Filed Pursuant to Rule 424(b)(5)
Registration No. 333-12101
PROSPECTUS SUPPLEMENT
---------------------
(To Prospectus dated October 9, 1996)
$500,000,000
FRANKLIN RESOURCES, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
__________________
Franklin Resources, Inc. (the "Company") may offer from time to
time up to $500,000,000 aggregate initial offering price, or the
equivalent thereof in one or more foreign or composite currencies, of
its Medium-Term Notes due nine months or more from date of issue (the
"Notes"). Such aggregate initial offering price is subject to
reduction as a result of the sale by the Company of other Debt
Securities described in the accompanying Prospectus. Each Note will
mature on any day nine months or more from the date of issue, as
specified in the applicable pricing supplement hereto (each, a
"Pricing Supplement"), and may be subject to redemption at the option
of the Company or repayment at the option of the Holder thereof, in
each case, in whole or in part, prior to its Stated Maturity, as set
forth therein and specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the Notes will bear interest at fixed rates (the "Fixed Rate Notes")
or at floating rates (the "Floating Rate Notes"). The applicable
Pricing Supplement will specify whether a Floating Rate Note is a
Regular Floating Rate Note, a Floating Rate/Fixed Rate Note or an
Inverse Floating Rate Note and whether the rate of interest thereon is
determined by reference to one or more of the CD Rate, the CMT Rate,
the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate
(each, an "Interest Rate Basis"), or any other interest rate basis or
formula, as adjusted by any Spread and/or Spread Multiplier. Interest
on each Floating Rate Note will accrue from its date of issue and will
be payable in arrears monthly, quarterly, semiannually or annually, as
specified in the applicable Pricing Supplement, and at Maturity.
Unless otherwise specified in the applicable Pricing Supplement, the
rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually, as set forth
therein and specified in the applicable Pricing Supplement. Interest
on each Fixed Rate Note will accrue from its date of issue and, unless
otherwise specified in the applicable Pricing Supplement, will be
payable semiannually in arrears on April 15 and October 15 of each
year and at Maturity. The Notes may also be issued with original
issue discount, and such Notes may or may not pay any interest. See
"Description of Notes."
The interest rate, or the formula for the determination of any
such interest rate, applicable to each Note and the other variable
terms thereof as described herein, will be established by the Company
on the date of issue of such Note and will be set forth therein and
specified in the applicable Pricing Supplement. Interest rates,
interest rate formulae and such other variable terms are subject to
change by the Company, but no change will affect any Note already
issued or as to which an offer to purchase has been accepted by the
Company.
Each Note, other than a Foreign Currency Note, will be issued in
fully registered book-entry form (a "Book-Entry Note") or in
certificated form (a "Certificated Note"), as set forth in the
applicable Pricing Supplement, in denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable
Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities")
deposited with or on behalf of The Depository Trust Company (or such
other depositary as is identified in the applicable Pricing
Supplement) (the "Depositary") and registered in the name of the
Depositary or the Depositary's nominee. Interests in the Global
Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the Depositary (with respect to
its participants) and the Depositary's participants (with respect to
beneficial owners).
____________________________________________
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 HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Agents' Discounts Proceeds to
Public(1) and Commissions(1)(2) Company (1)(2)(3)
Per Note................ 100% .125% - .875% 99.875% - 99.125%
Total (4) ............... $500,000,000 $625,000 - $4,375,000 $499,375,000 - $495,625,000
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Goldman, Sachs & Co. (collectively, the
"Agents") may purchase the Notes, as principal, from the Company,
for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as
determined by the Agents, or, if so specified in the applicable
Pricing Supplement, for resale at a fixed public offering price.
Unless otherwise specified 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 of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of
identical maturity. If agreed to by the Company and the Agents,
the Agents may utilize their reasonable efforts on an agency
basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in the
applicable Pricing Supplement. The Company will pay a commission
to the Agents, ranging from .125% to .875% of the principal
amount of a Note, depending upon its stated maturity, sold
through the Agents. Commissions with respect to Notes with
stated maturities in excess of 40 years that are sold through an
Agent will be negotiated between the Company and such Agent at
the time of such sale. See "Plan of Distribution."
(2) The Company has agreed to indemnify the Agents against, and to
provide contribution with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as
amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at
$250,000.
(4) Or the equivalent thereof in one or more foreign or composite
currencies.
_______________
The Notes are being offered on a continuous basis by the Company
through the Agents. Unless otherwise specified in the applicable
Pricing Supplement, the Notes will not be listed on any securities
exchange and there can be no assurance that the Notes offered hereby
will be sold or that there will be a secondary market for the Notes.
The Company reserves the right to cancel or modify the offer made
hereby without notice. The Company or the Agents, if they solicit the
offer on an agency basis, may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution."
___________________
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
___________________
The date of this Prospectus Supplement is October 9, 1996.
IN CONNECTION WITH THE OFFERING OF NOTES, THE AGENTS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
The Notes will be issued as part of a series of Debt Securities
under an Indenture, dated as of May 19, 1994, as amended by the First
Supplemental Indenture thereto, dated as of October 9, 1996 (as so
amended and as the same may be further amended from time to time, the
"Indenture"), between the Company and The Chase Manhattan Bank
(formerly Chemical Bank), as trustee (the "Trustee"). The following
summary of certain provisions of the Notes and of the Indenture does
not purport to be complete and is qualified in its entirety by
reference to the Indenture, a copy of which has been filed as an
exhibit to the Registration Statement of which the accompanying
Prospectus constitutes a part. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture or the
Notes, as the case may be. The term "Debt Securities," as used in
this Prospectus Supplement, refers to all debt securities issued and
issuable from time to time under the Indenture and includes the Notes.
The following description of Notes will apply to each Note offered
hereby unless otherwise specified in the applicable Pricing
Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued
under the Indenture will be unsecured general obligations of the
Company and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company from time to time
outstanding. The Indenture does not limit the aggregate principal
amount of Debt Securities which may be issued thereunder and Debt
Securities may be issued thereunder from time to time in one or more
series up to the aggregate principal amount from time to time
authorized by the Company for each series. The Notes will be issued
as part of an existing series of Debt Securities designated as Medium-
Term Notes. As of the date of this Prospectus Supplement, the Company
has issued $200,000,000 aggregate principal amount of Notes under the
Indenture, $120,000,000 of which Notes were outstanding as of such
date. The Company may, from time to time, without the consent of the
Holders of the Notes, provide for the issuance of Notes or other Debt
Securities under the Indenture in addition to the $500,000,000
aggregate initial offering price (or the equivalent thereof in one or
more foreign or composite currencies) of Notes offered hereby. Since
the Company is a holding company that conducts its operations
primarily through its subsidiaries, indebtedness of the Company,
including indebtedness evidenced by the Notes, will be effectively
subordinated to claims of creditors of the Company's subsidiaries with
respect to the assets of such subsidiaries, except to the extent that
claims of the Company itself as a creditor of such subsidiaries may be
recognized. In addition, dividends, loans and advances from certain
subsidiaries to the Company may be restricted by net capital
requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and under rules of certain regulatory bodies.
The Notes will be offered on a continuous basis and will mature
on any day nine months or more from their dates of issue (each, an
"Original Issue Date"), as specified in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing
Supplement, interest-bearing Notes will either be Fixed Rate Notes or
Floating Rate Notes as specified in the applicable Pricing Supplement.
The Notes may also be issued with original issue discount ("Original
Issue Discount Notes") and such Notes may or may not bear any
interest.
Unless otherwise specified in the applicable Pricing Supplement,
the Notes will be denominated in United States dollars and payments of
principal of, and premium, if any, and interest on, the Notes will be
S-3
made in United States dollars. The Notes may also be denominated in
currencies or composite currencies other than United States dollars
("Foreign Currency Notes") (the currency or composite currency in
which a Note is denominated, whether United States dollars or
otherwise, is herein referred to as the "Specified Currency"). See
"Special Provisions and Risks Relating to Foreign Currency Notes--
Payments of Principal and Premium, if any, and Interest."
Unless otherwise specified in the applicable Pricing Supplement,
purchasers are required to pay for Foreign Currency Notes in the
Specified Currency in which such Notes are denominated. At the
present time, there are limited facilities in the United States for
the conversion of United States dollars into foreign currencies or
composite currencies and vice versa, and commercial banks do not
generally offer non-United States dollar checking or savings account
facilities in the United States. If requested on or prior to the
fifth Business Day (as defined below) preceding the date of delivery
of the Foreign Currency Notes, or by such other day as determined by
the applicable Agent, such Agent is prepared to arrange for the
conversion of United States dollars into the Specified Currency to
enable the purchasers to pay for such Notes. Each such conversion
will be made by such Agent on such terms and subject to such
conditions, limitations and charges as such Agent may from time to
time establish in accordance with its regular foreign exchange
practices. All costs of exchange will be borne by the purchasers of
the Foreign Currency Notes. See "Special Provisions and Risks
Relating to Foreign Currency Notes."
Interest rates, interest rate formulae and other variable terms
of the Notes are subject to change by the Company from time to time,
but no such change will affect any Note already issued or as to which
an offer to purchase has been accepted by the Company.
Each Note, other than a Foreign Currency Note, will be issued in
fully registered form as a Book-Entry Note or a Certificated Note in
denominations of $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement. The
authorized denominations of Foreign Currency Notes will be specified
in the applicable Pricing Supplement.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "Book-Entry Notes." Registration of transfer or
exchange of Certificated Notes will be made at the office or agency of
the Company maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York. No service charge will be made by
the Company or the Trustee for any such registration of transfer or
exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith (other than certain exchanges pursuant
to the Indenture not involving any transfer).
Payments of principal of, and premium, if any, and interest on,
Book-Entry Notes will be made by the Company through the Trustee to
the Depositary. See "Book-Entry Notes." In the case of Certificated
Notes, payment of principal and premium, if any, due at Stated
Maturity or any prior date on which the principal, or an installment
of principal, of a Note becomes due and payable, whether by the
declaration of acceleration, call for redemption at the option of the
Company, repayment at the option of the Holder or otherwise (the
Stated Maturity or such prior date, as the case may be, is herein
referred to as the "Maturity" with respect to the principal of the
applicable Note payable on such date) will be made in immediately
available funds upon presentation thereof at the office or agency of
the Company maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York (or, in the case of any repayment
on an Optional Repayment Date, upon presentation of such Note in
accordance with the provisions described below). Payment of interest
due at Maturity of each Note will be made to the person to whom
payment of the principal and premium, if any, shall be made. Payment
of interest due on each Certificated Note on any Interest Payment Date
(as
S-4
defined below) (other than at Maturity) will be made at the office or
agency of the Company referred to above maintained for such purpose
or, at the option of the Company, may be made by check mailed to the
address of the Holder entitled thereto as such address shall appear in
the Security Register of the Company. Notwithstanding the foregoing,
a Holder of $10,000,000 (or the equivalent thereof with respect to the
Specified Currency applicable to a Foreign Currency Note) or more in
aggregate principal amount of Notes (whether having identical or
different terms and provisions) will be entitled to receive interest
payments on any Interest Payment Date (other than at Maturity) by wire
transfer of immediately available funds if appropriate wire transfer
instructions have been received in writing by the Trustee not less
than 15 days prior to such Interest Payment Date. Such wire
instructions, upon receipt by the Trustee, shall remain in effect
until revoked by such Holder. For special payment terms applicable to
Foreign Currency Notes, see "Special Provisions and Risks Relating to
Foreign Currency Notes--Payments of Principal and Premium, if any, and
Interest."
As used herein, "Business Day" means any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions are authorized or required by law, regulation or
executive order to close in The City of New York; provided, however,
that, with respect to Foreign Currency Notes, such day is also not a
day on which banking institutions are authorized or required by law,
regulation or executive order to close in the Principal Financial
Center (as hereinafter defined) of the country issuing the applicable
Specified Currency (or, in the case of the European Currency Unit
("ECU"), is not a day that appears as an ECU non-settlement day on the
display designated as "ISDE" on the Reuters Monitor Money Rates
Service (or a day so designated by the ECU Banking Association) or, if
ECU non-settlement days do not appear on that page (and are not so
designated), is not a day on which payments in ECU cannot be settled
in the international interbank market); provided further that, with
respect to Notes as to which LIBOR is an applicable Interest Rate
Basis, such day is also a London Business Day (as defined below).
"London Business Day" means (i) if the Index Currency (as defined
herein) is other than ECU, any day on which dealings in such Index
Currency are transacted in the London interbank market or (ii) if the
Index Currency is ECU, any day that does not appear as an ECU non-
settlement day on the display designated as "ISDE" on the Reuters
Monitor Money Rates Service (or a day so designated by the ECU Banking
Association) or, if ECU non-settlement days do not appear on that page
(and are not so designated) is not a day on which payments in ECU
cannot be settled in the international interbank market.
TRANSACTION AMOUNTS
Interest rates or yields offered by the Company with respect to
the Notes may differ depending upon, among other things, the aggregate
principal amount of Notes purchased in any transaction. Notes with
similar variable terms but different interest rates or yields, as well
as Notes with different variable terms, may be offered concurrently to
different investors.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement,
the Notes will not be subject to any sinking fund. The Notes will be
redeemable at the option of the Company prior to Stated Maturity only
if an Initial Redemption Date is specified in the applicable Pricing
Supplement. If so specified, the Notes will be subject to redemption
at the option of the Company on any date on and after the applicable
Initial Redemption Date in whole or from time to time in part in
increments of $1,000 (or the minimum denomination specified in such
Pricing Supplement) at the applicable Redemption Price (as defined
below), together with unpaid interest accrued to the date of
redemption, on notice given not more than 60 nor less than 30 days
prior to the date of redemption and in accordance with the provisions
of the Indenture. "Redemption Price," with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the
applicable Pricing
S-5
Supplement (as adjusted by the Annual Redemption Percentage Reduction,
if applicable) multiplied by the unpaid principal amount to be
redeemed. The Initial Redemption Percentage, if any, applicable to a
Note shall decline at each anniversary of the Initial Redemption Date
by an amount equal to the applicable Annual Redemption Percentage
Reduction, if any, until the Redemption Price is equal to 100% of the
unpaid principal amount to be redeemed. See also "Original Issue
Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
If so specified in the applicable Pricing Supplement, the Notes
will be repayable by the Company in whole or in part at the option of
the Holders thereof on their respective Optional Repayment Dates
specified in such Pricing Supplement. If no Optional Repayment Date
is specified with respect to a Note, such Note will not be repayable
at the option of the Holder thereof prior to Stated Maturity. Any
repayment in part will be in increments of $1,000 (or the minimum
denomination specified in the applicable Pricing Supplement) provided
that any remaining principal amount of such Note will be an authorized
denomination of such Note. Unless otherwise specified in the
applicable Pricing Supplement, the repayment price for any Note to be
repaid means 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued to the date of repayment. For
any Note to be repaid, such Note must be received, together with the
form thereon entitled "Option to Elect Repayment" duly completed, by
the Trustee at its Corporate Trust Office (or such other address of
which the Company shall from time to time notify the Holders) not more
than 60 nor less than 30 days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable.
See also "Original Issue Discount Notes."
Only the Depositary may exercise the repayment option in respect
of Global Securities representing Book-Entry Notes. Accordingly,
beneficial owners of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities
repaid must instruct the applicable Participant through which they
hold their beneficial interest to direct the Depositary to exercise
the repayment option on their behalf by delivering the related Global
Security and duly completed election form to the Trustee as aforesaid.
In order to ensure that these items are received by the Trustee on a
particular day, the beneficial owner of the Global Security or
Securities representing such Book-Entry Notes must so direct the
applicable Participant before such Participant's deadline for
accepting instructions for that day. Different firms may have
different deadlines for accepting instructions from their customers.
