<PAGE> 1
Filed pursuant to Rule
424(b)(5)
Registration Nos.
333-30175 and 333-17831
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to delivery of a final Prospectus
Supplement. This Prospectus Supplement shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of such State.
SUBJECT TO COMPLETION, DATED AUGUST 29, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 17, 1997)
UNITS
SMITH BARNEY HOLDINGS INC.
SMITH BARNEY S&P 500 EQUITY LINKED NOTES DUE , 2003
------------------
Smith Barney Holdings Inc. (the "Company") is offering $ principal
amount of Smith Barney S&P 500 Equity Linked Notes due , 2003 (the
"Securities"). Each $15.00 principal amount of Securities will be deemed a
"Unit" for purposes of trading and transfer. Units will be transferable by the
Depositary (as defined below), as more fully described below.
The Securities are debt securities of the Company, which are being issued in
denominations of $15.00 and integral multiples thereof, will bear no periodic
payments of interest and will mature on , 2003. At maturity, a holder
of a Security will be entitled to receive, with respect to each Security, the
principal amount thereof plus an interest payment, if any (the "Supplemental
Redemption Amount"), based on the percentage increase, if any, in the S&P 500
Composite Stock Price Index (the "Index") over the Starting Index Value (as
defined below). The Supplemental Redemption Amount will in no event be less than
zero. The Securities are not redeemable or callable by the Company prior to
maturity. At maturity, a holder of a Security will receive the principal amount
of such Security plus the Supplemental Redemption Amount, if any; however, there
will be no other payment of interest, periodic or otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage increase from the Starting Index Value to the
Ending Index Value (as defined below), and (C) %. The Starting Index Value
equals which was the closing value of the Index on the date, the
Securities were priced by the Company for initial sale to the public (the
"Pricing Date"). The Ending Index Value, as more particularly described herein,
will be the average (arithmetic mean) of the closing values of the Index on
certain days, or if certain events occur, the closing value of the Index on a
single day prior to the maturity of the Securities; provided, however, that the
Ending Index Value, for purposes of calculating the Supplemental Redemption
Amount, shall not exceed the product of the Starting Index Value and 220% (the
"Maximum Ending Index Value"). See "Description of Securities--Payment at
Maturity" in this Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY
PROSPECTIVE PURCHASERS.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENT REDEMPTION AMOUNT TO
BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE INDEX AND
CERTAIN TAX CONSEQUENCES TO HOLDERS OF THE SECURITIES, SEE "DESCRIPTION OF
SECURITIES," "THE INDEX" AND "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS," RESPECTIVELY, IN THIS PROSPECTUS SUPPLEMENT.
Ownership of the Securities will be maintained in book-entry form by or
through The Depository Trust Company ("DTC" or the "Depositary"). Holders of the
Securities will not have the right to receive physical certificates evidencing
their ownership except under the limited circumstances described herein. See
"Description of Securities--Global Securities" in this Prospectus Supplement.
The Company intends to apply for listing of the Securities on the Chicago
Board Options Exchange, Inc. (the "CBOE").
------------------
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 OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit................................. $ $ $
- --------------------------------------------------------------------------------------------------------
Total.................................... $ $ $
========================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act of 1933, as amended.
(2) Before deduction of expenses payable by the Company.
------------------
The Securities are offered by the Underwriter named herein, subject to prior
sale, when, as, and if accepted by the Underwriter and subject to certain
conditions. The Underwriter reserves the right to reject orders in whole or in
part. It is expected that delivery of the Securities in book-entry form will be
made through the facilities of DTC in New York, New York on or about
, 1997.
This Prospectus Supplement and the accompanying Prospectus may be used by
the Underwriter in connection with offers and sales of the Securities in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. The Underwriter may act as principal or agent in
such transactions.
------------------
SMITH BARNEY INC.
, 1997
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND COVERING TRANSACTIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
ISSUER..................... Smith Barney Holdings Inc.
SECURITIES OFFERED......... Units of Smith Barney S&P 500 Equity
Linked Notes due , 2003. The Securities
are to be issued as a series of Debt Securities
under the Indenture described herein. See
"Description of Securities" in this Prospectus
Supplement and in the accompanying Prospectus.
LISTING.................... The Company intends to apply for listing of the
Securities on the CBOE.
DENOMINATIONS.............. A Unit consisting of $15.00 principal amount of
Securities and integral multiples thereof.
MATURITY................... , 2003.
PAYMENT AT MATURITY........ At maturity, a holder of a Security will be
entitled to receive (i) the principal amount
thereof ($15.00 for each Unit), and (ii) the
Supplemental Redemption Amount equal to:
Ending Index Value - Starting Index Value X %
Principal Amount X -----------------------------------------
Starting Index Value
provided, however, that in no event will the
Supplemental Redemption Amount be less than zero.
The Starting Index Value equals , which
was the closing value of the Index (the "Index
Value") on the Pricing Date. The Ending Index Value
will equal the average (arithmetic mean) of the
Index Values on certain days prior to the maturity
of the Securities, or if a Market Disruption Event
(as defined below) occurs, then the Ending Index
Value will equal the Index Value on a single day;
provided, however, that the Ending Index Value, for
purposes of calculating the Supplemental Redemption
Amount, will not exceed the Maximum Ending Index
Value. See "Description of Securities" and "The
Index" in this Prospectus Supplement.
INDEX...................... The Index is published by Standard & Poor's ("S&P")
and is intended to provide an indication of the
pattern of common stock price movement. The
calculation of the value of the Index is based on
the relative value of the aggregate market value of
the common stocks of 500 companies at a particular
time as compared to the aggregate average market
value of the common stocks of 500 similar companies
during the base period from the years 1941 through
1943. S&P may from time to time, in its sole
discretion, add companies to, or delete companies
from, the Index to fulfill the above-stated
intention of providing an indication of common
stock price movement. "Standard & Poor's(R),"
"S&P(R)," "S&P 500(R)," and "Standard & Poor's
500(R)" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by
the Company. See "The Index" in this Prospectus
Supplement.
RISK FACTORS............... Prospective investors should be aware that the
Securities are subject to certain special
considerations. Investors should be aware that if
the Ending Index Value does not exceed the Starting
Index Value, holders of the Securities will receive
only the principal amount thereof at maturity, even
if the value of the Index at some point between the
issue date and the maturity date of the Securities
exceeded the Starting Index Value. A holder of the
Securities may receive no Supplemental Redemption
Amount at
S-3
<PAGE> 4
maturity or a Supplemental Redemption Amount which
is below what the Company would pay as interest as
of the date hereof if the Company issued
non-callable senior debt securities with a similar
maturity as that of the Securities. The return of
principal of the Securities at maturity and the
payment of the Supplemental Redemption Amount may
not reflect the full opportunity costs implied by
inflation or other factors relating to the time
value of money and will not produce the same yield
as if the stocks underlying the Index were
purchased and held for the same period as the
Securities. Investors should also be aware that if
the Ending Index Value is greater than the Maximum
Ending Index Value, such investors will not be
entitled to receive any appreciation in the Index
above the Maximum Ending Index Value.
