus Supplement relating to such
series of Debt Securities. The following summaries of certain provisions of the
Debt Securities and the Indenture do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all the provisions of
the Indenture, including the definitions therein of certain terms. Whenever
particular provisions or defined terms in the Indenture are referred to herein,
such provisions or defined terms are incorporated by reference.
GENERAL
The Debt Securities will be unsecured obligations of SRAC.
The Indenture does not limit the amount of Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms of the
Offered Debt Securities: (i) the title of the Offered Debt Securities; (ii) any
limit on the aggregate principal amount of the Offered Debt Securities; (iii)
the date or dates on which the Offered Debt Securities will mature; (iv) the
price (expressed as a percentage of the aggregate principal amount thereof) at
which the Offered Debt Securities will be issued; (v) the rate or rates (which
may be fixed or variable) per annum at which the Offered Debt Securities will
bear interest, if any; (vi) the date from which such interest, if any, on
6
<PAGE> 32
the Offered Debt Securities will accrue, the dates on which such interest, if
any, will be payable, the date on which payment of such interest, if any, will
commence and the Regular Record Dates for such Interest Payment Dates, if any;
(vii) the date or dates, if any, after or on which and the price or prices at
which the Offered Debt Securities may, pursuant to any optional or mandatory
redemption, conversion or exchange provisions, be redeemed, converted or
exchanged at the option of SRAC or of the Holder thereof and the other detailed
terms and provisions of such optional or mandatory redemption; (viii) any
subordination provisions; (ix) the dates, if any, on which and the price or
prices at which the Offered Debt Securities will, pursuant to any mandatory
sinking fund provisions, or may, pursuant to any optional sinking fund
provisions, be redeemed by SRAC, and the other detailed terms and provisions of
such sinking fund; (x) if other than the principal amount thereof, the amount of
Offered Debt Securities which shall be payable upon declaration of acceleration
of the Maturity thereof; (xi) the terms of any warrants attached to the Offered
Debt Securities; (xii) the currency or currencies, including European Currency
Units or other composite currencies, in which Offered Debt Securities may be
purchased and in which principal, premium, if any, and interest, if any, on the
Offered Debt Securities will be payable; (xiii) any index used to determine the
amount of payments of principal, premium, if any, and interest, if any, on the
Offered Debt Securities; (xiv) whether the Offered Debt Securities are issuable
in whole or in part as one or more Global Securities and, in such case, the name
of the Depository for such Global Security or Global Securities; (xv) the place
or places, if other than as set forth in the Indenture, where the principal,
premium, if any, and interest, if any, on the Offered Debt Securities will be
payable; and (xvi) any other terms relating to the Offered Debt Securities not
inconsistent with the Indenture but which may modify or delete any provision of
the Indenture insofar as it applies to such series; provided that no term
thereof shall be modified or deleted if imposed under the Trust Indenture Act
and that any modification or deletion of the rights, duties or immunities of the
Trustee shall have been consented to in writing by the Trustee.
Principal, premium, if any, and interest, if any, will be payable, and the
Debt Securities (other than Debt Securities represented by Global Securities)
will be transferable, at the office or agency of SRAC maintained for such
purposes in the Borough of Manhattan of the City of New York, and at such other
places, if any, in the city in which the principal executive offices of SRAC or
the city in which the principal corporate trust office of the Trustee are
located, as SRAC may designate, which, except as otherwise specified in the
Prospectus Supplement relating to a particular series of Offered Debt
Securities, will initially include the principal corporate trust office of the
Trustee in the Borough of Manhattan of The City of New York and the principal
executive offices of SRAC in Greenville, Delaware. Unless other arrangements are
made, interest on the Debt Securities (other than Debt Securities represented by
Global Securities) will be paid by checks mailed to the Holders at their
registered addresses. (Sections 2.5, 3.1, 3.2) Information with respect to
payment of principal, premium, if any, and interest, if any, on, and transfers
of beneficial interests in, Debt Securities represented by Global Securities
will be set forth in the Prospectus Supplement relating thereto.