Accordingly, beneficial owners of the Global Security or Securities
representing Book-Entry Notes should consult the Participants through
which they own their interest therein for the respective deadlines for
such Participants. All instructions given to Participants by
beneficial owners of Global Securities relating to the option to elect
repayment shall be irrevocable. In addition, beneficial owners of the
Global Security or Securities representing Book-Entry Notes shall
effect delivery at the time such notices of election are given by
causing the applicable Participant to transfer such beneficial owner's
interest in the Global Security or Securities representing such
Book-Entry Notes, on the Depositary's records, to the Trustee. See
"Book-Entry Notes."
If applicable, the Company will comply with the requirements of
Rule 14e-1 under the Exchange Act, and any other securities laws or
regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices
in the open market or otherwise. Notes so purchased by the Company
may be held or resold or, at the discretion of the Company, may be
surrendered to the Trustee for cancellation.
S-6
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement,
each Note will bear interest from its Original Issue Date at the rate
per annum, in the case of a Fixed Rate Note, or pursuant to the
interest rate formula, in the case of a Floating Rate Note, in each
case as specified in the applicable Pricing Supplement, until the
principal thereof is paid or duly made available for payment.
Interest will be payable in arrears on each Interest Payment Date
specified in the applicable Pricing Supplement on which an installment
of interest is due and payable and at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of
interest on any Note originally issued between a Record Date (as
defined below) and the related Interest Payment Date or on an Interest
Payment Date will be made on the Interest Payment Date immediately
following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified in the applicable
Pricing Supplement, a "Record Date" shall be the fifteenth calendar
day (whether or not a Business Day) immediately preceding the related
Interest Payment Date.
Fixed Rate Notes
Interest payments on Fixed Rate Notes will equal the amount of
interest accrued from and including the immediately preceding Interest
Payment Date in respect of which interest has been paid (or from and
including the Original Issue Date, if no interest has been paid with
respect to such Fixed Rate Note) to but excluding the related Interest
Payment Date or Maturity date, as the case may be. Unless otherwise
specified in the applicable Pricing Supplement, the "Interest Payment
Dates" for the Fixed Rate Notes will be April 15 and October 15 of
each year and at Maturity. Unless otherwise specified in the
applicable Pricing Supplement, interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or Maturity of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of
principal, premium, if any, and/or interest will be made on the next
succeeding Business Day as if made on the date such payment was due,
and no interest will accrue on such payment for the period from and
after such Interest Payment Date or Maturity, as the case may be, to
the date of such payment on the next succeeding Business Day.
Floating Rate Notes
Unless otherwise specified in the applicable Pricing Supplement,
Floating Rate Notes will be issued as described below. The applicable
Pricing Supplement will specify certain terms with respect to which
each Floating Rate Note is being delivered, including: whether such
Floating Rate Note is a "Regular Floating Rate Note," a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," the Fixed
Rate Commencement Date and Fixed Interest Rate, as applicable,
Interest Rate Basis or Bases, Initial Interest Rate, Interest Reset
Period and Dates, Interest Payment Period and Dates, Index Maturity,
maximum interest rate and minimum interest rate, if any, and Spread
and/or Spread Multiplier, if any, and if one or more of the applicable
Interest Rate Bases is LIBOR, the Index Currency and the Designated
LIBOR Page and if one or more of the applicable Interest Rate Bases is
the CMT Rate, the Designated CMT Maturity Index and Designated CMT
Telerate Page, as described below.
The interest rate borne by the Floating Rate Notes will be
determined as follows:
S-7
(i) Unless such Floating Rate Note is designated as a
"Floating Rate/Fixed Rate Note," an "Inverse Floating Rate Note"
or as having an Addendum attached, such Floating Rate Note will
be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, bear
interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases (i) plus or minus the applicable
Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any. Commencing on the Initial Interest Reset
Date, the rate at which interest on such Regular Floating Rate
Note shall be payable shall be reset as of each Interest Reset
Date; provided, however, that the interest rate in effect for the
period from the Original Issue Date to the Initial Interest Reset
Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the
applicable Pricing Supplement, such Floating Rate Note will bear
interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases (i) plus or minus the applicable
Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any. Commencing on the Initial Interest Reset
Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset
Date; provided, however, that (i) the interest rate in effect for
the period from the Original Issue Date to the Initial Interest
Reset Date will be the Initial Interest Rate, and (ii) the
interest rate in effect commencing on the Fixed Rate Commencement
Date to Maturity shall be the Fixed Interest Rate, if such rate
is specified in the applicable Pricing Supplement or, if no such
Fixed Interest Rate is so specified, the interest rate in effect
thereon on the day immediately preceding the Fixed Rate
Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse
Floating Rate Note," then, except as described below or in the
applicable Pricing Supplement, such Floating Rate Note will bear
interest equal to the Fixed Interest Rate specified in the
applicable Pricing Supplement minus the rate determined by
reference to the applicable Interest Rate Basis or Bases (i) plus
or minus the applicable Spread, if any, and/or (ii) multiplied by
the applicable Spread Multiplier, if any; provided, however,
that, unless otherwise specified in the applicable Pricing
Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which
interest on such Inverse Floating Rate Note is payable shall be
reset as of each Interest Reset Date; provided, however, that the
interest rate in effect for the period from the Original Issue
Date to the Initial Interest Reset Date will be the Initial
Interest Rate.
The "Spread" is the number of basis points to be added to or
subtracted from the related Interest Rate Basis or Bases applicable to
such Floating Rate Note. The "Spread Multiplier" is the percentage of
the related Interest Rate Basis or Bases applicable to such Floating
Rate Note by which such Interest Rate Basis or Bases will be
multiplied to determine the applicable interest rate on such Floating
Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest
Rate Basis or Bases will be calculated.
Notwithstanding the foregoing, if such Floating Rate Note is
designated as having an Addendum attached as specified on the face
thereof, such Floating Rate Note shall bear interest in accordance
with the terms described in such Addendum and the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the interest rate with respect to each Interest Rate Basis will be
determined in accordance with the applicable provisions below. Except
as set forth above or in the applicable Pricing Supplement, the
interest rate in effect on each day shall be (i) if such day is an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date (as defined below)
S-8
immediately preceding such Interest Reset Date or (ii) if such day is
not an Interest Reset Date, the interest rate determined as of the
Interest Determination Date immediately preceding the most recent
Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference
to the applicable Interest Rate Basis or Interest Rate Bases, which
may, as described below, include (i) the CD Rate, (ii) the CMT Rate,
(iii) the Commercial Paper Rate, (iv) the Eleventh District Cost of
Funds Rate, (v) the Federal Funds Rate, (vi) LIBOR, (vii) the Prime
Rate, (viii) the Treasury Rate, or (ix) such other Interest Rate Basis
or interest rate formula as may be set forth in the applicable Pricing
Supplement; provided, however, that the interest rate in effect on a
Floating Rate Note for the period from the Original Issue Date to the
Initial Interest Reset Date will be the Initial Interest Rate and,
with respect to a Floating Rate/Fixed Rate Note, the interest rate
commencing on the Fixed Rate Commencement Date to Maturity shall be
the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is so specified,
the interest rate in effect thereon on the day immediately preceding
the Fixed Rate Commencement Date.
The applicable Pricing Supplement will specify whether the rate
of interest on the related Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually, annually or such other
specified period (each, an "Interest Reset Period") and the dates on
which such rate of interest will be reset (each, an "Interest Reset
Date" and the first of such for any Note the "Initial Interest Reset
Date"). Unless otherwise specified in the applicable Pricing
Supplement, the Interest Reset Date will be, in the case of Floating
Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating
Rate Notes as to which the Treasury Rate is an applicable Interest
Rate Basis, which will reset the Tuesday of each week, except as
described below); (iii) monthly, the third Wednesday of each month
(with the exception of monthly reset Floating Rate Notes as to which
the Eleventh District Cost of Funds Rate is an applicable Interest
Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and
December of each year; (v) semiannually, the third Wednesday of the
two months specified in the applicable Pricing Supplement; and (vi)
annually, the third Wednesday of the month specified in the applicable
Pricing Supplement; provided, however, that, with respect to Floating
Rate/Fixed Rate Notes, the fixed rate of interest in effect for the
period from the Fixed Rate Commencement Date to Maturity shall be the
Fixed Interest Rate or, if no such Fixed Interest Rate is specified,
the interest rate in effect on the day immediately preceding the Fixed
Rate Commencement Date, 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 Business Day, such Interest
Reset Date will be postponed to the next succeeding day that is a
Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis, if such Business Day
falls in the next succeeding calendar month, such Interest Reset Date
will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period
commencing on the Interest Reset Date with respect to such Interest
Reset Period will be the rate determined as of the applicable Interest
Determination Date on or prior to the Calculation Date (as defined
below), except that the interest rate with respect to LIBOR and the
Eleventh District Cost of Funds Rate will be calculated as of such
Interest Determination Date. The "Interest Determination Date" with
respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the
Federal Funds Rate and the Prime Rate will be the second Business Day
immediately preceding the applicable Interest Reset Date; the
"Interest Determination Date" with respect to the Eleventh District
Cost of Funds Rate will be the last working day of the month
immediately preceding the applicable Interest Reset Date on which the
Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco")
publishes the Index (as defined below); and the "Interest
Determination Date" with respect to LIBOR will be the second London
Business Day immediately preceding the applicable Interest Reset Date,
unless the Index Currency is British pounds sterling in which case the
"Interest Determination Date" will be the applicable Interest Reset
Date. With respect to the
S-9
Treasury Rate, the "Interest Determination Date" will be the day in
the week in which the applicable Interest Reset Date falls on which
day Treasury Bills (as defined below) are normally auctioned (Treasury
Bills are normally sold at an auction held on Monday of each week,
unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may
be held on the preceding Friday); provided, however, that if an
auction is held on the Friday of the week preceding the applicable
Interest Reset Date, the Interest Determination Date will be such
preceding Friday; and provided further that if an auction falls on the
applicable Interest Reset Date, then the Interest Reset Date will
instead be the first Business Day following such auction. The
"Interest Determination Date" pertaining to a Floating Rate Note the
interest rate of which is determined by reference to two or more
Interest Rate Bases will be the most recent Business Day which is at
least two Business Days prior to the applicable Interest Reset Date
for such Floating Rate Note on which each Interest Rate Basis is
determinable. Each Interest Rate Basis will be determined on such
date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
A Floating Rate Note may also have either or both of the
following: (i) a maximum numerical limitation, or ceiling, on the rate
at which interest may accrue during any interest period and (ii) a
minimum numerical limitation, or floor, on the rate at which interest
may accrue during any interest period. In addition to any maximum
interest rate that may be applicable to any Floating Rate Note
pursuant to the above provisions, the interest rate on Floating Rate
Notes will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of
general application.
Except as provided below or in the applicable Pricing Supplement,
interest will be payable, in the case of Floating Rate Notes which
reset: (i) daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December
of each year, as specified in the applicable Pricing Supplement; (ii)
quarterly, on the third Wednesday of March, June, September and
December of each year; (iii) semiannually, on the third Wednesday of
the two months of each year specified in the applicable Pricing
Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an
"Interest Payment Date") and, in each case, at Maturity. If any
Interest Payment Date for any Floating Rate Note (other than Maturity)
would otherwise be a day that is not a Business Day, such Interest
Payment Date will be postponed to the next succeeding day that is a
Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis, if such Business Day
falls in the next succeeding calendar month, such Interest Payment
Date will be the immediately preceding Business Day. If the Maturity
of a Floating Rate Note falls on a day that is not a Business Day, the
required payment of principal, premium, if any, and/or interest will
be made on the next succeeding Business Day as if made on the date
such payment was due, and no interest shall accrue on such payment for
the period from and after Maturity to the date of such payment on the
next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate
Notes will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point
rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655)), and all amounts used in or resulting from
such calculation on Floating Rate Notes will be rounded, in the case
of United States dollars, to the nearest cent or, in the case of a
Specified Currency other than United States dollars, to the nearest
unit (with one-half cent or unit being rounded upward).
Unless otherwise specified in the applicable Pricing Supplement,
interest payments on Floating Rate Notes will equal the amount of
interest accrued from and including the immediately preceding Interest
Payment Date in respect of which interest has been paid (or from and
including the Original Issue Date, if no interest has been paid with
respect to such Floating Rate Note) to but excluding the related
Interest Payment Date or Maturity, as the case may be.
S-10
With respect to each Floating Rate Note, accrued interest is
calculated by multiplying its principal amount by an accrued interest
factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day in the period for which
accrued interest is being calculated. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for each such
day will be computed by dividing the interest rate applicable to such
day by 360, in the case of Notes for which the Interest Rate Basis is
the CD Rate, the Commercial Paper Rate, the Eleventh District Cost of
Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the
actual number of days in the year in the case of Notes for which the
Interest Rate Basis is the CMT Rate or the Treasury Rate. Unless
otherwise specified in the applicable Pricing Supplement, the interest
factor for Notes for which the interest rate is calculated with
reference to two or more Interest Rate Bases will be calculated in
each period in the same manner as if only one of the applicable
Interest Rate Bases applied as specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
The Chase Manhattan Bank (or its successor in such capacity) will be
the "Calculation Agent." Upon request of the Holder of any Floating
Rate Note, the Calculation Agent will disclose the interest rate then
in effect and, if determined, the interest rate that will become
effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Floating Rate Note. Unless
otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date, or, if such day is not a
Business Day, the next succeeding Business Day or (ii) the Business
Day immediately preceding the applicable Interest Payment Date or
Maturity, as the case may be.
CD Rate. CD Rate Notes will bear interest at the rates
(calculated with reference to the CD Rate and the Spread and/or Spread
Multiplier, if any) specified in such CD Rate Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date
relating to a CD Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the CD Rate (a "CD Rate
Interest Determination Date"), the rate on such date for negotiable
United States dollar certificates of deposit having the Index Maturity
specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical
Release H.15(519), Selected Interest Rates" or any successor
publication ("H.15(519)") under the heading "CDs (Secondary Market),"
or, if not published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on such CD Rate Interest Determination Date
for negotiable United States dollar certificates of deposit of the
Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily
statistical release "Composite 3:30 P.M. Quotations for U.S.
Government Securities" or any successor publication ("Composite
Quotations") under the heading "Certificates of Deposit." If such
rate is not yet published in either H.15(519) or Composite Quotations
by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of
the secondary market offered rates as of 10:00 A.M., New York City
time, on such CD Rate Interest Determination Date, of three leading
nonbank dealers in negotiable United States dollar certificates of
deposit in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent for negotiable
certificates of deposit of major United States money center banks for
negotiable certificates of deposit with a remaining maturity closest
to the Index Maturity designated in the applicable Pricing Supplement
in an amount that is representative for a single transaction in that
market at that time; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the CD Rate determined as of such CD Rate Interest
Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
S-11
CMT Rate. CMT Rate Notes will bear interest at the rates
(calculated with reference to the CMT Rate and the Spread and/or
Spread Multiplier, if any), specified in such CMT Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date
relating to a CMT Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the CMT Rate (a "CMT
Rate Interest Determination Date"), the rate displayed on the
Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays
Approximately 3:45 P.M.," under the column for the Designated CMT
Maturity Index for (i) if the Designated CMT Telerate Page is 7055,
the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the weekly or monthly average,
as specified in the applicable Pricing Supplement, for the week or the
month, as applicable, ended immediately preceding the week or the
month, as applicable, in which the related CMT Rate 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 related Calculation Date, then the CMT Rate for such CMT Rate
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 related Calculation
Date, then the CMT Rate for such CMT Rate 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 Rate 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 provided by 3:00 P.M., New York City time,
on the related Calculation Date, then the CMT Rate for the 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 closing offer side prices as of approximately
3:30 P.M. (New York City time) on the CMT Rate 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 any of 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 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 Rate 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 Rate Interest Determination Date. If two
Treasury Notes with an original maturity as described in the second
preceding sentence have remaining terms to maturity
S-12
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 (or any successor service) on the page designated in
the applicable Pricing Supplement (or any other page as may replace
such page on that service for the purpose of displaying Treasury
Constant 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.