The Index does not reflect the payment of dividends
on the stocks underlying it and, therefore, the
yield to the maturity of the Securities will not
produce the same yield as if such underlying stocks
were purchased and held for a similar period.
There can be no assurance as to whether there will
be a secondary market in the Securities, that the
Underwriter will make a secondary market in the
Securities, or, if there were to be such a
secondary market, whether such market would be
liquid or illiquid. It is expected that any
secondary market for the Securities will be
affected by the creditworthiness of the Company and
by a number of other factors, including, but not
limited to, the level of the Index, the volatility
of the Index, dividend rates on the stocks
underlying the Index, the time remaining to the
maturity of the Securities and market interest
rates. The value of the Securities prior to
maturity is expected to depend on market factors
which include, but may not be limited to, those
factors listed above. If, however, the Securities
are sold prior to the maturity date, the sale price
may be at a substantial discount from the amount
expected to be payable to the holder upon the
maturity of the Securities as a result of, but not
limited to, the factors mentioned above. The price
at which a holder will be able to sell the
Securities prior to maturity may be at a discount,
which could be substantial, from the principal
amount thereof. The value of the Securities may not
necessarily bear a direct relationship to the value
of the Index. In addition, the Ending Index Value
depends on a number of interrelated factors,
including economic, financial and political events,
over which the Company has no control.
Trading prices of the stocks underlying the Index
will be influenced by both the complex and
interrelated political, economic, financial and
other factors that can affect the capital markets
generally and the equity trading markets on which
the underlying stocks are traded, and by various
circumstances that can influence the values of the
underlying stocks in a specific market segment or a
particular underlying stock.
It is suggested that prospective investors who
consider purchasing the Securities should reach an
investment decision only after carefully
considering the suitability of the Securities in
light of their particular circumstances. See "Risk
Factors" in this Prospectus Supplement.
Investors should also consider the tax consequences
of investing in the Securities. See "Certain United
States Federal Income Tax Considerations" in this
Prospectus Supplement.
S-4
<PAGE> 5
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus Supplement and the accompanying
Prospectus, the following risk factors relating to the Securities.
PAYMENT AT MATURITY
Supplemental Redemption Amount may be Zero. Investors should be aware that
if the Ending Index Value does not exceed the Starting Index Value, holders of
the Securities will receive only the principal amount thereof at maturity, even
if the value of the Index at some point between the Pricing Date and the
maturity date of the Securities exceeded the Starting Index Value.
Supplemental Redemption Amount will not exceed $ . Investors
should be aware that because the Ending Index Value, for purposes of calculating
the Supplemental Redemption Amount, will not exceed the Maximum Ending Index
Value, the Supplemental Redemption Amount will not exceed $ and
Investors will not be entitled to receive any appreciation in the Index above
the Maximum Ending Index Value.
Yield may be Below Market Interest Rates on the Pricing Date. A holder of
the Securities may receive no Supplemental Redemption Amount at maturity, or a
Supplemental Redemption Amount that is below what the Company would pay as
interest as of the Pricing Date if the Company issued non-callable senior debt
securities with a similar maturity as that of the Securities. The return of
principal of the Securities at maturity and the payment of the Supplemental
Redemption Amount, if any, may not reflect the full opportunity costs implied by
inflation or other factors relating to the time value of money.
Yield on Securities will not Reflect Dividends. The Index does not reflect
the payment of dividends on the stocks underlying it and therefore the yield
based on the Index to the maturity of the Securities will not produce the same
yield as if such underlying stocks were purchased and held for a similar period.
See "Description of Securities" below.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET; VOLATILITY
The Company intends to apply for listing of the Securities on the CBOE.
However, there can be no assurance as to whether there will be a secondary
market in the Securities, that the Underwriter will make a secondary market in
the Securities, or, if there were to be such a secondary market, whether such
market would be liquid or illiquid.
It is expected that any secondary market for the Securities will be
affected by the creditworthiness of the Company and by a number of factors,
including, but not limited to, the level of the Index, the volatility of the
Index, dividend rates on the stocks underlying the Index, the time remaining to
the maturity of the Securities and market interest rates. The value of the
Securities prior to maturity is expected to depend on market factors which
include, but may not be limited to, those factors listed above. If, however, the
Securities are sold prior to the maturity date, the sale price may be at a
substantial discount from the amount expected to be payable to the holder upon
the maturity of the Securities as a result of, but not limited to, the factors
mentioned above. The price at which a holder will be able to sell the Securities
prior to maturity may be at a discount, which could be substantial, from the
principal amount thereof. The value of the Securities may not necessarily bear a
direct relationship to the value of the Index. In addition, the Ending Index
Value depends on a number of interrelated factors, including economic, financial
and political events, over which the Company has no control. See "Description of
Securities" and "The Index" below.
RELATIONSHIP OF THE SECURITIES AND THE INDEX
The historical Index values should not be taken as an indication of the
future performance of the Index during the term of the Securities. While the
trading prices of the stocks underlying the Index will determine the value of
the Index, it is impossible to predict whether the value of the Index will fall
or rise. Moreover, the value of the Securities may not necessarily bear a direct
relationship to the value of the Index. Trading prices of the stocks underlying
the Index will be influenced by both the complex and interrelated political,
economic, financial and other factors that can affect the capital markets
generally and the equity trading markets on which the
S-5
<PAGE> 6
underlying stocks are traded, and by various circumstances that can influence
the values of the underlying stocks in a specific market segment or a particular
underlying stock.
The policies of S&P concerning additions, deletions and substitutions of
the stock underlying the Index and the manner in which S&P takes account of
certain changes affecting such underlying stocks may affect the value of the
Index. The policies of S&P with respect to the calculation of the Index could
also affect the value of the Index. S&P may discontinue or suspend calculation
or dissemination of the Index. Any such actions could affect the value of the
Securities. See "The Index" and "Description of Securities--Discontinuance of
the Index" and "--Adjustments to the Index; Market Disruption Events" below.
AFFILIATION OF THE COMPANY AND CALCULATION AGENT
Smith Barney, Inc., a wholly owned subsidiary of the Company ("Smith
Barney"), the Company or their affiliates may from time to time engage in
transactions involving the stocks underlying the Index for their proprietary
accounts and for other accounts under their management. Smith Barney and its
affiliates will also be the counterparties to the hedge of the Company's
obligations under the Securities. See "Use of Proceeds and Hedging" below. As a
result of the foregoing, as well as its affiliation with the Company, potential
conflicts of interest may exist between Smith Barney, in its capacity as the
calculation agent (or any successor thereto, the "Calculation Agent"), and the
holders of the Securities, including with respect to certain determinations and
judgments that the Calculation Agent must make in determining the Index Values
or whether a Market Disruption Event has occurred. See "Description of
Securities--Discontinuance of the Index" and "--Adjustments to the Index; Market
Disruption Events" below. Smith Barney, as a registered broker-dealer, is
required to maintain policies and procedures regarding the handling and use of
confidentiality proprietary information, and such policies and procedures will
be in effect throughout the term of the Securities to restrict the use of
information relating to the calculation of the Index Values that the Calculation
Agent may be required to make prior to the dissemination of such index Values.