If the principal, premium, if any, and interest, if any, will be payable in
a currency other than U.S. dollars, including European Currency Units or another
composite currency, and such currency is not available for payment due to the
imposition of exchange controls or other circumstances beyond the control of
SRAC, SRAC shall satisfy its payment obligations in U.S. dollars on the basis of
the Market Exchange Rate for such currency on the latest date for which such
rate was established on or before the date on which payment is due. (Section
2.12)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any registration of transfer or exchange of the Offered
Debt Securities, but SRAC may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. (Sections 2.2,
2.5)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
stated principal amount. Federal income tax
7
<PAGE> 33
consequences and other special considerations applicable to any such Original
Issue Discount Securities will be described in the Prospectus Supplement
relating thereto. "Original Issue Discount Security" means any security which
provides for an amount less than the principal amount thereof to be due and
payable upon the declaration of acceleration of the Maturity thereof upon the
occurrence of a default and the continuation thereof.
CERTAIN RESTRICTIONS
The Indenture provides that SRAC will maintain a Fixed Charge Coverage
Ratio for any fiscal quarter of not less than 1.10 and that SRAC will cause
Sears to maintain ownership of all the voting stock of SRAC. "Fixed Charge
Coverage Ratio" means SRAC's ratio of earnings to fixed charges determined in
accordance with Item 503(d) of Regulation S-K promulgated by the Commission, as
in effect on the date of the Indenture. Pursuant to letter agreements between
SRAC and Sears (the "Fixed Charge Coverage and Ownership Agreement"), Sears has
agreed, for the benefit of holders of outstanding Debt Securities, that, (i) as
long as SRAC is so required to maintain such Fixed Charge Coverage Ratio, Sears
will pay SRAC such amounts which, together with any other earnings available
therefor, are sufficient for SRAC to maintain such Fixed Charge Coverage Ratio,
and (ii) as long as SRAC is so required to cause Sears to maintain ownership of
SRAC, Sears will maintain such ownership. The Indenture provides that SRAC (i)
will cause Sears to observe and perform in all material respects all covenants
or agreements of Sears contained in the Fixed Charge Coverage and Ownership
Agreement and (ii) will not amend, waive, terminate or otherwise modify any
provision of the Fixed Charge Coverage and Ownership Agreement. (Section 3.6)
DEFAULTS
The following are defaults with respect to any series of Debt Securities:
(a) failure to pay the principal amount (and premium, if any) on such series
when due and payable; (b) failure to pay any interest on such series when due,
continued for 30 days (unless the entire amount of such payment is deposited by
SRAC with the Trustee or with a paying agent prior to the expiration of 30
days); (c) failure to perform any other covenant of SRAC in the Indenture (other
than a covenant included in the Indenture solely for the benefit of any series
of Debt Securities other than that series), continued for 60 days after written
notice; (d) acceleration of $100,000,000 or more in principal amount of
indebtedness for borrowed money of SRAC (including acceleration with respect to
Debt Securities other than that series) or Sears under the terms of the
instrument under which such indebtedness is issued or secured (including the
Indenture), if such indebtedness shall not have been discharged or such
acceleration is not annulled within 30 days after written notice or prior to the
time principal owed on the outstanding Debt Securities of that series shall be
declared due and payable, except as a result of compliance with applicable laws,
orders or decrees; and (e) certain events of bankruptcy, insolvency, or
reorganization. In addition, a particular series of Debt Securities may provide
for additional events of default, as may be described in the Prospectus
Supplement. If a default shall occur and be continuing with respect to any
series of Debt Securities, the Trustee or the Holders of a majority in principal
amount of the outstanding Debt Securities of that series may declare the
principal amount of such series (or, if the Debt Securities of that series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of that series) due and payable immediately, which
declaration may, in certain instances, be annulled by the Holders of a majority
of the principal amount of outstanding Debt Securities of that series. In the
case of such declaration, there would become due and payable such principal
amount plus any accrued interest or other periodic payments. (Section 6.1)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder previously shall have given to the Trustee
written notice of a default and unless also the Holders of a majority of the
principal amount of outstanding Debt Securities of that series shall have made
written request upon the Trustee, offering reasonable indemnity, to institute
such proceeding as Trustee, and the Trustee
8
<PAGE> 34
shall have neglected or refused to institute such proceeding within a reasonable
time. However, the right of any Holder of any Debt Security of that series to
enforce the payment of principal and interest on such Debt Security, on or after
the due dates expressed in such Debt Security, may not be impaired or affected.