Commercial Paper Rate. Commercial Paper Rate Notes will bear
interest at the rates (calculated with reference to the Commercial
Paper Rate and the Spread and/or Spread Multiplier, if any) specified
in such Commercial Paper Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Commercial Paper Rate Note or any
Floating Rate Note for which the interest rate is determined with
reference to the Commercial Paper Rate (a "Commercial Paper Rate
Interest Determination Date"), the Money Market Yield (as defined
below) on such date of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published
in H.15(519) under the heading "Commercial Paper." In the event that
such rate is not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the Commercial Paper Rate will be the
Money Market Yield on such Commercial Paper Rate Interest
Determination Date of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published
in Composite Quotations under the heading "Commercial Paper" (with an
Index Maturity of one month or three months being deemed to be
equivalent to an Index Maturity of 30 days or 90 days, respectively).
If by 3:00 P.M., New York City time, on the related Calculation Date
such rate is not yet published in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate on such Commercial Paper
Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the
offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading
dealers of commercial paper in The City of New York (which may include
the Agents or any of their affiliates) selected by the Calculation
Agent for commercial paper having the Index Maturity designated in the
applicable Pricing Supplement placed for an industrial issuer whose
bond rating is "AA," or the equivalent, from a nationally recognized
statistical rating organization; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Commercial Paper Rate determined as of
such Commercial Paper Rate Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means 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)
S-13
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M"
refers to the actual number of days in the interest period for which
interest is being calculated.
Eleventh District Cost of Funds Rate. Eleventh District Cost of
Funds Rate Notes will bear interest at the rates (calculated with
reference to the Eleventh District Cost of Funds Rate and the Spread
and/or Spread Multiplier, if any) specified in such Eleventh District
Cost of Funds Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Eleventh District Cost of Funds Rate" means, with respect to any
Interest Determination Date relating to an Eleventh District Cost of
Funds Rate Note or any Floating Rate Note for which the interest rate
is determined with reference to the Eleventh District Cost of Funds
Rate (an "Eleventh District Cost of Funds Rate Interest Determination
Date"), the rate equal to the monthly weighted average cost of funds
for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date
falls, as set forth under the caption "11th District" on Telerate Page
7058 as of 11:00 A.M., San Francisco time, on such Eleventh District
Cost of Funds Rate Interest Determination Date. If such rate does not
appear on Telerate Page 7058 on such Eleventh District Cost of Funds
Rate Interest Determination Date, the Eleventh District Cost of Funds
Rate for such Eleventh District Cost of Funds Rate Interest
Determination Date shall be the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of
San Francisco as such cost of funds for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest
Determination Date. If the FHLB of San Francisco fails to announce
the Index on or prior to such Eleventh District Cost of Funds Rate
Interest Determination Date for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, then the Eleventh District Cost of Funds Rate
determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in
effect on such Eleventh District Cost of Funds Rate Interest
Determination Date.
Federal Funds Rate. Federal Funds Rate Notes will bear interest
at the rates (calculated with reference to the Federal Funds Rate and
the Spread and/or Spread Multiplier, if any) specified in such Federal
Funds Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Federal Funds Rate" means, with respect to any Interest Determination
Date relating to a Federal Funds Rate Note or any Floating Rate Note
for which the interest rate is determined with reference to the
Federal Funds Rate (a "Federal Funds Rate Interest Determination
Date"), the rate on such date for federal funds as published in
H.15(519) under the heading "Federal Funds (Effective)" or, if not
published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on such Federal Funds Rate 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 the
related Calculation Date such rate is not published in either
H.15(519) or Composite Quotations, then the Federal Funds Rate on such
Federal Funds Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the arithmetic mean of the rates for
the last transaction in overnight United States dollar federal funds
arranged by three leading brokers of federal funds transactions in The
City of New York (which may include the Agents or any of their
affiliates) selected by the Calculation Agent prior to 9:00 A.M., New
York City time, on such Federal Funds Rate Interest Determination
Date; provided, however, that if the brokers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the
Federal Funds Rate determined as of such Federal Funds Rate Interest
Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
S-14
LIBOR. LIBOR Notes will bear interest at the rates (calculated
with reference to LIBOR and the Spread and/or Spread Multiplier, if
any) specified in such LIBOR Notes and in any applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined by the Calculation Agent in
accordance with the following provisions:
(i) With respect to an Interest Determination Date relating
to a LIBOR Note or any Floating Rate Note for which the interest
rate is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"), LIBOR will be either: (a) if "LIBOR
Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page by its terms provides for only a single
rate, in which case such single rate shall be used) for deposits
in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the applicable
Interest Reset Date that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page
specified in the applicable Pricing Supplement as of 11:00 A.M.,
London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing
Supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified as the method for calculating LIBOR, the rate for
deposits in the Index Currency having the Index Maturity
designated in the applicable Pricing Supplement, commencing on
such Interest Reset Date that appears on the Designated LIBOR
Page specified in the applicable Pricing Supplement as of 11:00
A.M., London time, on such LIBOR Interest Determination Date. If
fewer than two such offered rates appear, or if no such rate
appears, as applicable, LIBOR in respect of the related LIBOR
Interest Determination Date will be determined in accordance with
the provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on
which fewer than two offered rates appear, or no rate appears, as
the case may be, on the applicable Designated LIBOR Page as
specified in clause (i) above, the Calculation Agent will request
the principal London offices of each of four major reference
banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its
offered quotation for deposits in the Index Currency for the
period of the Index Maturity designated in the applicable Pricing
Supplement, commencing on the applicable Interest Reset Date, to
prime banks in the London interbank market at approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date and
in a principal amount that is representative for a single
transaction in such Index Currency in such market at such time.
If at least two such quotations are provided, LIBOR determined on
such LIBOR Interest Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are
provided, LIBOR determined on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable Principal Financial
Center, on such LIBOR Interest Determination Date by three major
banks in such Principal Financial Center (which may include
affiliates of the Agents) selected by the Calculation Agent for
loans in the Index Currency to leading European banks, having the
Index Maturity designated in the applicable Pricing Supplement
and in a principal amount that is representative for a single
transaction in such Index Currency in such market at such time;
provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence,
LIBOR determined as of such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination
Date.
S-15
"Index Currency" means the currency (including composite
currencies) specified in the applicable Pricing Supplement as the
currency for which LIBOR shall be calculated. If no such currency is
specified in the applicable Pricing Supplement, the Index Currency
shall be United States dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
specified in the applicable Pricing Supplement, the display on the
Reuters Monitor Money Rates Service (or any successor service) on the
page specified in such Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the
London interbank rates of major banks for the applicable Index
Currency, or (b) if "LIBOR Telerate" is specified in the applicable
Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified as the method for calculating LIBOR, the display on the Dow
Jones Telerate Service (or any successor service) on the page
specified in such Pricing Supplement (or any other page as may replace
such page on such service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency.
"Principal Financial Center" means the capital city of the
country issuing the Specified Currency or, solely with respect to the
calculation of LIBOR, the specified Index Currency, except that with
respect to United States dollars, Australian dollars, Deutsche Marks,
Dutch Guilders, Italian Lire, Swiss Francs and ECUs, the Principal
Financial Center shall be The City of New York, Sydney, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
Prime Rate. Prime Rate Notes will bear interest at the rates
(calculated with reference to the Prime Rate and the Spread and/or
Spread Multiplier, if any) specified in such Prime Rate Notes and the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Prime Rate" means, with respect to any Interest Determination Date
relating to a Prime Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Prime Rate (a "Prime
Rate Interest Determination Date"), the rate on such date as such rate
is published in H.15(519) under the heading "Bank Prime Loan." If such
rate is not published prior to 3:00 P.M., New York City time, on the
related Calculation Date, then the Prime Rate shall be the arithmetic
mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as defined below) as such
bank's prime rate or base lending rate as in effect for such Prime
Rate Interest Determination Date. If fewer than four such rates
appear on the Reuters Screen USPRIME1 Page for such Prime Rate
Interest Determination Date, the Prime Rate shall be the arithmetic
mean of the prime 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 Rate Interest Determination Date by four major money
center banks in The City of New York (which may include affiliates of
the Agents) selected by the Calculation Agent. If fewer than four
such quotations are so provided, then the Prime Rate shall be the
arithmetic mean of four prime 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 Rate Interest Determination Date as
furnished in The City of New York by the major money center banks, if
any, that have provided such quotations and by a reasonable number of
substitute banks or trust companies (which may include affiliates of
the Agents) to obtain four such prime rate quotations, provided such
substitute banks or trust companies are organized and doing business
under the laws of the United States, or any State thereof, each having
total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by
the Calculation Agent to provide such rate or rates; provided,
however, that if the banks or trust companies selected as aforesaid
are not quoting as mentioned in this sentence, the Prime Rate
determined as of such Prime Rate Interest Determination Date will be
the Prime Rate in effect on such Prime Rate Interest Determination
Date.
S-16
"Reuters Screen USPRIME1 Page" means the display on the Reuters
Monitor Money Rates Service (or any successor service) on the
"USPRIME1" page (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.
Treasury Rate. Treasury Rate Notes will bear interest at the
rates (calculated with reference to the Treasury Rate and the Spread
and/or Spread Multiplier, if any) specified in such Treasury Rate
Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Treasury Rate" means, with respect to any Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which
the interest rate is determined by reference to the Treasury Rate (a
"Treasury Rate Interest Determination Date"), the rate from the
auction held on such Treasury Rate Interest Determination Date of
direct obligations of the United States ("Treasury Bills") having the
Index Maturity specified in the applicable Pricing Supplement, as such
rate is published in H.15(519) under the heading "Treasury Bills-
Auction Average (Investment)" or, if not published by 3:00 P.M., New
York City time, on the related 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) as otherwise
announced by the United States Department of the Treasury. In the
event that the results of the auction of Treasury Bills having the
Index Maturity designated in the applicable Pricing Supplement are not
reported as provided by 3:00 P.M., New York City time, on such
Calculation Date, or if no such auction is held, then the Treasury
Rate will be calculated by the Calculation Agent and will 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 Rate Interest
Determination Date, of three leading primary United States government
securities dealers (which may include the Agents or their affiliates)
selected by the Calculation Agent, for the issue of Treasury Bills
with a remaining maturity closest to the Index Maturity designated in
the applicable Pricing Supplement; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate determined as of such
Treasury Rate Interest Determination Date will be the Treasury Rate in
effect on such Treasury Rate Interest Determination Date.
DEFEASANCE
The Company may, at its option, elect to discharge and satisfy
the entire indebtedness with respect to the Outstanding Notes
("defeasance") if the Company has (a) deposited or caused to be
deposited with the Trustee, in trust for such purpose, an amount in
funds or Governmental Obligations as shall be sufficient (together
with the income to accrue on any such Governmental Obligations without
consideration of any reinvestment thereof) to pay and discharge the
principal of, premium, if any, and interest on the Outstanding Notes
to the Maturity thereof as contemplated by the Indenture; (b) paid or
caused to be paid all other sums payable under the Indenture with
respect to the Outstanding Notes; and (c) delivered to the Trustee (i)
a certificate signed by the Company's independent public accountants
certifying as to the sufficiency of the amounts deposited pursuant to
clause (a) above for payment of the principal of, premium, if any, and
interest on the Outstanding Notes on the dates such payments are due,
(ii) an officer's certificate of the Company and an opinion of counsel
each stating that no Event of Default or event which with notice or
lapse of time or both would become an Event of Default with respect to
the Notes shall have occurred and all conditions precedent provided
for in the Indenture relating to the satisfaction and discharge of the
entire indebtedness on all Outstanding Notes shall have been complied
with, and (iii) an opinion of independent counsel that the Holders of
the Notes shall have no federal income tax consequences as a result of
such deposit and termination, and subject to the satisfaction of
certain additional conditions. Upon satisfaction of the conditions
for defeasance of
S-17
the Notes, the Company shall be deemed to have paid and discharged the
entire indebtedness on all Outstanding Notes and shall be released
from its obligations with respect to the Notes, subject to certain
limited exceptions.
SATISFACTION AND DISCHARGE
At the option of the Company, the Indenture will cease to be of
further effect with respect to the Notes (except as to, among other
things, any surviving rights of registration of transfer or exchange
of Notes as provided in the Indenture) when (a) either (i) all Notes
theretofore authenticated and delivered (other than, among other
things, (A) destroyed, lost or stolen Notes which have been replaced
or paid as provided in the Indenture, and (B) Notes for whose payment
money has theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in the Indenture) have been
delivered to the Trustee for cancellation; or (ii) all Notes not
theretofore delivered to the Trustee for cancellation have become due
and payable, or will become due and payable at their Stated Maturity
within one year or, if redeemable at the option of the Company, are to
be called for redemption within one year and, in each such case
described in this clause (ii), the Company has deposited or caused to
be deposited with the Trustee as trust funds in trust for such
purpose, money in an amount sufficient to pay and discharge the entire
principal of, premium, if any, and interest on such Notes to the date
of such deposit (in the case of Notes which have become due and
payable) or to the Maturity thereof, as the case may be; (b) the
Company has paid or caused to be paid all other sums payable by the
Company under the Indenture with respect to the Outstanding Notes; and
(c) the Company has delivered to the Trustee an officer's certificate
of the Company and an opinion of counsel, each stating that all
conditions precedent set forth in the Indenture relating to the
satisfaction and discharge of the Indenture with respect to the Notes
have been complied with.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to the Notes, including the
determination of an Interest Rate Basis, the calculation of the
interest rate applicable to a Floating Rate Note, and the
specification of one or more Interest Rate Bases, the Interest Payment
Dates, Maturity or any other variable term relating thereto, may be
modified as specified under "Other Provisions" on the face thereof or
in an Addendum relating thereto, if so specified on the face thereof
and in the applicable Pricing Supplement.
AMORTIZING NOTES
The Company may, from time to time, offer Amortizing Notes.
Unless otherwise specified in the applicable Pricing Supplement,
interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to
Amortizing Notes will be applied first to interest due and payable
thereon and then to the reduction of the unpaid principal amount
thereof. Further information concerning additional terms and
provisions of Amortizing Notes will be specified in the applicable
Pricing Supplement. A table setting forth repayment information in
respect of each Amortizing Note will be included in the applicable
Pricing Supplement and set forth in each such Note.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may offer Notes ("Original Issue Discount Notes")
from time to time that have an Issue Price (as specified in the
applicable Pricing Supplement) that is less than 100% of the principal
amount thereof (i.e. par). Original Issue Discount Notes may not bear
any interest currently or may bear interest at a rate that is below
market rates at the time of issuance. The difference between the
Issue Price of an Original Issue Discount Note and par is referred to
herein as the "Discount." In the event of redemption, repayment or
S-18
acceleration of maturity of an Original Issue Discount Note, the
amount payable to the Holder of such Original Issue Discount Note will
be equal to the sum of (i) the Issue Price (increased by any accruals
of Discount) and, in the event of any redemption of such Original
Issue Discount Note (if applicable), multiplied by the Initial
Redemption Percentage specified in the applicable Pricing Supplement
(as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (ii) any unpaid interest on such Original Issue
Discount Note accrued from the date of issue to the date of such
redemption, repayment or acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement,
for purposes of determining the amount of Discount that has accrued as
of any date on which a redemption, repayment or acceleration of
maturity occurs for an Original Issue Discount Note, such Discount
will be accrued using a constant yield method. The constant yield
will be calculated using a 30-day month, 360-day year convention, a
compounding period that, except for the Initial Period (as hereinafter
defined), corresponds to the shortest period between Interest Payment
Dates for the applicable Original Issue Discount Note (with ratable
accruals within a compounding period), a coupon rate equal to the
initial coupon rate applicable to such Original Issue Discount Note
and an assumption that the maturity of such Original Issue Discount
Note will not be accelerated. If the period from the date of issue to
the initial Interest Payment Date for an Original Issue Discount Note
(the "Initial Period") is shorter than the compounding period for such
Original Issue Discount Note, a proportionate amount of the yield for
an entire compounding period will be accrued. If the Initial Period
is longer than the compounding period, then such period will be
divided into a regular compounding period and a short period with the
short period being treated as provided in the preceding sentence. The
accrual of the applicable Discount may differ from the accrual of
original issue discount for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), certain Original Issue Discount Notes
may not be treated as having original issue discount within the
meaning of the Code, and Notes other than Original Issue Discount
Notes may be treated as issued with original issue discount for
federal income tax purposes. See "Certain United States Federal
Income Tax Considerations" herein.