Smith Barney is obligated to carry out its duties and functions as Calculation
Agent in good faith and using its reasonable judgment.
OTHER CONSIDERATIONS
If a case under the United States bankruptcy code is commenced in respect
of the Company, the claim of a holder of the Securities may, under the Title 11
of the United States Code, be limited to the principal amount of such
Securities.
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in light of their particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities. See "Certain United States Federal Income Tax Considerations" below.
S-6
<PAGE> 7
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997, and as adjusted to give effect to the issuance and
sale of the Securities and the application of the proceeds therefrom to the
repayment of short-term borrowings, as if such transactions had occurred on June
30, 1997.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
---------------------------
(UNAUDITED)
OUTSTANDING AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term borrowings................................................ $ 4,268 $
Notes payable........................................................ 10 10
Long-term debt....................................................... 2,725
Subordinated indebtedness............................................ 224 224
----------- -----------
Total debt................................................. $ 7,227 $ 7,227
========= =========
Stockholder's equity
Common Stock ($.10 par value;
authorized--1,000 shares;
issued and outstanding--100 shares).............................. -- --
Additional paid-in capital........................................... 1,803 1,803
Retained earnings.................................................... 1,183 1,183
Cumulative translation adjustment.................................... 5 5
----------- -----------
Total stockholder's equity................................. 2,991 2,991
----------- -----------
Total capitalization................................................. $10,218 $10,218
========= =========
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------------
JUNE 30, 1997 1996 1995 1994 1993 1992
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 1.82 1.93 1.71 1.81 2.68 2.06
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings before income taxes and fixed charges by the fixed charges. For
purposes of this ratio, fixed charges consist of interest expense and that
portion of rentals deemed representative of the appropriate interest factor.
S-7
<PAGE> 8
DESCRIPTION OF SECURITIES
The following description of the terms of the Securities offered herein
(referred to in the Prospectus as the "Offered Securities") supplements the
description of the general terms of Securities set forth in the Prospectus, to
which description reference is hereby made. The following summary of the
Securities is qualified in its entirety by reference thereto and to the
Indenture referred to therein.
GENERAL
The Securities are a series of debt securities issued under the Indenture
described in the accompanying Prospectus. The aggregate number of Units issued
will be limited to . The Securities will mature on , 2003
and will be general unsecured obligations of the Company. The Securities will be
issued only in fully registered form and in denominations of integral multiples
of one Unit. Initially the Securities will be issued in the form of one or more
global securities (each, a "Global Security") registered in the name of DTC or
its nominee, as described below. The Securities will not be subject to
redemption prior to maturity.
Reference should be made to the accompanying Prospectus for a detailed
summary of additional provisions of the Securities and of the Indenture under
which the Securities will be issued. For a discussion of certain federal income
tax consequences to Holders of the Securities, see "Certain United States
Federal Income Tax Considerations" below.
INTEREST
Holders of the Securities will not be entitled to receive periodic payments
of interest.
PAYMENT AT MATURITY
At maturity, a Holder of a Security will be entitled to receive the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value, a Holder of a Security will be entitled to receive only the principal
amount thereof.
At maturity, a Holder of a Security will be entitled to receive, with
respect to each such Security, (i) the principal amount thereof ($15.00 for each
Unit) and (ii) the Supplemental Redemption Amount equal in amount to:
<TABLE>
<C> <C> <S>
Ending Index Value - Starting Index Value
Principal Amount X -------------------------------------------- X %
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. The Starting Index Value equals , which was the Index
Value on the Pricing Date. The Ending Index Value will be determined by the
Calculation Agent and will equal the average (arithmetic mean) of the Index
Values determined on each of the first five Calculation Days (as defined below)
during the Calculation Period (as defined below); provided, however, that the
Ending Index Value, for purposes of calculating the Supplemental Redemption
Amount, will not exceed the Maximum Ending Index Value. If there are fewer than
five Calculation Days, then the Ending Index Value will equal the average
(arithmetic mean) of the Index Values on such Calculation Days, and if there is
only one Calculation Day, then the Ending Index Value will equal the Index Value
on such Calculation Day. If no Calculation Days occur during the Calculation
Period because of Market Disruption Events, then the Ending Index Value will
equal the Index Value determined on the last scheduled Index Business Day (as
defined below) in the Calculation Period, regardless of the occurrences of a
Market Disruption Event on such day. The "Calculation Period" means the period
from and including the seventh scheduled Index Business Day prior to the
maturity date to and including the second scheduled Index Business Day prior to
the maturity date. "Calculation Day" means any Index Business Day during the
Calculation Period on which a Market Disruption Event has not occurred. For
purposes of determining the Ending Index Value, an "Index Business Day" is a day
on which the New York Stock Exchange and the American Stock Exchange are open
for trading and the Index or any Successor Index (as defined below) is
calculated and published. All determinations made by
S-8
<PAGE> 9
the Calculation Agent shall be at the sole discretion of the Calculation Agent
and, absent manifest error by the Calculation Agent, shall be conclusive for all
purposes and binding on the Company and holders of the Securities.
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $15 principal amount
of Securities, (ii) the total rate of return to holders of the Securities
assuming a 104% participation rate, (iii) the pretax annualized rate of return
to holders of Securities, and (iv) the pretax annualized rate of return of an
investment in the stocks underlying the Index (which includes an assumed
aggregate dividend yield of 1.64% per annum, as more fully described below).