(Section 6.7)
SRAC is required to furnish annually to the Trustee statements as to the
performance or fulfillment of its covenants, agreements or conditions in the
Indenture and as to the absence of default. (Section 3.4)
MODIFICATION OR AMENDMENT OF THE INDENTURE
Modifications and alterations of the Indenture may be made by SRAC with the
consent of the Holders of a majority of the aggregate principal amount of the
outstanding Debt Securities of each series affected by the modification or
alteration, provided that no such change shall be made without the consent of
the Holders of each Debt Security then outstanding affected thereby which will
(a) permit the extension of the time of payment of any payment on any such Debt
Security, or a reduction in any such payment, or (b) reduce the above-stated
percentage of Holders of any series of Debt Securities whose consent is required
to modify or alter the Indenture. (Article Xl)
DEFEASANCE
Unless otherwise provided for in the accompanying Prospectus Supplement,
SRAC may discharge the Indenture with respect to Debt Securities of any series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, replace mutilated, destroyed, lost and stolen Debt
Securities of such series, maintain paying agencies and hold moneys for payment
in trust) upon the deposit with the Trustee or a paying agent, in trust, of (1)
money in an amount sufficient, or (2) U.S. Government Obligations (if the Debt
Securities are denominated in U.S. dollars) or Eligible Obligations (if the Debt
Securities are denominated in a Foreign Currency) which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient, or (3) any combination thereof in an
amount sufficient, to pay the principal, premium, if any, and each installment
of interest on the Debt Securities of such series on the dates such payments are
due in accordance with the terms of the Indenture and such Debt Securities. Such
a trust may only be established if, among other things, SRAC has received a
ruling from the Internal Revenue Service or an opinion of recognized counsel who
is not an employee of SRAC based on a change of law, in either case to the
effect that, among other things, the Holders of the Debt Securities of such
series will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance of the Indenture and will be subject
to federal income tax on the same amount and in the same manner and at the same
times, as would have been the case if such deposit and defeasance had not
occurred. Notwithstanding such deposit, the obligations of SRAC under the
Indenture to pay interest and principal shall remain in full force and effect
until the Debt Securities of such series have been paid in full. (Section 13.4)
If and when a ruling from the Internal Revenue Service or an opinion of
recognized counsel can be provided without reliance upon the continuation of
SRAC's obligations regarding the payment of interest and principal, then such
obligations of SRAC shall cease upon delivery to the Trustee of such ruling or
opinion and compliance with the other conditions precedent provided for in the
Indenture. (Section 13.4) Under present ruling positions of the Internal Revenue
Service, such a ruling is not obtainable.
REGARDING THE TRUSTEE
The Chase Manhattan Bank, which is a Trustee under an Indenture, performs
other services for SRAC.
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PLAN OF DISTRIBUTION
SRAC may sell Debt Securities to or through underwriters, and also may sell
Debt Securities directly to other purchasers or through agents. It is
anticipated that SRAC will offer Debt Securities directly to brokers or dealers,
investment companies, insurance companies, banks, savings and loan associations,
trust companies or similar institutions, and trusts for which a bank, savings
and loan association, trust company or investment adviser is the trustee or
authorized to make investment decisions.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Prospectus Supplement will
describe the method of distribution of the Offered Debt Securities.
In connection with the sale of Debt Securities, underwriters may receive
compensation from SRAC or from purchasers of Debt Securities for whom they may
act as agents in the form of discounts, concessions or commissions. Underwriters
may sell Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as agent.
Underwriters, dealers and agents that participate in the distribution of Debt
Securities may be deemed to be underwriters, and any discounts, commissions or
concessions received by them and any profit on the resale of Debt Securities by
them may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation will be described, in the Prospectus Supplement.
Under agreements that may be entered into by SRAC, underwriters, dealers
and agents that participate in the distribution of Debt Securities may be
entitled to indemnification by SRAC against certain liabilities, including
liabilities under the Securities Act.
LEGAL OPINION
Unless otherwise specified in the accompanying Prospectus Supplement, the
legality of the Debt Securities is being passed upon for SRAC by Nancy K.
Bellis, an Assistant General Counsel of Sears.
EXPERTS
The annual financial statements incorporated by reference in this
prospectus and the financial statements from which the Summary Financial
Information included in this Prospectus have been derived have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
incorporated by reference herein. Such financial statements and Summary
Financial Information have been incorporated by reference and included herein,
respectively, in reliance upon the reports of such firm 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
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Quarterly Reports on Form
10-Q for Sears and SRAC and incorporated by reference herein, they did not audit
and they did not 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 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.
10
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============================== ==================================
U.S. $2,000,000,000
SEARS ROEBUCK
ACCEPTANCE CORP.
MEDIUM-TERM NOTES SERIES V
----------------
PROSPECTUS SUPPLEMENT
----------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
SEARS ROEBUCK
ACCEPTANCE CORP.
============================= ==================================