INDEXED NOTES
Notes may be issued with the amount of principal, premium and/or
interest payable in respect thereof to be determined with reference to
the price or prices of specified commodities or stocks, the exchange
rate of one or more specified currencies (including a composite
currency such as the ECU) relative to an indexed currency or such
other price or exchange rate ("Indexed Notes"), as set forth in the
applicable Pricing Supplement. In certain cases, Holders of Indexed
Notes may receive a principal amount at Maturity that is greater than
or less than the face amount of the Notes depending upon the relative
value at Maturity of the specified indexed item. Information as to
the method for determining the amount of principal, premium and/or
interest payable in respect of Indexed Notes, certain historical
information with respect to the specified indexed item and tax
considerations associated with an investment in such Indexed Notes
will be set forth in the applicable Pricing Supplement.
An investment in Notes indexed, as to principal, premium and/or
interest, to one or more values of currencies (including exchange
rates between currencies), commodities or interest rate indices
entails significant risks that are not associated with similar
investments in a conventional fixed-rate debt security. If the
interest rate of an Indexed Note is so indexed, it may result in an
interest rate that is less than that payable on a conventional
fixed-rate debt security issued at the same time, including the
possibility that no interest will be paid, and, if the principal of
and/or premium on an Indexed Note is so indexed, the amount of
principal payable in respect thereof may be less than the original
purchase price of such Indexed Note if allowed pursuant to the terms
thereof, including the possibility that no such amount will be paid.
The secondary market for Indexed
S-19
Notes will be affected by a number of factors, independent of the
creditworthiness of the Company and the value of the applicable
currency, commodity or interest rate index, including the volatility
of the applicable currency, commodity or interest rate index, the time
remaining to the maturity of such Notes, the amount outstanding of
such Notes and market interest rates. The value of the applicable
currency, commodity or interest rate index depends on a number of
interrelated factors, including economic, financial and political
events, over which the Company has no control. Additionally, if the
formula used to determine the amount of principal, premium and/or
interest payable with respect to Indexed Notes contains a multiple or
leverage factor, the effect of any change in the applicable currency,
commodity or interest rate index will be increased. The historical
experience of the relevant currencies, commodities or interest rate
indices should not be taken as an indication of future performance of
such currencies, commodities or interest rate indices during the term
of any Indexed Note. The credit ratings assigned to the Company's
medium-term note program are a reflection of the Company's credit
status, and, in no way, are a reflection of the potential impact of
the factors discussed above, or any other factors, on the market value
of the Notes. Accordingly, prospective investors should consult their
own financial and legal advisors as to the risks entailed by an
investment in Indexed Notes and the suitability of Indexed Notes in
light of their particular circumstances.
BOOK-ENTRY NOTES
The following provisions assume that the Company has established
a depository arrangement with The Depository Trust Company with
respect to the Book-Entry Notes. Any additional or differing terms of
the depository arrangements with respect to the Book-Entry Notes will
be described in the applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate
principal amount bearing interest (if any) at the same rate or
pursuant to the same formula and having the same Original Issue Date,
redemption provisions (if any), repayment provisions (if any), Stated
Maturity and other variable terms will be represented by a single
Global Security. Each Global Security representing Book-Entry Notes
will be deposited with, or on behalf of, the Depositary and will be
registered in the name of the Depositary or a nominee of the
Depositary. No Global Security may be transferred except as a whole
by a nominee of the Depositary to the Depositary or to another nominee
of the Depositary, or by the Depositary or such nominee to a successor
of the Depositary of such successor.
So long as the Depositary or its nominee is the registered owner
of a Global Security, the Depositary or its nominee, as the case may
be, will be the sole Holder of the Book-Entry Notes represented
thereby for all purposes under the Indenture. Except as otherwise
provided in this section, the beneficial owners of the Global Security
or Securities representing Book-Entry Notes will not be entitled to
receive physical delivery of Certificated Notes and will not be
considered the Holders thereof for any purpose under the Indenture,
and no Global Security representing Book-Entry Notes shall be
exchangeable or transferrable. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures
of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its
interest in order to exercise any rights of a Holder under the
Indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Security representing
Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement,
each Global Security representing Book-Entry Notes is exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like amount, only if (i) the Depositary is
at any time unwilling, unable or ineligible
S-20
to continue as Depositary and a successor depositary is not appointed
by the Company within 60 days of the date the Company is so informed
in writing, (ii) the Company in its sole discretion determines that
the Global Securities shall be exchangeable for Certificated Notes and
executes and delivers to the Trustee a Company Order to such effect,
or (iii) there shall have occurred and be continuing an Event of
Default under the Indenture with respect to the Notes. Upon any such
exchange, the Certificated Notes shall be registered in the names of
the beneficial owners of the Global Security or Securities
representing Book-Entry Notes as provided by the Depositary's relevant
participants (as identified by the Depositary).
The following is based on information furnished by the
Depositary:
The Depositary will act as securities depository for the
Book-Entry Notes. The Book-Entry Notes will be issued as fully
registered securities registered in the name of Cede & Co. (the
Depositary's partnership nominee). One fully registered Global
Security will be issued for each issue of Book-Entry Notes having
the same variable terms, each in the aggregate principal amount
of such issue, and will be deposited with the Depositary. If,
however, the aggregate principal amount of any issue having the
same variable terms exceeds $200,000,000, one Global Security
will be issued with respect to each $200,000,000 of principal
amount and an additional Global Security will be issued with
respect to any remaining principal amount of such issue.
The Depositary 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
Exchange Act. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The
Depositary 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 ("Direct Participants") include securities brokers
and dealers, banks, trust companies, clearing corporations and
certain other organizations. The Depositary 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
Depositary's 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
Participant"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange
Commission.
Purchases of Book-Entry Notes under the Depositary's system
must be made by or through Direct Participants, which will
receive a credit for such Book-Entry Notes on the Depositary's
records. The ownership interest of each actual purchaser of each
Book-Entry Note represented by a Global Security ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect
Participants through which such Beneficial Owner entered into the
transaction. Transfers of ownership interests in a Global
Security representing Book-Entry Notes are to be accomplished by
entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners of a Global Security
representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except under the
circumstances described above.
S-21
To facilitate subsequent transfers, all Global Securities
representing Book-Entry Notes which are deposited with the
Depositary are registered in the name of the Depositary's
nominee, Cede & Co. The deposit of Global Securities with the
Depositary and their registration in the name of Cede & Co.
effect no change in beneficial ownership. The Depositary has no
knowledge of the actual Beneficial Owners of the Global
Securities representing the Book-Entry Notes; the Depositary's
records reflect only the identity of the Direct Participants to
whose accounts such Book-Entry Notes are credited, which may or
may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by the
Depositary to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect
Participants to Beneficial Owners will by governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than
all of the Book-Entry Notes within an issue are being redeemed,
the Depositary's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be
redeemed.
Neither the Depositary nor Cede & Co. will consent or vote
with respect to the Global Securities representing the Book-Entry
Notes. Under its usual procedures, the Depositary mails an
Omnibus Proxy to the Company as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose
accounts the Book-Entry Notes are credited on the applicable
record date (identified in a listing attached to the Omnibus
Proxy).
Principal, premium, if any, and interest payments on the
Global Securities representing the Book-Entry Notes will be made
to the Depositary. The Depositary's practice is to credit Direct
Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe
that it will not receive payment on such date. Payments by
Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is 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 Participant and not of the Depositary, the Trustee or the
Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal,
premium, if any, and interest to the Depositary is the
responsibility of the Company or the Trustee, disbursement of
such payments to Direct Participants shall be the responsibility
of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
In the case of any Book-Entry Notes which are subject to
repayment at the option of the Holder, a Beneficial Owner shall
give notice to elect to have its Book-Entry Notes repaid by the
Company, through its Participant, to the Trustee, and shall
effect delivery of such Book-Entry Notes by causing the Direct
Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. The requirement for
physical delivery of Book-Entry Notes in connection with a demand
for repayment will be deemed satisfied when the ownership rights
in the Global Security or Securities representing such Book-Entry
Notes are transferred by Direct Participants on the Depositary's
records.
S-22
The Depositary may discontinue providing its services as
securities depository with respect to the Book-Entry Notes at any
time by giving reasonable notice to the Company or the Trustee.
Under such circumstances, in the event that a successor
securities depository is not obtained, Certificated Notes are
required to be printed and delivered.
The Company may decide to discontinue use of system of book-
entry transfers through the Depositary (or a successor securities
depository). In that event, Certificated Notes will be printed
and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for
the accuracy thereof.
SPECIAL PROVISIONS AND RISKS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement,
Notes denominated in other than United States dollars or ECUs will not
be sold in, or to residents of, the country issuing the Specified
Currency in which the particular Notes are denominated. The
information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents and, with
respect to Foreign Currency Notes, is by necessity incomplete. The
Company disclaims any responsibility to advise prospective purchasers
who are residents of countries other than the United States with
respect to any matters that may affect the purchase, holding or
receipt of payments of principal of and premium, if any, and interest
on the Notes. Such persons should consult their own financial and
legal advisors with regard to such matters.
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL RISKS OF AN
INVESTMENT IN FOREIGN CURRENCY NOTES THAT RESULT FROM SUCH NOTES BEING
DENOMINATED OR PAYABLE IN A SPECIFIED CURRENCY OTHER THAN UNITED
STATES DOLLARS, EITHER AS SUCH RISKS EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN FOREIGN CURRENCY
NOTES. FOREIGN CURRENCY NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes entails significant risks
that are not associated with a similar investment in a debt security
denominated in United States dollars. Such risks include, without
limitation, the possibility of significant changes in the rate of
exchange between the United States dollar and the applicable Specified
Currency and the possibility of the imposition or modification of
foreign exchange controls by either the United States or foreign
governments. Such risks generally depend on events over which the
Company has no control, such as economic and political events and the
supply and demand for the relevant currencies. In recent years, rates
of exchange between the United States 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
S-23
term of any Foreign Currency Note. Depreciation of the Specified
Currency applicable to a Foreign Currency Note against the United
States dollar would result in a decrease in the United States dollar-
equivalent yield of such Note, in the United States dollar-equivalent
value of the principal and premium, if any, payable at Maturity of
such Note, and, generally, in the United States dollar-equivalent
market value of such Note.
Governments have imposed from time to time exchange controls and
may in the future impose or revise exchange controls at or prior to
the date on which any payment of principal of or premium, if any, or
interest on a Foreign Currency Note is due, which could affect
exchange rates as well as the availability of the Specified Currency
on such date. Even if there are no exchange controls, it is possible
that the Specified Currency for any particular Foreign Currency Note
would not be available on the applicable payment date due to other
circumstances beyond the control of the Company. In that event, the
Company will make the required payment in respect of such Foreign
Currency Note in United States dollars on the basis of the Market
Exchange Rate (as defined below). See "Payment Currency."
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with
the laws of the State of New York. Under current New York law, a
state court in the State of New York rendering a judgment on a Foreign
Currency Note would be required to render such judgment in the
Specified Currency in which such Foreign Currency Note is denominated,
and such judgment would be converted into United States dollars at the
exchange rate prevailing on the date of entry of the judgment.
Accordingly, Holders of Foreign Currency Notes would bear the risk of
exchange rate fluctuations between the time the amount of the judgment
is calculated and the time such amount is converted from United States
dollars into the applicable Specified Currency. It is not certain,
however, that a non-New York state court would follow the same rules
and procedures with respect to conversions of foreign currency
judgments.
PAYMENT OF PRINCIPAL AND PREMIUM, IF ANY, AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement,
the Company is obligated to make payments of principal and premium, if
any, and interest on Foreign Currency Notes in the applicable
Specified Currency (or, if such Specified Currency is not at the time
of such payment legal tender for the payment of public and private
debts, in such other coin or currency of the country which issued such
Specified Currency as at the time of such payment is legal tender for
the payment of such debts). Any such amounts paid by the Company
will, unless otherwise specified in the applicable Pricing Supplement,
be converted by the Exchange Rate Agent named in the applicable
Pricing Supplement into United States dollars for payment to Holders.
However, unless otherwise specified in the applicable Pricing
Supplement, the Holder of a Foreign Currency Note may elect to receive
such payments in the applicable Specified Currency as hereinafter
described.
Any United States dollar amount to be received by a Holder of a
Foreign Currency Note will be based on the highest bid quotation in
The City of New York received by the Exchange Rate Agent at
approximately 11:00 A.M., New York City time, on the second Business
Day preceding the applicable payment date from three recognized
foreign exchange dealers (one of whom may be the Exchange Rate Agent)
selected by the Exchange Rate Agent and approved by the Company for
the purchase by the quoting dealer of the Specified Currency for
United States dollars for settlement on such payment date in the
aggregate amount of the Specified Currency payable to all Holders of
Foreign Currency Notes scheduled to receive United States dollar
payments and at which the applicable dealer commits to execute a
contract. All currency exchange costs will be borne by the Holder of
such Foreign Currency Note by deductions from such payments. If three
such bid quotations are not available, payments will be made in the
Specified Currency.
S-24
Unless otherwise specified in the applicable Pricing Supplement,
a Holder of a Foreign Currency Note may elect to receive payment of
the principal of and premium, if any, and/or interest on such Note in
the Specified Currency by submitting a written request for such
payment to the Trustee at its corporate trust office in The City of
New York on or prior to the applicable Record Date or at least fifteen
calendar days prior to Maturity, as the case may be. Such written
request may be mailed or hand-delivered or sent by cable, telex or
other form of facsimile transmission. A Holder of a Foreign Currency
Note may elect to receive payment in the applicable Specified Currency
for all such principal, premium, if any, and interest payments and
need not file a separate election for each payment. Such election
will remain in effect until revoked by written notice to the Trustee,
but written notice of any such revocation must be received by the
Trustee on or prior to the applicable Record Date or at least fifteen
calendar days prior to Maturity, as the case may be. Holders of
Foreign Currency Notes whose Notes are to be held in the name of a
broker or nominee should contact such broker or nominee to determine
whether and how an election to receive payments in the applicable
Specified Currency may be made.
Payments of the principal of and premium, if any, and interest on
Foreign Currency Notes which are to be made in U.S. dollars will be
made in the manner specified herein with respect to Notes denominated
in United States dollars. See "Description of Notes--General."