<TABLE>
<CAPTION>
PRETAX
TOTAL RATE ANNUALIZED RATE
PERCENTAGE CHANGE HYPOTHETICAL ENDING TOTAL AMOUNT OF RETURN ON OF RETURN ON
OF INDEX VALUE INDEX VALUE PAYABLE AT MATURITY THE SECURITIES THE SECURITIES (1)
- ----------------- ------------------- ---------------------- --------------- ------------------
<S> <C> <C> <C> <C>
-30.0% 644.11 15.00 0.00% 0.00%
-20.0% 736.13 15.00 0.00% 0.00%
-10.0% 828.14 15.00 0.00% 0.00%
0.0% 920.16(3) 15.00 0.00% 0.00%
10.0% 1,012.18 16.56 10.40% 1.66%
20.0% 1,104.19 18.12 20.80% 3.20%
30.0% 1,196.21 19.68 31.20% 4.63%
40.0% 1,288.22 21.24 41.60% 5.97%
50.0% 1,380.24 22.80 52.00% 7.22%
60.0% 1,472.26 24.36 62.40% 8.41%
70.0% 1,564.27 25.92 72.80% 9.54%
80.0% 1,656.29 27.48 83.20% 10.61%
90.0% 1,748.30 29.04 93.60% 11.63%
100.0% 1,840.32 30.60 104.00% 12.61%
110.0% 1,932.34 32.16 114.40% 13.55%
120.0% 2,024.35(4) 33.72 124.80% 14.45%
130.0% 2,116.37 33.72 124.80% 14.45%
140.0% 2,208.38 33.72 124.80% 14.45%
<CAPTION>
PRETAX
ANNUALIZED RATE
OF RETURN ON
STOCKS UNDERLYING
THE SECURITIES (1)(2)
---------------------
<S> <C>
-4.17%
-2.04%
-0.11%
1.65%
3.27%
4.78%
6.18%
7.50%
8.75%
9.93%
11.05%
12.11%
13.13%
14.11%
15.05%
15.95%
16.82%
17.66%
</TABLE>
- ---------------
(1) The rates of return in this table are calculated on an annualized basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amounts reflecting
the relative weight of such stocks in the Index; (ii) a percentage change in
the aggregate price of such stocks that equals the percentage change in the
Index from the Starting Index Value to the applicable hypothetical Ending
Index Value; (iii) a constant dividend yield of 1.64% per annum, paid
quarterly from the date of initial delivery of Securities, applied to the
value of the Index at the beginning of each such quarter assuming such value
increases or decreases linearly from the Starting Index Value to the
applicable hypothetical Ending Index Value; (iv) no transaction fees or
expenses; (v) a term for the Securities from August 25, 1997 to August 25,
2003; and (vi) an Index Value at maturity equal to the hypothetical Ending
Index Value.
(3) The Starting Index Value. For purposes of this preliminary Prospectus
Supplement, the Starting Index Value is assumed to be the Index Value on
August 25, 1997. The actual Starting Index Value will be the Index Value on
the Pricing Date.
(4) The Ending Index Value, for purposes of calculating the Supplemental
Redemption Amount, will not exceed the Maximum Ending Index Value (or 2.2
multiplied by the Starting Index Value).
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount (if any) received by investors and the total and
pretax annualized rate of return resulting therefrom will depend entirely on the
actual Ending Index Value determined by the Calculation Agent as provided
herein. Historical data regarding the Index is included in this Prospectus
Supplement under "The Index--Historical Data on the Index."
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent determines,
in its sole discretion, to be comparable to such Index (any such index being
referred to hereinafter as a "Successor Index"), then the relevant Index Value
shall be determined by reference to the value of such Successor Index at the
close of trading on the relevant exchange or market for the Successor Index on
the applicable Calculation Day.
S-9
<PAGE> 10
Upon any selection by the Calculation Agent of a Successor Index, the
Calculation Agent shall cause written notice thereof to be furnished to the
Trustee, to the Company and to the Holders of the Securities within three
Business Days of such selection.
If S&P discontinues publication of the Index prior to, and such
discontinuance is continuing on, any Calculation Day and the Calculation Agent
determines that no Successor Index is available at such time, then on such
Calculation Day; the Calculation Agent shall determine the Index Value on such
Calculation Day. The Index Value shall be computed by the Calculation Agent in
accordance with the formula for and method of calculating the Index last in
effect prior to such discontinuance, using the closing price (or, if trading in
the relevant securities has been materially suspended or materially limited, its
good faith estimate of the closing price that would have prevailed but for such
suspension or limitation) on such Calculation Day of each security most recently
comprising the Index. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect the value of
the Securities. If a Successor Index is selected or the Calculation Agent
calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption event exists.
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index or a Successor Index, or
the value thereof, is changed in any material respect, or if the Index or a
Successor Index is in any other way modified so that such index does not, in the
opinion of the Calculation Agent, fairly represent the value of the Index or
such Successor Index had such changes or modifications not been made, then, from
and after such time, the Calculation Agent shall, at the close of business in
New York, New York, on each Calculation Day, make such calculations and
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a value of a stock index comparable to the Index
as if such changes or modifications had not been made, and calculate the Index
Value with reference to the Index or such Successor Index, as adjusted.
Accordingly, if the method of calculating the Index or a Successor Index is
modified so that the value of such value of such index is a fraction or a
multiple of what it would have been if it had not been modified (e.g., due to a
split in the index), then the Calculation Agent shall adjust such index in order
to arrive at a value of the Index or such Successor Index as if it had not been
modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted
or promulgated by the New York State Exchange or any other self-regulatory
organization or the Securities and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading during significant market
fluctuations shall be considered "material" for purposes of this
definition), in each case, for more than two hours of trading, in 100 or
more of the securities included in the Index, or
(ii) the suspension or material limitation, in each case, for more
than two hours of trading (whether by reason of movements in price
otherwise exceeding levels permitted by the relevant exchange or otherwise)
in (A) futures contracts related to the Index which are traded on the
Chicago Mercantile Exchange or (B) option contracts related to the Index
which are traded on the CBOE.
For the purposes of this definition, a limitation on the hours in a
trading day and/or number of days of trading will not constitute a Market
Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange.
REDEMPTION; DEFEASANCE
The Securities are not subject to redemption prior to maturity and are not
subject to the defeasance provisions described in the accompanying Prospectus
under "Description of Securities--Defeasance."
S-10
<PAGE> 11
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to each
$15.00 principal amount thereof, will be equal to (i) the initial issue price
($15.00) plus (ii) a Supplemental Redemption Amount calculated as though the
date of early repayment were the maturity date of the Securities. See
"Description of Securities--Payment at Maturity" below. If a case under the
United States bankruptcy code is commenced in respect of the Company, the claim
of the holder of a Security may be limited, under Title 11 of the United States
Code, to the principal amount of the Security.
In case of default in payment at the maturity date of the Securities
(whether at their stated maturity or upon acceleration), from and after the
maturity date, the Securities shall bear interest, payable upon demand of the
Trustee, at the rate of % per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount is made or duly provided for.
GLOBAL SECURITIES
Upon issuance, all Securities will be represented by one or more fully
registered Global Securities. Each such Global Security will be deposited with,
or on behalf of, DTC and registered in the name of DTC or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Depositary to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or other nominee of such Depositary or by such Depositary or any
such nominee to a successor of such a Depositary or a nominee of such successor.
Payment of the principal of, and any Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC of its nominee will be made
to DTC or its nominee, as the case may be, as the Holder of the Global
Securities representing such Securities. None of the Company, the Trustee or any
other agent of the Company or agent of the Trustee will have any responsibility
or liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests or for supervising or reviewing any
records relating to such beneficial ownership interests. The Company expects
that DTC, upon receipt of any payment or any Supplemental Redemption Amount in
respect of a Global Security, will credit the accounts of the relevant
participants with payment in amounts proportionate to their respective holdings
in principal amount of beneficial interest in such Global Security as shown on
the records of DTC. The Company also expects that payments by participants to
owners of beneficial interests in Global Securities will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
If (x) DTC is at any time unwilling or unable to continue as depositary and
a successor depositary is not appointed by the Company within 90 days, (y) the
Company executes and delivers to the Trustee a Company Order to the effect that
the Global Securities shall be exchangeable or (z) an Event of Default has
occurred and is continuing with respect to the Securities, the Global Securities
will be exchangeable for Securities in definitive certificated form of like
tenor and of an equal aggregate principal amount, in denominations of $15.00 and
integral multiples thereof. Such definitive Securities shall be registered in
such name or names as the Depositary shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depositary
from participants with respect to ownership of beneficial interests in such
Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement of the Securities will be made by the Underwriter in immediately
available funds. All payments of principal and the Supplemental Redemption
Amount, if any, will be made by the Company in immediately available funds so
long as the Securities are maintained in book-entry form.