Payments of interest on Foreign Currency Notes which are to be made in
the applicable Specified Currency on an Interest Payment Date (other
than at Maturity) will be made by check mailed at the address of the
Persons entitled thereto as they appear in the Security Register,
subject to the right to receive such interest payments by wire
transfer of immediately available funds under the circumstances
described above under "General", provided that the bank to which such
transfer is to be made has appropriate facilities therefor. Payments
of principal of and premium, if any, and interest on Foreign Currency
Notes which are to be made in the applicable Specified Currency at
Maturity will be made by wire transfer of immediately available funds
to an account with a bank designated at least fifteen calendar days
prior to Maturity by the applicable Holder, provided that such bank
has appropriate facilities therefor and that the applicable Note is
presented at the principal corporate trust office of the Trustee in
time for the Trustee to make such payments in such funds in accordance
with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement,
a Beneficial Owner of a Global Security or Securities representing
Book-Entry Notes denominated in a Specified Currency other than United
States dollars which elects to receive payments of principal, premium,
if any, and interest in such Specified Currency must notify the
Participant through which its interest is held on or prior to the
applicable Record Date or at least fifteen calendar days prior to
Maturity, as the case may be, of such Beneficial Owner's election to
receive all or a portion of such payment in such Specified Currency.
Such Participant must notify the Depositary of such election on or
prior to the third Business Day after such Record Date or at least
twelve calendar days prior to Maturity, as the case may be, and the
Depositary will notify the Trustee of such election on or prior to the
fifth Business Day after such Record Date or at least ten calendar
days prior to Maturity, as the case may be. If complete instructions
are received by the Participant and forwarded by the Participant to
the Depositary, and by the Depositary to the Trustee, on or prior to
such dates, then the Beneficial Owner will receive payments in such
Specified Currency.
PAYMENT CURRENCY
If the applicable Specified Currency is not available for the
payment of principal, premium, if any, or interest with respect to a
Foreign Currency Note due to the imposition of exchange controls or
other circumstances beyond the control of the Company, the Company
will be entitled to satisfy its obligations to the Holder of such
Foreign Currency Note by making such payment in United States dollars
on the basis of the Market Exchange Rate on the second Business Day
prior to such payment or, if such Market Exchange Rate is
S-25
not then available, on the basis of the most recently available Market
Exchange Rate or as otherwise specified in the applicable Pricing
Supplement. The "Market Exchange Rate" for a Specified Currency other
than United States dollars means the noon dollar buying rate in The
City of New York for cable transfer for such Specified Currency as
certified for customs purposes by (or if not so certified, as
otherwise determined by) the Federal Reserve Bank of New York. Any
payment made under such circumstances in United States dollars where
the required payment is in a Specified Currency other than United
States dollars will not constitute an Event of Default under the
Indenture with respect to the Notes.
If payment in respect of a Foreign Currency Note is required to
be made in any currency unit (e.g., ECU), and such currency unit is
unavailable due to the imposition of exchange controls or other
circumstances beyond the Company's control, then the Company will be
entitled, but not required, to make any payments in respect of such
Note in United States dollars until such currency unit is again
available. The amount of each payment in United States dollars shall
be computed on the basis of the equivalent of the currency unit in
United States dollars, which shall be determined by the Company or its
agent on the following basis. The component currencies of the
currency unit for this purpose (collectively, the "Component
Currencies" and each, a "Component Currency") shall be the currency
amounts that were components of the currency unit as of the last day
on which the currency unit was used. The equivalent of the currency
unit in United States dollars shall be calculated by aggregating the
United States dollar equivalents of the Component Currencies. The
United States dollar equivalent of each of the Component Currencies
shall be determined by the Company or such agent on the basis of the
most recently available Market Exchange Rate for each such Component
Currency, or as otherwise specified in the applicable Pricing
Supplement.
If the official unit of any Component Currency is altered by way
of combination or subdivision, the number of units of the currency as
a Component Currency shall be divided or multiplied in the same
proportion. If two or more Component Currencies are consolidated into
a single currency, the amounts of those currencies as Component
Currencies shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component
Currency is divided into two or more currencies, the amount of the
original Component Currency shall be replaced by the amounts of such
two or more currencies, the sum of which shall be equal to the amount
of the original Component Currency.
All determinations referred to above made by the Company or its
agent (including the Exchange Rate Agent) shall be at its sole
discretion and shall, in the absence of manifest error, be conclusive
for all purposes and binding on the Holders of the Foreign Currency
Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain material U.S.
federal income tax aspects of the acquisition, ownership and
disposition of the Notes. This discussion is a summary for general
information only and does not consider all aspects of U.S. federal
income taxation that may be relevant to the purchase, ownership and
disposition of the Notes by a prospective investor in light of his or
her personal circumstances. This discussion also does not address the
U.S. federal income tax consequences of ownership of Notes not held as
capital assets within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), or the U.S. federal
income tax consequences to investors subject to special treatment
under the federal income tax laws, such as dealers in securities or
foreign currency, tax-exempt entities, banks, thrifts, insurance
companies, persons that hold the Notes as part of a "straddle", as
part of a "hedge" against currency risk, or as part of a "conversion
transaction", persons that have a "functional currency" other than the
U.S.
S-26
dollar, and investors in pass-through entities. In addition, the
discussion is generally limited to the tax consequences to initial
holders. It does not describe any tax consequences arising out of the
tax laws of any state, local or foreign jurisdiction. This discussion
also does not address the special rules that apply if the holder
receives principal in installment payments or if the Note is called
before the maturity date.
This summary is based upon the Code, existing and proposed
regulations thereunder, and current administrative rulings and court
decisions. All of the foregoing are subject to change, possibly on a
retroactive basis, and any such change could affect the continuing
validity of this discussion.
PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX
LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION TO THEIR PARTICULAR SITUATIONS. ADDITIONAL U.S. FEDERAL
INCOME TAX CONSEQUENCES APPLICABLE TO PARTICULAR NOTES MAY BE SET
FORTH IN THE APPLICABLE PRICING SUPPLEMENT.
Special considerations relevant to the U.S. federal income
taxation of payments on Notes denominated in a Specified Currency
other than the U.S. dollar or indexed to changes in exchange rates
("Foreign Currency Notes") are discussed separately below under the
heading "Foreign Currency Notes". Special considerations relevant to
the U.S. Federal income taxation of payments on Notes the interest or
principal of which is indexed to property other than foreign currency
and which is not a variable rate debt instrument (discussed under the
heading "Variable Rate Notes") are discussed separately below under
the heading "Indexed Notes." In addition, the following discussion
assumes the Notes will be issued in registered form. If the Company
issues bearer Notes, the Company will describe the tax consequences of
such issuance in the applicable Pricing Supplement. This discussion
also does not consider holders of interests in pass-through entities
that hold the Notes. The discussion below also assumes that the Notes
will be treated as debt for U.S. federal income tax purposes.
However, it is possible that some contingent payment arrangements
would not be treated as debt for U.S. federal income tax purposes.
Holders should consult their own tax advisors with respect to whether
any contingent payment obligations are debt.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income
tax consequences relevant to a holder of a Note that is (i) a citizen
or resident of the United States, (ii) a corporation organized under
the laws of the United States or any political subdivision thereof or
therein, or (iii) an estate or trust, the income of which is subject
to U.S. federal income tax regardless of the source ("U.S. Holder").
Certain aspects of U.S. federal income tax relevant to a holder other
than a U.S. Holder (a "Non-U.S. Holder") are discussed separately
below.
Stated Interest; Original Issue Discount
Except as set forth below, interest on a Note will be taxable to
a U.S. Holder as ordinary interest income at the time it accrues or is
received in accordance with such holder's method of accounting for tax
purposes. U.S. Holders of Notes that bear original issue discount
("OID") and that mature more than one year from the date of issuance
will be generally required to include OID in income as it accrues in
advance of the receipt of cash attributable to such income, whether
such Holder uses the cash or accrual method of accounting. On
February 2, 1994, the Internal Revenue Service (the "Service") issued
final OID regulations (the "OID Regulations"). On June 11, 1996, the
IRS issued additional final regulations that contain an anti-abuse
rule which provides that, if a principal purpose in structuring a debt
instrument or engaging in a transaction is to achieve a result that is
unreasonable in light of the applicable statutes, the Commissioner of
Internal Revenue can apply or depart from the regulations as necessary
or appropriate to achieve a reasonable result. Although
S-27
the Company does not believe that the Notes will be structured with
such a principal purpose, there can be no assurance that the Service
will agree with such position.
Subject to a statutory de minimis exception, the amount of OID,
if any, on a Note is the excess of its "stated redemption price at
maturity" over its "issue price". For this purpose, de minimis OID is
OID that is less than 1/4 of 1 per cent of the stated redemption price
at maturity multiplied by the number of complete years to its maturity
from the issue date. If the amount of OID is de minimis, it is deemed
to be zero.
Generally, the issue price of a Note will be the initial offering
price to the public. A U.S. Holder may elect in certain circumstances
to decrease the issue price and the stated redemption price at
maturity by the amount of pre-issuance accrued interest and offset
such pre-issuance accrued interest against an equal amount of stated
interest payable on the first interest payment date.
A Note's stated redemption price at maturity includes all
payments required to be made over the term of the Note other than the
payment of "qualified stated interest," which is defined as interest
that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate,
or in the circumstances described below, a qualified floating rate or
objective rate on a variable rate debt instrument. If a debt
instrument provides for alternate payment schedules upon the
occurrence of one or more contingencies, the yield and maturity of the
debt instrument are computed based on a single payment schedule, if
based on all the facts and circumstances, that schedule is
significantly more likely than not to occur. This rule only applies
if the timing and amounts of the payments that comprise each payment
schedule are known as of the issue date. If no one payment schedule
is significantly more likely than not to occur, the rules for
contingent payment debt obligations described below under the heading
"Indexed Notes" will apply. However, if a debt instrument provides
for one or more alternative payment schedules, but all possible
payment schedules under the terms of the instrument result in the same
fixed yield, that yield is the yield of the instrument.
Interest is considered unconditionally payable only if reasonable
legal remedies exist to compel timely payment or the debt instrument
otherwise provides terms and conditions that make the likelihood of
late payment (other than late payment within a reasonable grace
period) or nonpayment a remote contingency. Interest is payable at a
single fixed rate only if the rate appropriately takes into account
the length of the interval between stated interest payments. Thus, if
the interval between payments varies during the term of the
instrument, the value of the fixed rate on which payment is based
generally must be adjusted to reflect a compounding assumption
consistent with the length of the interval preceding the payment.
A U.S. Holder (whether on the cash or accrual method of
accounting) must include in income for the taxable year the sum of the
daily portions of OID for each day of the taxable year in which the
U.S. Holder held the Note. The daily portions of OID are determined
by determining the OID attributable to each accrual period and
allocating a ratable portion of such amount to each day in the accrual
period. The accrual period may be any length and may vary in length
over the term of the Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal and
interest occurs on the final day of an accrual period or on the first
day of an accrual period. In general, OID allocable to an accrual
period equals the product of (i) the adjusted issue price at the
beginning of the accrual period (i.e., the original issue price plus
previously accrued OID minus previous payments other than payments of
qualified stated interest) multiplied by the original yield to
maturity of the Note (determined on the basis of compounding at the
end of each accrual period) minus (ii) the amount of qualified stated
interest allocable to the accrual period.
The OID Regulations provide special rules for determining the
amount of OID allocable to a period when there is unpaid qualified
stated interest, for short initial accrual periods and final accrual
periods, and for
S-28
determining the yield to maturity for debt instruments subject to
certain contingencies as to the timing of payments, including debt
instruments that provide for options to accelerate or defer any
payments, and debt instruments with indefinite maturities. For
example, the maturity date and yield will be determined to take into
account options to accelerate or defer any payments. In the case of
such options held by an issuer, the options will be deemed exercised
or not in a manner that minimizes the yield on the instrument, while
in the case of such options held by holders, the options will be
deemed exercised or not in a manner that maximizes yield. Under the
OID Regulations, an option to convert debt into stock of the issuer or
into stock or debt of certain related parties or to cash or other
property in an amount equal to the approximate value of such stock or
debt are disregarded in determining OID. Under the Code and the OID
Regulations, U.S. Holders generally will have to include in income
increasingly greater amounts of OID in successive accrual periods.
Variable Rate Notes
The OID Regulations contain special rules for determining the
accrual of OID and the amount of qualified stated interest on a
"variable rate debt instrument." For purposes of these regulations, a
"variable rate debt instrument" is a debt instrument that: (1) has an
issue price that does not exceed total non-contingent principal
payments by more than a specified amount; (2) provides for stated
interest (compounded or paid at least annually) at (a) one or more
"qualified floating rates", (b) a single fixed rate and one or more
qualified floating rates, (c) a single "objective rate", or (d) a
single fixed rate and a single objective rate that is a "qualified
inverse floating rate"; (3) provides that a qualified floating rate or
objective rate in effect at any time during the term of the instrument
is set at a current value of that rate; and (4) except as permitted in
clause (1), does not provide for any principal payments that are
contingent.
For purposes of determining if a Note is a variable rate debt
instrument, a floating rate is a "qualified floating rate" if
variations in the rate can reasonably be expected to measure
contemporaneous variations in the costs of newly borrowed funds in the
currency in which the debt instrument is denominated. A multiple of a
qualified floating rate is generally not a qualified floating rate,
unless it is either (a) a product of a qualified rate times a fixed
multiple greater than .65 but not more than 1.35 or (b) a multiple of
the type described in (a) increased or decreased by a fixed rate. If
a debt instrument provides for two or more qualified floating rates
that can reasonably be expected to have approximately the same value
throughout the term of the instrument, the debt instrument will be
considered to provide for a single qualified rate. Two or more such
rates will be considered to have approximately the same value
throughout the term of the instrument if the values of the rates on
the date of issuance are within 25 basis points of each other.
An "objective rate" is a rate, other than a qualified floating
rate, that is determined using a single fixed formula and that is
based on objective financial or economic information, including, for
example, a rate based on one or more qualified floating rates or a
rate based on the yield of actively traded personal property (within
the meaning of Section 1092(d)(2) of the Code). The rate, however,
must not be based on information that is within the control of the
issuer (or a related party) or that is, in general, unique to the
circumstances of the issuer (or a related party), such as dividends,
profits, or the value of the issuer's stock. In addition, the Service
may designate other variable rates as objective rates. Restrictions
on a minimum interest rate ("floor") or maximum interest rate ("cap"),
or the amount of increase or decrease in the stated interest rate
("governor") generally will not result in the rate failing to be
treated as a qualified floating rate or an objective rate if the
restriction is fixed throughout the term of the instrument and the
cap, floor, or governor is not reasonably expected to offset the yield
significantly as of the date of issuance. However, a rate is not an
objective rate if it is reasonably expected that an average value of
such rate of interest over the first half of the instrument's term
will be either significantly less or more than the average value of
the rate during the final half of the instrument's term (i.e., if
there is a significant front loading or back loading of interest).
S-29
A "qualified inverse floating rate" is a rate that is equal to a
fixed rate minus a qualified floating rate if variations in the rate
can reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly borrowed funds (disregarding any cap,
floor or governor).
Under the OID Regulations, for purposes of determining the amount
and accrual of OID and qualified stated interest, a debt instrument
providing for a qualified floating rate or qualified inverse floating
rate is converted to an equivalent fixed rate debt instrument by
assuming that each qualified floating rate, or qualified inverse
floating rate, respectively, will remain at its value as of the issue
date. A debt instrument providing for an objective rate (other than a
qualified inverse floating rate) is converted to an equivalent fixed
rate debt instrument by assuming that the objective rate will equal a
fixed rate that reflects the yield that is reasonably expected for the
instrument. The rules applicable to fixed rate debt instruments are
then applied to determine the qualified stated interest payments and
OID accruals on the equivalent fixed rate debt instrument.
Appropriate adjustments are made to the extent the interest or OID
actually accrued or paid differs from that assumed on the equivalent
fixed rate debt instrument.
Elections to Treat All Interest as OID
Under the OID Regulations, a U.S. Holder may elect to account for
all income on a Note (other than foreign currency gain or loss),
including stated interest, OID, de minimis OID, market discount, de
minimis market discount, amortizable bond premium, acquisition premium
or market discount in the same manner as OID. The election is made in
the year of acquisition of the Note and such election is irrevocable
without the consent of the Commissioner of Internal Revenue. If this
election is made, the U.S. Holder may be subject to the conformity
requirements of Section 171(c) or 1278(b) of the Code, which may
require the amortization of bond premium and the accrual of market
discount on other debt instruments held by the same U.S. Holder.
Short-Term Notes
In general, an individual or other cash method U.S. Holder of a
Note that has an original maturity of not more than one year from the
date of issuance (a "short-term Note") is not required to accrue OID
unless he or she elects to do so. Such an election applies to all
short-term Notes acquired by the U.S. Holder during the first taxable
year for which the election is made, and all subsequent taxable years
of the U.S. Holder unless the Service consents to a revocation. U.S.
Holders who report income for federal income tax purposes on the
accrual method and certain other U.S. Holders and electing cash method
U.S. Holders are required to include OID on such short-term Notes on a
straight-line basis, unless an irrevocable election with respect to
any short-term Note is made to accrue the OID according to a constant
interest rate based on daily compounding. In the case of a U.S.
Holder who is not required, and does not elect, to include OID in
income currently, any gain realized on the sale, exchange or
retirement of the short-term Note will be ordinary income to the
extent of the OID accrued on a straight-line basis (or, if elected,
according to the constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, such
non-electing U.S. Holders who are not subject to the current inclusion
requirement described above will be required to defer deductions for
any interest paid on indebtedness incurred or continued to purchase or
carry such short-term Notes in an amount not exceeding the deferred
income until such income is released.
Market Discount
If a Note (other than a short-term Note described above) is
acquired at a "market discount," some or all of any gain realized upon
a sale or other disposition, or payment at maturity, or some or all of
a partial principal payment of such Note may be treated as ordinary
income, as described below. For this purpose,
S-30
"market discount" is the excess (if any) of the stated redemption
price at maturity over the purchase price, subject to a statutory de
minimis exception. In the case of a Note issued with OID, in lieu of
using stated redemption price at maturity, the revised issue price
(i.e., the sum of the issue price and the aggregate amount of OID
included in the gross income of all holders for periods before the
acquisition, less payments made on the Note other than qualified
stated interest) is used. Unless a U.S. Holder has elected to include
the market discount in income as it accrues, any gain realized on any
subsequent disposition of such Note (other than in connection with
certain non-recognition transactions), payment at maturity, or partial
principal payment with respect to such Note will be treated as
ordinary income to the extent of the market discount that is treated
as having accrued during the period such Note was held.
The amount of market discount treated as having accrued will be
determined either (i) on a ratable basis by multiplying the market
discount times a fraction, the numerator of which is the number of
days the Note was held by a U.S. Holder and the denominator of which
is the total number of days after the date such U.S. Holder acquired
the Note up to and including the date of its maturity or (ii) if the
U.S. Holder so elects, on a constant interest rate method. A U.S.
Holder may make that election with respect to any Note, and such
election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary
income to the extent of accrued market discount at the time of
disposition, a U.S. Holder of such Note acquired at a market discount
may elect to include market discount in income currently, through the
use of either the ratable inclusion method or the elective constant
interest method. Once made, the election to include market discount
in income currently applies to all Notes and other obligations of the
U.S. Holder that are purchased at a market discount during the taxable
year for which the election is made, and all subsequent taxable years
of the U.S. Holder, unless the Service consents to a revocation of the
election. If an election is made to include market discount in income
currently, the basis of the Note in the hands of the U.S. Holder will
be increased by the market discount thereon as it is included in
income.
If the U.S. Holder makes the election to treat as OID all
interest on a debt instrument that has market discount, the U.S.
Holder is deemed to have made the election to accrue currently market
discount on all other debt instruments with market discount. In
addition, if the U.S. Holder has previously made the election to
accrue market discount currently, the conformity requirements of that
election are met for debt instruments with respect to which the U.S.
Holder elects to treat all interest as OID.
Unless a U.S. Holder who acquires a Note at a market discount
elects to include market discount in income currently, such U.S.
Holder may be required to defer deductions for any interest paid on
indebtedness allocable to such Note in an amount not exceeding the
deferred income until such income is realized.
Premium
If a subsequent U.S. Holder purchases a Note issued with OID at
an "acquisition premium," the U.S. Holder reduces the amount of OID
includible in income in each taxable year by that portion of
acquisition premium allocable to that year. A Note is purchased at an
"acquisition premium" if, immediately after the purchase, the
purchaser's adjusted basis in the Note is greater than the adjusted
issue price but not greater than all amounts payable on the instrument
after the purchase date (other than qualified stated interest) (i.e.,
the Note is not purchased at a "bond premium"). In general, the
reduction in OID allocable to acquisition premium is determined by
multiplying the daily portion of OID by a fraction the numerator of
which is the excess of the U.S. Holder's adjusted basis in the Note
immediately after the acquisition over the adjusted issue price of the
Note and the denominator of which is the excess of the sum of all
amounts payable on the Note after the
S-31
purchase date, other than payments of qualified stated interest, over
the Note's adjusted issue price. Rather than apply the above
fraction, the U.S. Holder may, as discussed above, elect to treat all
interest as OID and such U.S. Holder would treat the purchase at an
acquisition premium as a purchase at original issuance and calculate
OID accruals on a constant yield to maturity basis.
If a U.S. Holder purchases a Note and immediately after the
purchase the adjusted basis of the Note exceeds the sum of all amounts
payable on the instrument after the purchase date, other than
qualified stated interest, the Note has "bond premium". Proposed
regulations issued on June 11, 1996 and generally proposed to be
effective 60 days after the final regulations are published, contain
special rules for determining adjusted basis for this purpose. For
example, under the proposed regulations, a U.S. Holder's basis in a
convertible bond is reduced by the value of the conversion option. A
U.S. Holder that purchases a Note at a bond premium is not required to
include OID in income. In addition, a U.S. Holder may elect to
amortize such bond premium over the remaining term of such Note (or,
in certain circumstances, until an earlier call date). Under proposed
regulations, that election must be made with a timely filed federal
income tax return for the first taxable year to which the U.S. Holder
wishes the election to apply.
If bond premium is amortized, the amount of interest that must be
included in the U.S. Holder's income for each period ending on an
interest payment date or stated maturity, as the case may be, will be
reduced by the portion of premium allocable to such period based on
the Note's yield to maturity. Proposed regulations provide that if
the bond premium allocable to an accrual period is in excess of
qualified stated interest allocable to that period, such premium is
carried to the next accrual period and offsets qualified stated
interest in such period. Proposed regulations also contain rules for
determining bond premiums on variable rate debt instruments and for
bonds with alternative payment schedules that are not treated as
contingent payment obligations. If an election to amortize bond
premium is not made, a U.S. Holder must include the full amount of
each interest payment in income in accordance with its regular method
of accounting and will receive a tax benefit from the premium only in
computing its gain or loss upon the sale or other disposition or
payment of the principal amount of the Note.
An election to amortize premium will apply to amortizable bond
premium on all Notes and other bonds, the interest on which is
includible in the U.S. Holder's gross income, held at the beginning of
the U.S. Holder's first taxable year to which the election applies or
thereafter acquired, and may be revoked only with the consent of the
Service. The election to treat all interest, including for this
purpose amortizable premium, as OID is deemed to be an election to
amortize premium under Section 171(c) of the Code for purposes of the
conformity requirements of that section. In addition, if the U.S.
Holder has already made an election to amortize premium, the
conformity requirements will be deemed satisfied with respect to any
Notes for which the U.S. Holder makes an election to treat all
interest as OID.
Sale, Exchange, Redemption or Repayment of the Notes
Upon the disposition of a Note by sale, exchange, redemption or
repayment, the U.S. Holder will generally recognize gain or loss equal
to the difference between (i) the amount realized on the disposition
(other than amounts attributable to accrued interest) and (ii) the
U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis in a
Note generally will equal the cost of the Note (net of accrued
interest) to the U.S. Holder increased by amounts includible in income
as OID or market discount (if the holder elects to include market
discount on a current basis) and reduced by any amortized premium and
any payments other than payments of qualified stated interest (or
fixed periodic interest) made on such Note.
S-32
Because the Note is held as a capital asset, such gain or loss
(except to the extent that the market discount rule or rules relating
to certain short term OID notes otherwise provide) will generally
constitute capital gain or loss and will be long-term capital gain or
loss if the U.S. Holder has held such Note for longer than one year.
In certain circumstances, if an issuer were found to have an
intention, at the time its debt obligations were issued, to call such
obligations before maturity, gain would be ordinary income to the
extent of any unamortized OID. The OID Regulations clarify that this
rule will not apply to publicly offered debt instruments.
Foreign Currency Notes
The following discussion applies to Foreign Currency Notes, if
such Notes are not denominated in or indexed to a currency that is
considered a "hyperinflationary" currency. Special U.S. tax
considerations apply to obligations denominated in or indexed to a
hyperinflationary currency. Special U.S. tax considerations
applicable to "dual currency" Notes will be discussed in the
applicable Pricing Supplement.
In general, a U.S. Holder that uses the cash method of accounting
and holds a Foreign Currency Note will be required to include in
income the U.S. dollar value of the amount of interest income received
whether or not the payment is received in U.S. dollars or converted
into U.S. dollars. The U.S. dollar value of the amount of interest
received is the amount of foreign currency interest paid translated at
the spot rate on the date of receipt. The U.S Holder will not have
exchange gain or loss on the interest payment but may have exchange
gain or loss when it disposes of any foreign currency received.
A U.S. Holder on the accrual method of accounting is generally
required to include in income the U.S. dollar value of interest
accrued during the accrual period. Accrual basis U.S. Holders may
determine the amount of income recognized with respect to such
interest in accordance with either of two methods. Under the first
method, the U.S. dollar value of accrued interest is translated at the
average rate for the interest accrual period (or, with respect to an
accrual period that spans two taxable years, the partial period within
the taxable year). For this purpose, the average rate is the simple
average of spot rates of exchange for each business day of such period
or other average exchange rate for the period reasonably derived and
consistently applied by the U.S. Holder. Under the second method, a
U.S. Holder can elect to accrue interest at the spot rate on the last
day of an interest accrual period (in the case of a partial accrual
period, the last day of the taxable year) or if the last day of an
interest accrual period is within five business days of the receipt,
the spot rate on the date of receipt. Any such election will apply to
all debt instruments held by the U.S. Holder at the beginning of the
first taxable year to which the election applies or thereafter
acquired and will be irrevocable without the consent of the Service.
An accrual basis U.S. Holder will recognize exchange gain or loss, as
the case may be, on the receipt of a foreign currency interest payment
if the exchange rate on the date payment is received differs from the
rate applicable to the previous accrual of interest income. The
foreign currency gain or loss will generally be treated as U.S. source
ordinary income or loss.
Original issue discount on a Note denominated in a foreign
currency is determined in foreign currency and is translated into U.S.
dollars in the same manner that an accrual basis U.S. Holder accrues
stated interest. Exchange gain or loss will be determined when OID is
considered paid to the extent the exchange rate on the date of payment
differs from the exchange rate at which the OID was accrued.
The amount of market discount on a Foreign Currency Note
includible in income will generally be determined by computing the
market discount in foreign currency and translating that amount into
U.S. dollars on the spot rate on the date the Foreign Currency Note is
retired or otherwise disposed of. If the U.S. Holder accrues market
discount currently, the amount of market discount which accrues during
any accrual period is
S-33
determined in the foreign currency and translated into U.S. dollars on
the basis of the average exchange rate in effect during the accrual
period. Exchange gain or loss may be recognized to the extent that
the rate of exchange on the date of the retirement or disposition of
the Note differs from the rate of exchange at which the market
discount was accrued.
Amortizable premium on a Foreign Currency Note is also computed
in units of foreign currency and, if the U.S. Holder elects, will
reduce interest income in units of foreign currency. At the time
amortized bond premium offsets interest income (i.e., the last day of
the tax year in which the election is made and the last day of each
subsequent tax year), exchange gain or loss with respect to amortized
bond premium is recognized measured by the difference between exchange
rates at that time and at the time of the acquisition of the Note.
With respect to the sale, exchange, retirement or repayment of a
Note denominated in a foreign currency, the foreign currency amount
realized will be considered to be the payment of accrued but unpaid
interest (on which exchange gain or loss is recognized as described
above), accrued but unpaid original issue discount (on which exchange
gain or loss is recognized as described above), and finally as a
payment of principal. With respect to such payment of principal (i)
gain or loss is computed in the foreign currency and translated on the
date of retirement or disposition and (ii) exchange gain or loss is
separately computed on the foreign currency amount of principal
(purchase price reduced by amortizable premium) that is repaid to the
extent that the rate of exchange on the date of retirement or
disposition differs from the rate of exchange on the date the Note was
acquired, or deemed acquired. Exchange gain or loss computed on
accrued interest, OID, market discount and principal shall be
recognized, however, only to the extent of total gain or loss on the
transaction. For purposes of determining the total gain or loss on
the transaction, a U.S. Holder's tax basis in the Note will generally
equal the U.S. dollar cost of the Note increased by the U.S. dollar
amounts includible in income as accrued interest, OID, or market
discount (if the Holder elects to include such market discount on a
current basis) and reduced by the U.S. dollar amount of amortized
premium and of any payments other than payments of qualified stated
interest.
In the case of a Note denominated in a foreign currency, the cost
of the Note to the U.S. Holder will be the dollar value of the foreign
currency purchase price translated at the spot rate for the date of
purchase (or, in some cases, the settlement date). The conversion of
U.S. dollars to a foreign currency and the immediate use of that
currency to purchase a Foreign Currency Note generally will not result
in a taxable gain or loss for a U.S. Holder. A U.S. Holder will have
a tax basis in any foreign currency received on the sale, exchange or
retirement of a Note equal to the U.S. dollar value of such currency
on the date of receipt.
Indexed Notes
Under final regulations issued on June 11, 1996 ("the Contingent
Debt Regulations") and generally effective for debt instruments issued
on or after August 13, 1996, certain debt instruments calling for one
or more contingent payments are subject to the special rules described
below.
In general, under the Contingent Debt Regulations, the amount of
interest that is taken into account for each accrual period is
computed by determining a yield for the debt instrument as described
below, and constructing a projected payment schedule for the debt
instrument that produces that yield and applying rules similar to
those for accruing OID on a non-contingent debt instrument. The
issuer's projected payment schedule must be used to determine the
holder's interest accruals and adjustments, unless the issuer does not
create a payment schedule or the holder determines that the issuer's
projected payment schedule is unreasonable, in which case the holder
must disclose its own schedule and the reason why it is not using the
issuer's projected payment schedule.
S-34
In general, under the contingent bond method, the yield on a
contingent bond is determined by reference to the comparable yield at
which the issuer would issue a fixed rate debt instrument with terms
and conditions similar to those of the contingent debt instrument,
including the level of subordination, term, timing of payments, and
general market conditions. If a hedge is available and the combined
cash flows of the hedge and the non-contingent payments would permit
the calculation of a yield to maturity such that the debt instrument
and the hedge could be integrated into a synthetic fixed-rate
instrument, the comparable yield is the yield that the synthetic fixed
rate instrument would have. However, in the event a substantial part
of the issue is being marketed to persons for whom the inclusion of
interest is not expected to have a substantial effect on their U.S.
tax liability and the instrument provides for a non-market based
projected payment schedule, the yield of the contingent payment debt
instruments is deemed to be the applicable federal rate ("AFR").