S-11
<PAGE> 12
THE INDEX
All disclosure contained in this Prospectus Supplement regarding the Index,
including, without limitation, its make-up, method of calculation and changes in
its components, is derived from publicly available information prepared by S&P.
Neither the Company nor the Underwriter takes any responsibility for the
accuracy or completeness of such information.
GENERAL
The Index is published by S&P and is intended to provide a performance
benchmark for the U.S. equity markets. The calculation of the value of the Index
(discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
(the "Component Stocks") as of a particular time, as compared to the aggregate
average Market Value of the common stocks of 500 similar companies during the
base period of the years 1941 through 1943. The "Market Value" of any Component
Stock is the product of the market price per share and the number of the then
outstanding shares of such Component Stock. The 500 companies are not the 500
largest companies listed on the New York Stock Exchange and not all 500
companies are listed on such exchange. S&P chooses companies for inclusion in
the Index with an aim of achieving a distribution by broad industry groupings
that approximates the distribution of these groupings in the common stock
population of the U.S. equity market. Relevant criteria employed by S&P include
the viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which the
market price of that company's common stock is generally responsive to changes
in the affairs of the respective industry and the Market Value and trading
activity of the common stock of that company. As of June 30, 1997, the 500
companies included in the Index were divided into 103 individual groups and 11
economic sectors. Financials, Utilities and Transportation account for 3 of the
11 sectors. The Industrials are broken into 8 sectors--Basic Materials, Capital
Goods, Communication Services, Consumer Cyclicals, Consumer Staples, Energy,
Health Care and Technology. S&P may from time to time, in its sole discretion,
add companies to, or delete companies from, the Index to achieve the objectives
stated above.
COMPUTATION OF THE S&P 500 INDEX
S&P currently computes the Index as of a particular time as follows:
(1) the Market Value of each Company Stock is determined as of such
time;
(2) the Market Value of all Component Stocks as of such time are
aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(4) the mean average Market Value of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the "Base Value");
(5) the aggregate Market Value of all Component Stocks as of such time
(as determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by
ten.
While S&P currently employs the above methodology to calculate the Index,
no assurance can be given that S&P will not modify or change such methodology in
a manner that may affect the Supplemental Redemption Amount, if any, payable to
holders of Securities upon maturity or otherwise.
S&P adjusts the forgoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the
S-12
<PAGE> 13
aggregate Market Value of all component stocks (after taking account of the new
market price per share of the particular component stock or the new number of
outstanding shares thereof or both, as the case may be) and then determines the
New Base Value in accordance with the following formula:
<TABLE>
<C> <C> <S>
New Market Value
Old Base Value X ------------------ = New Base Value
Old Market Value
</TABLE>
The result is that the Base Value is adjusted in proportion to any change
in the aggregate Market Value of all Components Stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the Index.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing values of the Index on the last
business day of each year from 1947 through 1988, as published by S&P. The
historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and thereby reduce the Supplemental Redemption Amount that may
be payable to holders of Securities at maturity or otherwise.
<TABLE>
<CAPTION>
YEAR-END VALUE OF THE INDEX
- -------------------------------------------------
CLOSING CLOSING
YEAR VALUE YEAR VALUE
- ---- ------------- ---- -------------
<S> <C> <C> <C>
1947 15.30 1968 103.86
1948 15.20 1969 92.06
1949 16.79 1970 92.15
1950 20.43 1971 102.09
1951 23.77 1972 118.05
1952 26.57 1973 97.55
1953 24.81 1974 68.56
1954 35.98 1975 90.19
1955 45.48 1976 107.46
1956 46.67 1977 95.10
1957 39.99 1978 96.11
1958 55.21 1979 107.94
1959 59.89 1980 135.76
1960 58.11 1981 122.55
1961 71.55 1982 140.64
1962 63.10 1983 164.93
1963 75.02 1984 167.24
1964 84.75 1985 211.28
1965 92.43 1986 242.17
1966 80.33 1987 247.08
1967 96.47 1988 277.72
</TABLE>
S-13
<PAGE> 14
The following table sets forth the level of the Index at the end of each
month, in the period from January, 1989 through August, 1997. These historical
data on the Index are not necessarily indicative of the future performance of
the Index or what the value of the Securities may be. Any historical upward or
downward trend in the level of the Index during any period set forth below is
not any indication that the Index is more or less likely to increase or decrease
at any time during the term of the Securities.
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1989:
January............................................ 297.47
February........................................... 288.86
March.............................................. 294.87
April.............................................. 309.64
May................................................ 320.52
June............................................... 317.98
July............................................... 346.08
August............................................. 351.45
September.......................................... 349.15
October............................................ 340.36
November........................................... 345.99
December........................................... 353.40
1990:
January............................................ 329.08
February........................................... 331.89
March.............................................. 339.94
April.............................................. 330.80
May................................................ 361.23
June............................................... 358.02
July............................................... 356.15
August............................................. 322.56
September.......................................... 306.05
October............................................ 304.00
November........................................... 322.22
December........................................... 330.22
</TABLE>
S-14
<PAGE> 15
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1991:
January............................................ 343.93
February........................................... 367.07
March.............................................. 375.22
April.............................................. 375.35
May................................................ 389.83
June............................................... 371.16
July............................................... 387.81
August............................................. 395.43
September.......................................... 387.86
October............................................ 392.46
November........................................... 375.22
December........................................... 417.09
1992:
January............................................ 408.79
February........................................... 412.70
March.............................................. 403.69
April.............................................. 414.95
May................................................ 415.35
June............................................... 408.14
July............................................... 424.21
August............................................. 414.03
September.......................................... 417.80
October............................................ 418.68
November........................................... 431.35
December........................................... 435.71
1993:
January............................................ 438.78
February........................................... 443.38
March.............................................. 451.67
April.............................................. 440.19
May................................................ 450.19
June............................................... 450.53
July............................................... 448.13
August............................................. 463.56
September.......................................... 458.93
October............................................ 467.83
November........................................... 461.79
December........................................... 466.45
</TABLE>
S-15
<PAGE> 16
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1994
January............................................ 481.61
February........................................... 467.14
March.............................................. 445.77
April.............................................. 450.91
May................................................ 456.50
June............................................... 444.27
July............................................... 458.26
August............................................. 475.49
September.......................................... 462.69
October............................................ 472.35
November........................................... 453.69
December........................................... 459.27
1995:
January............................................ 470.42
February........................................... 487.39
March.............................................. 500.71
April.............................................. 514.71
May................................................ 533.40
June............................................... 544.75
July............................................... 562.06
August............................................. 561.88
September.......................................... 584.41
October............................................ 581.50
November........................................... 605.37
December........................................... 615.93
1996:
January............................................ 636.02
February........................................... 640.43
March.............................................. 645.50
April.............................................. 654.17
May................................................ 669.12
June............................................... 670.63
July............................................... 639.95
August............................................. 651.99
September.......................................... 687.31
October............................................ 705.27
November........................................... 757.02
December........................................... 740.74
1997:
January............................................ 786.16
February........................................... 790.82
March.............................................. 757.12
April.............................................. 801.34
May................................................ 848.28
June............................................... 885.14
July............................................... 954.29
August.............................................