Under the Contingent Debt Regulations, if the actual contingent
payments made on a debt instrument in a taxable year differs from the
projected contingent payments, adjustments must be made for such
differences. A positive adjustment, i.e. the amount by which an
actual payment exceeds a projected payment, is treated as additional
interest. A negative adjustment first reduces the amount of the
interest required to be accrued in a current year. Any excess is
treated as an ordinary loss to the U.S. Holder to the extent interest
accruals exceeded negative adjustments in prior years. Any negative
adjustment in excess of those amounts is carried over to a subsequent
year and will reduce the amount that would otherwise accrue in such
subsequent year on the amount realized on disposition of the debt
instrument.
A U.S. Holder's basis in a contingent debt obligation is
increased by the portion of the projected contingent payment accrued
by the holder under the projected payment schedule and determined
without regard to adjustments made to reflect differences between
actual and projected payments, and reduced by the amount of any non-
contingent payments and the projected amount of any contingent
payments previously made. Gain on the sale, exchange, or retirement
of a contingent payment debt obligation generally would be treated as
ordinary income. Losses, on the other hand, would be treated as
ordinary only to the extent of the U.S. Holder's prior net interest
inclusions (reduced by the total net negative adjustments previously
allowed to the U.S. Holder as an ordinary loss) and capital to the
extent in excess thereof.
The Contingent Debt Regulations do not apply to variable rate
debt instruments, certain debt instruments that provide for
alternative payment schedules, REMIC interests and certain other debt
instruments that are subject to prepayment, or a debt instrument that
provides for payments denominated in, or determined by reference to, a
nonfunctional currency that is subject to Section 988 of the Code.
Special rules are provided in the Contingent Debt Regulations for
accounting for market discount and premium on contingent notes.
Extendible Notes
A Note may provide the Company with an option to extend the
maturity of a Note on its maturity date and, in connection therewith,
to reset the interest rate and establish new interest reset dates, new
interest payment dates and new provisions for redemption or optional
repayment.
Although there is no specific authority on this issue dealing
with instruments substantially similar to the Notes, the extension of
the maturity date of an outstanding Note may be considered to be an
exchange on the maturity date of the original Note (the "Original
Note") for a new Note (the "New Note"), in what generally will be
treated as a taxable sale, exchange or redemption, as described above.
The consequences to the U.S. Holder of treating the extension of
a maturity date or a change in the terms of the Notes as a sale or
exchange of the Original Note for New Note will depend upon the facts
and
S-35
circumstances including, for example, whether the Note is a "security"
for tax purposes, whether the Note is publicly traded, whether Section
368(a)(1)(E) of the Code applies to the exchange, and whether the fair
market value of the Note is less than par (or, if issued at OID, less
than the adjusted issue price).
The Service has issued final regulations that are intended to be
effective with respect to modifications made on or after September 24,
1996. These regulations provide guidance as to when a significant
modification of a debt instrument is considered to be a deemed
exchange. Under the final regulations, a "modification" is any
alteration of a legal right of the issuer or a holder that does not
occur by operation of the original terms of the instrument. In
addition, certain alterations are modifications even if they occur by
operation of the original terms of the instrument. For example, any
substitution of an obligor, addition or deletion of a co-obligor or a
change (in whole or in part) in the recourse nature of the instrument
is a modification. In addition, any alteration that results in an
instrument or property right that is not debt is a modification unless
it occurs pursuant to a holder's option under the terms of the
instrument to convert the debt into issuer equity. Furthermore, an
alteration that results from the exercise of an option provided to an
issuer or holder is a modification unless the option is unilateral
and, in the case of a holder, the exercise of the option does not
result (or in the case of a variable or contingent payment is not
reasonably expected to result) in a deferral or a reduction in any
scheduled payment of interest or principal.
The regulations also provide rules for purposes of determining
when a modification is significant. In general, a modification is
significant if, based on all facts and circumstances, the legal rights
and obligations changed, and the degree to which they are being
changed, are economically significant. The regulations provide that a
change in the yield of a fixed rate instrument is a significant
modification if the yield varies from the annual yield by more than
1/4 of one percent or 5 percent of the original annual yield. In the
case of variable rate instruments, the above rule applies by deeming
the annual yield of the variable rate instrument to equal the annual
yield of an equivalent fixed rate instrument. Whether the change in
the yield of a contingent payment debt obligation is significant is
determined under the general rules. An extension of final maturity is
not a significant modification if it does not extend maturity longer
than the lesser of five years or 50% of the original term of the
instrument.
Under the OID Regulations, the Company's right to extend the
maturity on a Note may impact the Note's yield to maturity for
purposes of calculating the amount of OID on a Note. For example, if
the Note's yield to maturity (taking into account the extension) would
be less than such yield (absent the extension), OID would be accrued
assuming that the Note were extended.
Backup Withholding
A U.S. Holder of a Note may be subject to U.S. backup withholding
at the rate of 31% with respect to interest paid on the Note, unless
such U.S. Holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
the applicable requirements of the backup withholding rules. U.S.
Holders of Notes should consult their tax advisors as to their
qualification for exemption from U.S. backup withholding and the
procedure for obtaining such an exemption. Any amount paid as backup
withholding will be creditable against the U.S. Holder's federal
income tax liability.
S-36
NON-U.S. HOLDERS
The following is a summary of certain material United States
federal income tax consequences of the ownership and disposition of
the Notes by Non-U.S. Holders. This discussion does not deal with all
aspects of United States federal income and estate taxation that may
be relevant to the purchase, ownership or disposition of the Notes by
such Non-U.S. Holder in light of his or her personal circumstances.
For purposes of the following discussion, interest (including
OID) and gain on the sale, exchange or other disposition of the Note
will be considered "U.S. trade or business income" if such income or
gain is (i) effectively connected with the conduct of a U.S. trade or
business or (ii) in the case of a treaty resident, attributable to a
permanent establishment (or to a fixed base) in the United States.
Interest and Original Issue Discount
Subject to the discussion below on backup withholding, generally
any interest or OID paid to a Non-U.S. Holder of a Note that is not
"U.S. trade or business income" will not be subject to United States
tax if the interest (or OID) qualifies as "portfolio interest."
Generally (subject to the discussion below on Indexed Notes) interest
will qualify as "portfolio interest" if (i) the Non-U.S. Holder does
not actually or constructively own 10% or more of the total voting
power of all voting stock of the Company and is not a controlled
foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code, (ii) the beneficial owner,
under penalty of perjury, certifies that the beneficial owner is not a
United States person and such certificate provides the beneficial
owner's name and address, and (iii) the Non-U.S. Holder is not a bank
that is receiving the interest (or OID) on a loan made in the ordinary
course of its trade of business.
The gross amount of payments to a Non-U.S. Holder of interest or
OID that does not qualify for the portfolio interest exception and
that is not U.S. trade or business income will be subject to U.S.
federal income tax at the rate of 30% unless a U.S. income tax treaty
applies to reduce or eliminate withholding. U.S. trade or business
income will be taxed at regular U.S. rates rather than the 30% gross
rate. To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is U.S. trade or business income, the
Non-U.S. Holder must provide a properly executed Form 1001 or 4224, or
such successor form as may be required, prior to the payment of
interest or OID. The Forms 1001 and 4224 must be periodically
updated. Proposed regulation generally proposed to be effective for
payments after December 31, 1997 change the rules relating to the
requirements for claiming exemption from withholding and may require
residents of treaty countries to obtain certification from their
country of residence concerning their entitlement to treaty benefits.
Indexed Notes
The Service has stated that it is considering various issues
relating to the treatment of Non-U.S. Holders of contingent payment
debt obligations, including "the possibility of tax avoidance that may
arise when a contingent payment debt obligation is structured with
payments that approximate the yield on an equity security or an index
and the proper characterization of gain recognized by a foreign holder
on the disposition of a debt instrument in certain cases" (including
coordination with the rules for taxation of foreign investment in U.S.
real property). Subject to certain exceptions, the Code provides that
the portfolio interest exception from withholding tax does not apply
to certain payments of contingent interest if: (1) the amount of
interest is determined by reference to (i) receipts, sales or other
cash flows of the Company or a related person, (ii) any income or
profits of the Company or a related person, (iii) any change in the
value of any property of the Company or a related person, or (iv) any
dividend, partnership distributions, or similar payments made by the
Company or a related person; or (2) the interest is identified in
regulations not yet issued as contingent interest for which the
portfolio interest exception should be denied. As discussed above,
gain from the sale of certain contingent payment debt obligations is
also treated as interest under the Contingent Debt Regulations.
S-37
Sale of Notes
Except as described below and subject to the discussion
concerning backup withholding and Indexed Notes, any gain realized by
a Non-U.S. Holder on the sale, exchange, redemption, or repayment of a
Note generally will not be subject to U.S. federal income tax, unless
(i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the
Note as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, or (iii) the Non-
U.S. Holder is subject to tax pursuant to the provisions of U.S. tax
law applicable to certain U.S. expatriates.
United States Federal Estate Tax
Except with respect to certain Notes that bear contingent
interest or that otherwise, as described above, are not eligible for
the portfolio interest exception, Notes held (or treated as held) by
an individual who is a Non-U.S. Holder at the time of his or her death
will not be subject to United States federal estate tax provided that
the interest on such Notes would be exempt as portfolio interest when
received by the Non-U.S. Holder at the time of his or her death.
Information Reporting and Backup Withholding
The Company must report annually to the Service and to each Non-
U.S. Holder any interest and original issue discount that is subject
to withholding or that is exempt from U.S. withholding tax pursuant to
a tax treaty or the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of
a specific treaty or agreement to the tax authorities of the country
in which the Non-U.S. Holder resides.
The United States backup withholding tax (in general, a tax
imposed at the rate of 31% on payments to persons that fail to furnish
the information required under the United States information reporting
requirements) will generally not apply to payments of interest (or
OID) that qualify as portfolio interest as described above (provided
that the Company has no actual knowledge that the holder is a U.S.
person).
The payment of the proceeds from the disposition of Notes to or
through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding
unless the owner certifies its non-U.S. status under penalties of
perjury or otherwise establishes an exemption. The payment of the
proceeds from the disposition of a Note to or through a non-U.S.
office of a non-U.S. broker will not be subject to information
reporting or backup withholding if the broker is not a "U.S. related
person."
In the case of the payment of proceeds from the disposition of
Notes through a non-U.S. office of a broker that is either a U.S.
person or a "U.S. related person," regulations require information
reporting on the payment, unless the broker has documentary evidence
in its files that the owner is a Non-U.S. Holder and the broker has no
knowledge to the contrary. Backup withholding will not apply to
payments made through foreign offices of a broker that is a U.S.
person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Holder will be allowed as a refund or a credit
against such Non-U.S Holder's United States federal income tax
liability, provided that certain required information is furnished to
the Service.
S-38
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the
Company, through the Agents, who may purchase the Notes, as principal,
from the Company from time to time, for resale to investors and other
purchasers at varying prices relating to prevailing market prices at
the time of resale as determined by each Agent, or, if so specified in
the applicable Pricing Supplement, for resale at a fixed public
offering price. Unless otherwise specified 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 of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of
identical maturity. If agreed to by the Company and an Agent, such
Agent may utilize its reasonable efforts on an agency basis to solicit
offers to purchase the Notes at 100% of the principal amount thereof,
unless otherwise specified in the applicable Pricing Supplement. The
Company will pay a commission to the Agents, ranging from .125% to
.875% of the principal amount of each Note, depending upon its stated
maturity, sold through the Agents. Commissions with respect to Notes
with stated maturities in excess of 40 years that are sold through the
Agents will be negotiated between the Company and the Agents at the
time of such sale.
The Agents may sell Notes they have purchased from the Company as
principal to other dealers for resale to investors and other
purchasers, and may allow any portion of the discount received in
connection with such purchase from the Company to such dealers, and
the Company may allow, and such dealers may reallow, a discount on
sales to other dealers. After the initial public offering of Notes,
the public offering price (in the case of Notes to be resold at a
fixed public offering price), the allowance and the discount may be
changed.
The Company reserves the right to withdraw, cancel or modify the
offer made hereby without notice and may reject orders in whole or in
part (whether placed directly with the Company or through an Agent).
Each Agent will have the right, in its discretion reasonably
exercised, to reject in whole or in part any offer to purchase Notes
received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement,
payment of the purchase price of the Notes will be required to be made
in immediately available funds in the applicable Specified Currency in
The City of New York on the date of settlement. See "Description of
Notes--General."
Upon issuance, the Notes will not have an established trading
market. Unless otherwise specified, the Notes will not be listed on
any securities exchange. The Agents may from time to time purchase
and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the
Notes, but the Agents are not obligated to do so and may discontinue
any market-making activity at any time.
The Agents may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). The
Company has agreed to indemnify the Agents against certain liabilities
(including liabilities under the Securities Act), or to contribute to
payments the Agents may be required to make in respect thereof. The
Company has agreed to reimburse the Agents for certain other expenses.
Concurrently with the offering of Notes described herein, the
Company may issue other Debt Securities described in the accompanying
Prospectus pursuant to the Indenture, which would reduce the aggregate
initial offering price of the Notes offered hereby.
S-39
PROSPECTUS
$500,000,000
FRANKLIN RESOURCES, INC.
DEBT SECURITIES
Franklin Resources, Inc. (the "Company") may, from time to time,
offer or solicit offers to purchase its unsecured debt securities (the
"Debt Securities") in an aggregate principal amount (or net proceeds
in the case of securities issued at an original issue discount) not to
exceed $500,000,000 or, if applicable, the equivalent thereof in one
or more foreign or composite currencies. The Debt Securities may be
offered in one or more series with the same or various maturities on
terms to be determined at the time of sale.
The specific designation, aggregate principal amount, authorized
denominations, purchase price, maturity, rate or rates (which may be
fixed or variable), and time of payment of any interest, any terms for
mandatory or optional redemption (including any sinking fund), any
listing on a securities exchange and any other specific terms of the
Debt Securities in respect of which this Prospectus is being
delivered, together with the terms of offering of such Debt
Securities, will be set forth in one or more supplements to this
Prospectus (each, a "Prospectus Supplement") and one or more pricing
supplements (each, a "Pricing Supplement") accompanying this
Prospectus. The Prospectus Supplement will also contain information,
where applicable, about certain U.S. federal income tax, accounting
and other considerations relating to the Debt Securities covered by
it. As used herein, Debt Securities shall include debt securities
denominated in United States dollars or, if so specified in an
applicable Prospectus Supplement, in any other currency or in
composite currencies or in amounts determined by reference to an
index. See "Description of Debt Securities."
____________________
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 OR ANY SUPPLEMENT
HERETO. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Debt Securities may be offered through underwriters, agents
or dealers, or directly to purchasers by the Company or subsidiaries
of the Company. Such underwriters, agents or dealers may include, and
may include a group of underwriters managed by one or both of, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Goldman, Sachs & Co. If an underwriter, agent or dealer is involved
in the offering of any Debt Securities, the underwriter's discount,
agent's commission or dealer's purchase price will be described in an
applicable Prospectus Supplement, and the net proceeds to the Company
from such offering will be the public offering price of the offered
Debt Securities less such discount in the case of an underwriter, the
purchase price of the offered Debt Securities less such commission in
the case of an agent or the purchase price of the offered Debt
Securities in the case of a dealer, and less, in each case, the other
expenses of the Company associated with the issuance and distribution
of such Debt Securities. See "Plan of Distribution."
____________________
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT
____________________
The date of this Prospectus is October 9, 1996.