</TABLE>
S-16
<PAGE> 17
The following graph sets forth the historical performance of the Index as
of June of each year from 1947 through 1997. Past movements of the Index are not
necessarily indicative of the future Index values. On August 25, 1997, the
closing level of the Index was 920.16.
CLOSING LEVEL OF THE S&P 500 INDEX
<TABLE>
<CAPTION>
End of
June S&P 500 Index
- ------ -------------
<S> <C>
1947 15.21
1948 16.74
1949 14.16
1950 17.69
1951 20.96
1952 24.96
1953 24.14
1954 29.21
1955 41.03
1956 46.97
1957 47.37
1958 45.24
1959 58.47
1960 56.92
1961 64.64
1962 54.75
1963 69.37
1964 81.69
1965 84.12
1966 84.74
1967 90.64
1968 99.58
1969 97.71
1970 72.72
1971 99.7
1972 107.14
1973 104.26
1974 86
1975 95.19
1976 104.28
1977 100.48
1978 95.53
1979 102.91
1980 114.24
1981 131.21
1982 109.61
1983 168.11
1984 153.18
1985 191.85
1986 250.84
1987 304
1988 273.5
1989 317.98
1990 358.02
1991 371.16
1992 408.14
1993 450.53
1994 444.27
1995 544.75
1996 670.6
1997 885.15
</TABLE>
LICENSE AGREEMENT
S&P and the Company have entered into a non-exclusive license agreement
providing for the license to the Company and any of its affiliated or subsidiary
companies, in exchange for a fee, of the right to use the Index, which is owned
and published by S&P, in connection with certain securities, including the
Securities.
The license agreement between S&P and the Company provides that the
following language must be stated in this Prospectus Supplement:
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the holders of
the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the Index to track general stock market performance. S&P's only
relationship to the Company (other than transactions entered into in the
ordinary course of business) is the licensing of certain trademarks and
trade names of S&P and of the Index which is determined, composed and
calculated by S&P without regard to the Company or the Securities. S&P has
no obligation to take the needs of the Company or the holders of the
Securities into consideration in determining, composing, or calculating the
Index. S&P is not responsible for, and has not participated in, the
determination of the timing of the sale of the Securities, prices at which
the Securities are to initially be sold, or quantities of the Securities to
be issued or in the determination or calculation of the equation by which
the Securities are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of
the Securities.
S-17
<PAGE> 18
STANDARD & POOR'S ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, SMITH BARNEY,
HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER
THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, the following
is an accurate summary of the principal U.S. (as defined below) federal income
tax considerations that may be relevant to an initial holder of Securities. This
summary is based on laws, regulations, rulings and decisions now in effect, all
of which are subject to change by legislative, judicial or regulatory actions
that in some cases may have retroactive effect. This summary deals only with
persons that will hold Securities as capital assets and, except as discussed
herein, does not address tax considerations applicable to investors that may be
subject to special tax rules, such as banks, insurance companies, dealers in
securities or currencies, persons that hold Securities as a part of an
integrated investment (including a "straddle") comprised of Securities and one
or more other positions, or persons that have a functional currency other than
the U.S. dollar.
As used herein, the term "U.S. Holder" means a holder of Securities that is
(i) a citizen or resident of the U.S., (ii) a corporation, partnership or other
entity created or organized in, or under the laws of, the U.S. or any state
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source, (iv) a trust the income of which is
includible in gross income for U.S. federal income tax purposes, regardless of
its source or, for taxable years beginning after December 31, 1996, a trust if a
court within the U.S. is able to exercise primary supervision over the
administration of such trust and one or more U.S. fiduciaries have the authority
to control all substantial decisions of such trust, or (v) a person otherwise
subject to U.S. federal income taxation on a net basis in respect of such
holder's ownership of the Securities. As used herein, the term "non-U.S. Holder"
means a holder of Securities that is not a U.S. Holder. The term "U.S." means
the United States of America.
Investors should consult their tax advisors in determining the tax
consequences to them of purchasing, holding and disposing of the Securities,
including the application of the U.S. federal income tax considerations
discussed below to their particular situation, as well as the application of
state, local, foreign or other tax laws.
TAX CHARACTERIZATION OF THE SECURITIES
The Company intends to treat the Securities as indebtedness for U.S.
federal income tax purposes. It is possible, however, that the Internal Revenue
Service (the "Service") will disagree with this characterization of the
Securities. The following discussion assumes that the Securities will be treated
as indebtedness for U.S. federal income tax purposes.
TREATMENT OF U.S. HOLDERS
Taxation of Interest on the Securities
Under Treasury regulations applicable to certain debt instruments issued
with "contingent interest" (the "Regulations"), a U.S. Holder will be required
to include annually certain amounts in income as interest before receiving the
Supplemental Redemption Amount, if any, and the principal amount. These amounts
will be determined by utilizing semi-annual compounding, based on the comparable
yield set forth in the next paragraph. U.S. Holders should consult their tax
advisors with respect to the computation of the amounts to be included in
income.
S-18
<PAGE> 19
Under the Regulations, the Company is required to determine the comparable
yield of the Securities and to construct a projected payment schedule for the
Securities. The comparable yield for the Securities is generally the yield
(determined as of the issue date of the Securities) at which the Company would
issue a fixed rate debt instrument that had terms and conditions similar to the
Securities (e.g., the term, level of subordination, timing of payments and
general market conditions). Based on these and other factors, the Company has
determined that the comparable yield for the Securities is %, compounded
semi-annually. The projected payment schedule for the Securities consists of the
Company's determination (based on the comparable yield of the Securities), as of
the issue date of the Securities, of the projected Supplemental Redemption
Amount payable at the maturity of the Securities. Based on the foregoing, the
Company has determined that a projected Supplemental Redemption Amount of $
per Unit will be made on the maturity date of the Securities. The projected
payment schedule has been determined solely for U.S. federal income tax purposes
(i.e., for the purpose of complying with the Regulations) and is utilized to
determine the amount of interest to be included in income annually by U.S.
Holders. Accordingly, the calculation of the projected payment schedule and the
comparable yield is based upon a number of assumptions and estimates and is not
a prediction of the actual amount, if any, which may be paid to holders of
Securities at maturity or of the actual yield on the Securities.
A U.S. Holder will generally be bound by the Company's projected payment
schedule unless the U.S. Holder determines its own projected payment schedule
and comparable yield, explicitly discloses such schedule to the Service, and
explains to the Service the reason for preparing its own schedule. The Company
believes that the projected payment schedule and comparable yield set forth
above are reasonable and will therefore be respected by the Service. The
Company's determination, however, is not binding on the Service, and it is
possible that the Service could conclude that some other projected payment
schedule or comparable yield should be used for the Securities.
If the actual Supplemental Redemption Amount differs from the Company's
projected Supplemental Redemption Amount, the difference will be treated as
either a positive or a negative adjustment to the amount includible in a U.S.
Holder's income as interest on the Securities. If the actual Supplemental
Redemption Amount exceeds the Company's projected Supplemental Redemption
Amount, the excess will be treated as additional interest income for the taxable
year in which the Supplemental Redemption Amount is received. If the Company's
projected Supplemental Redemption Amount exceeds the actual Supplemental
Redemption Amount, the excess will (i) first offset the interest income that
would otherwise be includible in a U.S. Holder's income with respect to the
Securities for the taxable year in which the Supplemental Redemption Amount is
received and (ii) then be treated as an ordinary loss by the U.S. Holder for
such taxable year.
Investor Accrual for Tax Purposes
Based upon the comparable yield of % described above, the Supplemental
Redemption Amount is projected to equal $ per Unit. Using the projected
Supplemental Redemption Amount, interest to be accrued annually for U.S. federal
income tax purposes by a U.S. Holder for each Unit would be as follows:
<TABLE>
<CAPTION>
TOTAL INTEREST DEEMED TO HAVE
INTEREST DEEMED TO ACCRUE ACCRUED ON SECURITIES AS OF
DURING ACCRUAL PERIOD END OF ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
--------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
</TABLE>
S-19
<PAGE> 20
Disposition of Securities
If a U.S. Holder sells or exchanges Securities in a taxable transaction
before the maturity or acceleration of the Securities (a "disposition"), such
U.S. Holder will recognize gain or loss equal to the difference between the
amount realized on the disposition and the U.S. Holder's adjusted tax basis in
the Securities. A U.S. Holder's adjusted tax basis in the Securities generally
will be equal to the U.S. Holder's purchase price for the Securities increased
by all amounts previously accrued as interest to the date of disposition. Any
gain recognized by such U.S. Holder on such disposition will be treated as
interest income. Any loss recognized by such U.S. Holder on such disposition
first will be treated as an ordinary loss to the extent of all amounts required
to be accrued by the U.S. Holder as interest on the Securities pursuant to the
rules described above. Any remaining loss will be treated as a capital loss
subject to the tax rate changes enacted by the Taxpayer Relief Act of 1997.
Individual U.S. Holders should consult their tax advisors to determine the U.S.
federal income tax consequences of disposing of the Securities.
Tax-Exempt Holders of the Securities
Certain U.S. entities (e.g., certain individual retirement accounts,
pension plans and charitable organizations) are generally exempt from U.S.
federal income taxation (each, a "Tax Exempt") and are subject to U.S. federal
income tax only with respect to income derived from a trade or business that is
unrelated to their exempt activities ("unrelated business taxable income" or
"UBTI"). Interest is specifically excluded from the definition of UBTI and,
accordingly, a Tax-Exempt U.S. Holder generally may receive or accrue interest
income without the imposition of U.S. federal income tax. Such exclusion from
U.S. federal income tax is not available to the extent the Securities constitute
debt-financed property to the Tax-Exempt U.S. Holder within the meaning of
Section 514 of the Internal Revenue Code of 1986, as amended. The Securities
will generally constitute debt-financed property to the extent a Tax-Exempt U.S.
Holder borrows to acquire the Securities. The foregoing summary addresses only
certain of the tax considerations relating to an investment in the Securities by
a Tax-Exempt U.S. Holder and is not intended to address all of the tax
considerations that may be relevant to a Tax-Exempt U.S. Holder. Accordingly,
Tax-Exempt U.S. Holders are urged to consult their tax advisors as to the
consequences under U.S. federal, state, local, foreign and other tax laws of
purchasing, holding and disposing of the Securities.
TREATMENT OF NON-U.S. HOLDERS
Supplemental Redemption Amounts paid to non-U.S. Holders at maturity
generally will not be subject to the 30% withholding tax generally imposed with
respect to interest paid to non-U.S. persons, provided that (i) such amounts are
not effectively connected with the conduct by the non-U.S. Holder of a trade or
business in the U.S., (ii) the non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (iii) the non-U.S. Holder is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (iv) the non-U.S. Holder fulfills certain certification
requirements. Under such certification requirements, the non-U.S. Holder must
provide its name and address and must certify, under penalties of perjury, that
it is not a U.S. Holder and that it is the beneficial owner of the Securities.
Such certification must be received in the calendar year in which the payment is
made or in either of the preceding two calendar years.
A non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to any gain recognized upon the disposition of the Securities
unless (i) such gain is effectively connected with the conduct by the non-U.S.
Holder of a trade or business in the United States, (ii) in the case of an
individual non-U.S. Holder, such non-U.S. Holder is present in the United States
for 183 days or more in the taxable year during which the disposition occurs and
certain other conditions are met, or (iii) the non-U.S. Holder fails to satisfy
the certification requirements of the preceding paragraph.
The Department of the Treasury has issued proposed Treasury regulations
concerning the non-U.S. Holder certification procedures regarding U.S.
withholding tax on certain amounts paid to non-U.S. persons, which are proposed
to be effective for payments made after December 31, 1998. Prospective investors
should consult their tax advisors concerning the effect, if any, of the adoption
of such proposed Treasury regulations on an investment in the Securities.
S-20
<PAGE> 21
BACKUP WITHHOLDING TAX
Certain non-corporate U.S. Holders may be subject to backup withholding tax
at a rate of 31% on payments of principal, premium and interest on, and the
proceeds of disposition of, the Securities. Backup withholding tax will be
imposed only if the U.S. Holder (i) fails to furnish its taxpayer identification
number ("TIN"), which, for an individual, would be his or her Social Security
number, (ii) furnishes an incorrect TIN, (iii) is notified by the Service that
it has failed to report properly payments of interest or dividends or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the Service that it is
subject to backup withholding tax for failure to report interest or dividend
payments. U.S. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding tax and the procedure for
obtaining such an exemption if applicable.
Backup withholding tax generally will not apply to interest paid on the
Securities to a non-U.S. Holder who provides the certification described above
under "Treatment of Non-U.S. Holders." Payments by a U.S. office of a broker of
the proceeds of a disposition of the Securities are subject to backup
withholding tax at a rate of 31% unless the non-U.S. Holder certifies its
non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption.
The amount of any backup withholding tax imposed on a payment to a holder
of Securities will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Service.
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by the Company from the sale of the
Securities will be used for general corporate purposes and, in part, by the
Company or one or more of its subsidiaries in connection with hedging the
Company's obligations under the Securities. On or prior to the date of this
Prospectus Supplement, the Company, through its subsidiaries and others, will
hedge its anticipated exposure in connection with the Securities by the purchase
and sale of exchange-traded and over-the-counter options on, or other derivative
or synthetic instruments related to, the Index, individual stocks included in
the Index, futures contracts on the Index and/or options on such futures
contracts. From time to time after the initial offering and prior to the
maturity of the Securities, depending on market conditions (including the value
of the Index), in connection with hedging with respect to the Securities, the
Company expects that it and/or one or more of its subsidiaries will increase or
decrease their initial hedging positions using dynamic hedging techniques and
may take long or short positions in the Index, individual stocks included in the
Index, listed or over-the-counter options contracts in, or other derivative or
synthetic instruments related to, the Index and such individual stocks. In
addition, the Company and/or one or more of its subsidiaries may purchase or
otherwise acquire a long or short position in the Securities from time to time
and may, in their sole discretion, hold or resell such Securities. The Company
or one or more of its subsidiaries may also take positions in other types of
appropriate financial instruments that may become available in the future. To
the extent that the Company or one or more of its subsidiaries have a long hedge
position in the Index, individual stocks included in the Index or options
contracts in, or other derivative or synthetic instruments related to, the Index
and such underlying stocks, the Company or one or more of its subsidiaries may
liquidate a portion of their holdings at or about the time of the maturity of
the Securities. Depending, among other things, on future market conditions, the
aggregate amount and the composition of such positions are likely to vary over
time. Profits or losses from any such position cannot be ascertained until such
position is closed out and any offsetting position or positions are taken into
account. Although the Company has no reason to believe that such hedging
activity will have a material impact on the price of such options, stocks,
futures contracts and options on futures contracts or on the value of the Index,
there can be no assurance that the Company and its subsidiaries will not affect
such prices or value as result of its hedging activities. See also "Use of
Proceeds" in the accompanying Prospectus.
S-21
<PAGE> 22
UNDERWRITING
Smith Barney (the "Underwriter") has agreed, subject to the terms and
conditions of the Terms Agreement dated , which incorporates by
reference the Underwriting Agreement Basic Provisions dated October 29, 1993
(collectively, the "Underwriting Agreement"), to purchase from the Company
$ aggregate principal amount of Securities. The Underwriting Agreement
provides that the obligations of the Underwriter to pay for and accept delivery
of the Securities are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriter is committed to take
and pay for all of the Securities if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the Securities directly to the public at the offering prices set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such prices less a concession not in excess of $ per Unit. After the
initial public offering, the public offering price and concession may be
changed.
The Company intends to apply for listing of the Securities on the CBOE.
However, there can be no assurance as to whether there will be a secondary
market in the Securities or, if there were to be such a secondary market,
whether such market would be liquid or illiquid. The Securities will be a new
issue of securities with no established trading market. The Underwriter intends
to make a market in the Securities, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any such market-making
may be discontinued at any time at the sole discretion of the Underwriter
without notice. Accordingly, no assurance can be given as to the liquidity of
such market.
The Underwriting agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Underwriter may engage in over-allotment, stabilizing transactions and
covering transactions in accordance with Regulation M under the Securities
Exchange Act of 1934, as amended. Over-allotment involves sales in excess of the
offering size, which creates a short position for the Underwriter. Stabilizing
transactions involve bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Covering transactions
involve purchases of the Notes in the open market after the distribution has
been completed in order to cover short positions. Such stabilizing transactions
and covering transactions may cause the price of the Notes to be higher than it
would otherwise be in the absence of such transactions.
The Company and/or one or more of its subsidiaries may from time to time
purchase or acquire a position in the Securities and may, at its option, hold or
resell such Securities. Smith Barney expects to offer and sell previously-issued
Securities in the course of its business as a broker-dealer. Smith Barney may
act as principal or agent in such transactions. This Prospectus Supplement and
the accompanying Prospectus may be used by the Company or any of its
subsidiaries, including Smith Barney, in connection with such transactions. Such
sales, if any, will be made at varying prices related to prevailing market
prices at the time of sale.
Smith Barney, a member of the National Association of Securities Dealers,
Inc. (the "NASD") and an affiliate of the Company, may participate in
distributions of the Securities. Accordingly, the offerings of Securities will
conform with the requirements of Rule 2720 of the Conduct Rules of the NASD
regarding a NASD member firm's underwriting of securities of an affiliate.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, have been incorporated by reference
herein, in reliance upon the report (also incorporated by reference herein) of
Coopers & Lybrand L.L.P., independent auditors, and upon the authority of said
firm as experts in accounting and auditing.
S-22
<PAGE> 23
LEGAL OPINIONS
The validity of the Securities offered hereby will be passed upon for the
Company by A. George Saks, Esq., as counsel for the Company, 388 Greenwich
Street, New York, New York 10013 and for the Underwriter by Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022. Skadden,
Arps, Slate, Meagher & Flom LLP has also acted as special tax counsel to the
Company in connection with this offering. Mr. Saks, Executive Vice President and
General Counsel of the Company, beneficially owns, or has rights to acquire
under Travelers Group Inc. employee benefit plans, an aggregate of less than 1%
of the common stock of Travelers Group Inc., the parent of the Company. Skadden,
Arps, Slate, Meagher & Flom LLP has from time to time acted as counsel for
Travelers Group Inc. and certain of its subsidiaries and may do so in the
future. Mr. Kenneth J. Bialkin, a partner in that firm, is a director of
Travelers Group Inc., and he and other attorneys in such firm beneficially own
an aggregate of less than 1% of the common stock of Travelers Group Inc.
S-23
<PAGE> 24
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
PROSPECTUS CONSTITUTES AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED IN EITHER
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary............................... S-3
Risk Factors.......................... S-5
Capitalization........................ S-7
Ratio of Earnings to Fixed Charges.... S-7
Description of Securities............. S-8
The Index............................. S-12
Certain United States Federal Income
Tax Considerations.................. S-18
Use of Proceeds and Hedging........... S-21
Underwriting.......................... S-22
Experts............................... S-22
Legal Opinions........................ S-23
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Ratio of Earnings to Fixed Charges.... 4
Use of Proceeds....................... 4
Description of Securities............. 4
Plan of Distribution.................. 11
ERISA Matters......................... 12
Legal Matters......................... 12
Experts............................... 12
</TABLE>
======================================================
======================================================
UNITS
SMITH BARNEY
HOLDINGS INC.
SMITH BARNEY S&P 500
EQUITY LINKED NOTES
DUE , 2003
------------
PROSPECTUS SUPPLEMENT
, 1997
(INCLUDING PROSPECTUS
DATED JULY 17, 1997)
------------
SMITH BARNEY INC.
======================================================