IN CONNECTION WITH THE OFFERING OF DEBT SECURITIES HEREUNDER, THE
UNDERWRITERS, IF ANY, MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICES OF SUCH SECURITIES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED
TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
--------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
Commission's Regional Offices in New York (Seven World Trade Center,
13th Floor, New York, New York 10048), and Chicago (500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511). Copies of these
materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such information may also be accessed
electronically by means of the Commission's home page on the Internet
at http://www.sec.gov. The Company's common stock is listed on the
New York Stock Exchange and the Pacific Stock Exchange, and reports,
proxy statements and other information concerning the Company may be
inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 and the Pacific Stock Exchange,
Incorporated, 115 Sansome Street, Suite 1104, San Francisco,
California 94104.
This Prospectus constitutes a part of a Registration Statement
filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus omits
certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the
Debt Securities. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the
Commission and are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1995, (ii) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended December 31, 1995,
2
March 31, 1996 and June 30, 1996, and (iii) Current Reports on Form 8-
K and 8-K/A filed by the Company on October 27, 1995, January 26,
1996, April 26, 1996, June 25, 1996, June 26, 1996, July 26, 1996 and
August 30, 1996.
All documents filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the termination of the offering of the Debt
Securities, shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any statement or document so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part
of this Prospectus.
The Company will furnish without charge to each person to whom
this Prospectus is delivered, upon request, a copy of any and all of
the documents described above other than exhibits to such documents
which are not specifically incorporated by reference in such
documents. Written or telephone requests should be directed to:
Leslie M. Kratter, Vice President, Franklin Resources, Inc., 777
Mariners Island Boulevard, San Mateo, California 94404; telephone
number (415) 312-3000.
FORWARD-LOOKING STATEMENTS
Certain statements set forth or incorporated by reference in this
Prospectus and any Supplement hereto may be "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, and reference is made to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1995,
incorporated herein by reference, for a summary of certain cautionary
statements and risk factors to be considered in connection with such
forward-looking statements.
--------------------
3
THE COMPANY
The Company is a diversified financial services holding company
which, primarily through its various domestic and international
subsidiaries, principally provides investment management, financial
advisory and related services to open end investment companies (mutual
funds), closed end investment companies, international equivalents of
open and closed end investment companies, private accounts, qualified
retirement plans and private trusts. The Company also provides
advisory services to and sponsors and manages public and private real
estate programs, offers consumer banking services, insured deposits,
auto loans and credit cards and provides custodial, trustee and
fiduciary services to IRA and Keogh plans and to qualified retirement
plans and private trusts.
The wide range of financial services offered by the Company gives
both domestic and international institutional and individual investors
a variety of investment alternatives designed to meet varying
investment objectives, affording customers the opportunity both to
allocate and to modify their investment resources among investment
products as changing economic and market conditions warrant.
The Company's principal office is located at 777 Mariners Island
Boulevard, San Mateo, California 94404 and its telephone number is
(415) 312-3000.
The Company was incorporated under the laws of the State of
Delaware in November 1969, and is the successor by merger to
businesses previously conducted since 1947.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus
Supplement or Pricing Supplement, the Company intends to use the net
proceeds from the sale of the Debt Securities:
(a) to provide a source for a portion of the financing of the
acquisition of certain assets of Heine Securities Corporation
("HSC") pursuant to that certain Agreement to Merge the
Businesses of HSC, Franklin Mutual Advisers, Inc. (a wholly-owned
subsidiary of the Company formerly known as Elmore Securities
Corporation) and the Company, dated as of June 25, 1996, as
amended, as more particularly described in the Company's Current
Report on Form 8-K/A filed June 26, 1996 and Current Report on
Form 8-K filed August 30, 1996, which descriptions and the
financial information with respect to the HSC acquisition set
forth therein are incorporated herein by reference. The Company
anticipates that the aggregate purchase price of the HSC
acquisition will be financed with a combination of the Company's
available cash, shares of the Company's common stock, and one or
more sources of third-party financing including, without
limitation, sales of Debt Securities. In addition, the Company
may from time to time evaluate the possibility of acquiring other
businesses providing financial services and products similar to
those provided by the Company and its subsidiaries. If such
businesses were to be acquired, the Company may use the net
proceeds from the sale of Debt Securities to finance all or a
portion of such acquisitions;
(b) to repay (i) outstanding medium term notes and short-term
unsecured notes previously issued by the Company and (ii) other
indebtedness of the Company; and
(c) to add to working capital, to invest in or extend credit to
subsidiaries, and for other general corporate purposes.
4
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was (i) 11.5, 11.4, 9.2,
43.0 and 64.3 for the fiscal years ended September 30, 1995, 1994,
1993, 1992 and 1991, respectively, and (ii) 13.1 for the nine months
ended June 30, 1996. These ratios were calculated by dividing the sum
of fixed charges into the sum of earnings before taxes and fixed
charges. Fixed charges for these purposes consist of all interest
expense and one-third of rental expenses (the approximate portion of
rental expense representing interest).
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the
"Indenture"), dated as of May 19, 1994, as amended from time to time,
between the Company and The Chase Manhattan Bank (formerly Chemical
Bank), as Trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. The following summaries of
certain provisions of the Indenture do not purport to be complete and
are subject to, and are qualified in their entirety by reference to,
all provisions of the Indenture, including the definitions therein of
certain terms. Wherever particular Sections or defined terms of the
Indenture are referred to, it is intended that such Sections or
defined terms (including, unless otherwise indicated herein,
definitions of terms capitalized in these summaries) shall be
incorporated herein by reference. The following sets 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 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 Debt Securities.
The Company is a holding company whose assets consist principally
of the stock in its subsidiaries. Therefore, its rights and the
rights of its creditors, including the holders of Debt Securities, to
participate in the assets of any subsidiary upon the latter's
liquidation or recapitalization or otherwise will be subject to the
prior claims of the subsidiary's creditors, except to the extent that
claims of the Company itself as a creditor of the subsidiary may be
recognized. In addition, dividends, loans and advances from certain
subsidiaries to the Company may be restricted by net capital
requirements under the Exchange Act and under rules of certain
regulatory bodies.
GENERAL
The Indenture does not limit the aggregate principal amount of
Debt Securities which may be issued thereunder and provides that Debt
Securities may be issued from time to time in one or more series. The
Debt Securities will be unsecured obligations of the Company. Neither
the Indenture nor the Debt Securities will limit or otherwise restrict
the amount of other indebtedness which may be incurred or other
securities which may be issued by the Company or any of its
subsidiaries. The Debt Securities will rank on a parity with all
other unsecured unsubordinated indebtedness of the Company.
Reference is made to the Prospectus Supplement relating to the
particular series of Debt Securities offered thereby for the following
terms: (1) the title of such Debt Securities; (2) any limit on the
aggregate principal amount of such Debt Securities; (3) the price or
prices (expressed as a percentage of the aggregate principal amount
thereof) at which such Debt Securities will be issued; (4) the date or
dates, or the method or methods, if any, by which such date or dates
shall be determined, on which such Debt Securities will mature; (5)
the rate or rates (which may be fixed or variable) per annum at which
such Debt Securities will bear interest, if any, or the method or
methods, if any, by which such rate or rates are to be determined; (6)
the date or dates from which such interest, if any, on such Debt
Securities will accrue or the method or methods, if any,
5
by which such date or dates are to be determined, the dates on which
such interest, if any, will be payable, the date or dates on which
payment of such interest, if any, will commence and the Regular Record
Dates for such Interest Payment Dates, if any; (7) the dates, if any,
on which and the price or prices at which the Debt Securities will,
pursuant to any mandatory sinking fund provisions, or may, pursuant to
any optional sinking fund or to any purchase fund provisions, be
redeemed by the Company, and the other detailed terms and provisions
of such sinking and/or purchase funds; (8) the date, if any, after
which and the price or prices at which the Debt Securities may,
pursuant to any optional redemption provisions, be redeemed at the
option of the Company or of the holders thereof and the other detailed
terms and provisions of such optional redemption; (9) the extent to
which any of the Debt Securities will be issuable in temporary or
permanent global form and, if so, the identity of the depositary for
such global Debt Security, or the manner in which any interest payable
on a temporary or permanent global Debt Security will be paid; (10)
the denomination or denominations in which such Debt Securities are
authorized to be issued; (11) whether such Debt Securities will be
issued in registered or bearer form or both and, if in bearer form,
the terms and conditions relating thereto and any limitations on
issuance of such bearer Debt Securities (including exchange for
registered Debt Securities of the same series); (12) information with
respect to book-entry procedures; (13) whether any of the Debt
Securities will be issued as Original Issue Discount Securities; (14)
each office or agency where, subject to the terms of the Indenture,
such Debt Securities may be presented for registration of transfer or
exchange; (15) the currencies or currency units in which such Debt
Securities are issued and in which the principal of, premium and
interest, if any, on, and additional amounts, if any, in respect of
such Debt Securities will be payable; (16) whether the amount of
payments of principal of, premium and interest, if any, on, and
additional amounts, if any, in respect of such Debt Securities may be
determined with reference to an index, formula or other method or
methods (which index, formula or method or methods may, but need not,
be based on one or more currencies, currency units or composite
currencies, commodities, equity indices or other indices) and the
manner in which such amounts shall be determined; (17) whether the
Company or a holder may elect payment of the principal of, premium or
interest, if any, on, and additional amounts, if any, in respect of
such Debt Securities in a currency, currencies, currency unit or units
or composite currency or currencies other than that in which such Debt
Securities are denominated or stated to be payable, the period or
periods within which, and the terms and conditions upon which, such
election may be made, and the time and manner of determining the
exchange rate between the currency, currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are
denominated or stated to be payable and the currency, currencies,
currency unit or units or composite currency or currencies in which
such Debt Securities are to be so payable; (18) if other than the
Trustee, the identity of each Security Registrar, Paying Agent and
Authenticating Agent; (19) if applicable, the defeasance of certain
obligations by the Company pertaining to Debt Securities of the
series; (20) the person to whom any interest on any registered Debt
Security of the series shall be payable, if other than the person in
whose name that Debt Security (or one or more predecessor Debt
Securities) is registered at the close of business on the Regular
Record Date for such interest, the manner in which, or the person to
whom, any interest on any bearer Debt Security of the series shall be
payable, if otherwise than upon presentation and surrender of the
coupons appertaining thereto as they severally mature, and the extent
to which, or the manner in which, any interest payable on a temporary
global Debt Security on an Interest Payment Date will be paid if other
than in the manner provided in the Indenture; (21) whether and under
what circumstances the Company will pay additional amounts as
contemplated by Section 1004 of the Indenture (the term "interest," as
used in this Prospectus, shall include such additional amounts) on
such Debt Securities to any holder who is not a United States person
(including any modification to the definition of such term as
contained in the Indenture as originally executed) in respect of any
tax, assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Debt Securities rather than pay
such additional amounts (and the terms of any such option); (22) any
deletions from, modifications of or additions to the Events of Default
or covenants of the Company with respect to any of such Debt
Securities; and (23) any other terms of the series.
6
Debt Securities may be issued as Original Issue Discount
Securities to be sold at a substantial discount below their principal
amount. In the event of an acceleration of the maturity of any
Original Issue Discount Security, the amount payable to the holder of
such Original Issue Discount Security upon such acceleration will be
determined in accordance with the applicable Prospectus Supplement,
the terms of such Debt Security and the Indenture, but will be an
amount less than the amount payable at the maturity of the principal
of such Original Issue Discount Security. Special federal income tax
and other considerations applicable thereto will be described in the
Prospectus Supplement relating thereto.
The Indenture does not contain any provisions that would limit
the ability of the Company to incur indebtedness or that would afford
holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company. Reference is
made to the Prospectus Supplement relating to the particular series of
Debt Securities offered thereby for information with respect to any
deletions from, modifications of or additions to the Events of Default
described below or covenants of the Company contained in the
Indenture, including any addition of a covenant or other provision
providing event risk or similar protection.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the Prospectus Supplement, each
series of Debt Securities will be issued in registered form only,
without coupons. The Indenture, however, provides that the Company
may also issue Debt Securities in bearer form only, or in both
registered and bearer form. Debt Securities in bearer form shall not
be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person
(as defined below) other than offices located outside the United
States of certain United States financial institutions. As used
herein, "United States person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or
organized in or under the laws of the United States, or any estate or
trust, the income of which is subject to United States federal income
taxation regardless of its source, and "United States" means the
United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to
its jurisdiction. Purchasers of Debt Securities in bearer form will
be subject to certification procedures and may be affected by certain
limitations under United States tax laws. Such procedures and
limitations will be described in the Prospectus Supplement relating to
the offering of the Debt Securities in bearer form.
Unless otherwise indicated in the applicable Prospectus
Supplement, registered Debt Securities will be issued in denominations
of $1,000 or any integral multiple thereof and bearer Debt Securities
will be issued in denominations of $5,000. No service charge will be
made for any transfer or exchange of the Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Unless otherwise described in the Prospectus Supplement relating
thereto, the principal, premium, if any, and interest, if any, of or
on the Debt Securities will be payable, and transfer of the Debt
Securities will be registrable, at the corporate trust office of The
Chase Manhattan Bank, as Paying Agent and Security Registrar under the
Indenture, in The City of New York, New York, provided that payments
of interest may be made at the option of the Company by check mailed
to the address appearing in the Security Register of the person in
whose name such registered Debt Security is registered at the close of
business on the Regular Record Date (Sections 305, 307 and 1002).
Unless otherwise indicated in the applicable Prospectus
Supplement, payment of principal of, premium, if any, and interest, if
any, on Debt Securities in bearer form will be made payable, subject
to any applicable
7
laws and regulations, at such office outside the United States as
specified in the Prospectus Supplement and as the Company may
designate from time to time, at the option of the holder, by check or
by transfer to an account maintained by the payee with a bank located
outside the United States. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest and certain
additional amounts on Debt Securities in bearer form will be made only
against surrender of the coupon relating to such Interest Payment
Date. Except in limited circumstances, no payment with respect to any
Debt Security in bearer form will be made at any office or agency of
the Company in the United States or by check mailed to any address in
the United States or by transfer to an account maintained with a bank
located in the United States.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part
in the form of one or more global securities ("Global Debt
Securities") that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement
relating to such series. Global Debt Securities may be issued in
either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for
individual certificates evidencing Debt Securities in definitive form
represented thereby, a Global Debt Security may not be transferred
except as a whole by the Depositary for such Global Debt Security to a
nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary
or any such nominee to a successor of such Depositary or a nominee of
such successor.
The specific terms of the depositary arrangement with respect to
a series of Global Debt Securities and certain limitations and
restrictions relating to a series of bearer Global Debt Securities,
will be described in the Prospectus Supplement relating to such
series.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with
respect to Debt Securities of any series: (a) failure to pay principal
of or any premium on any Debt Security of that series when due; (b)
failure to pay any interest on any Debt Security of that series when
due, continued for 30 days; (c) failure to deposit any sinking fund
payment, when due, in respect of any Debt Security of that series; (d)
breach of any other covenant or warranty of the Company in the
Indenture (other than a covenant or warranty included in the Indenture
solely for the benefit of series of Debt Securities other than that
series), continued for 60 days after written notice by the Trustee or
the holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of such series as provided in the
Indenture; (e) certain events in bankruptcy, insolvency or
reorganization involving the Company or any Material Subsidiary (as
hereinafter defined); (f) acceleration of Indebtedness (defined in the
Indenture as any indebtedness for borrowed money or for the unpaid
purchase price of real or personal property of, or guaranteed by, the
Company or any Material Subsidiary and computed in accordance with
generally accepted accounting principles) of the Company or any
Material Subsidiary in a principal amount in excess of $10,000,000
under the terms of the instrument under which such Indebtedness was
issued or secured, if such acceleration is not annulled within 30 days
after written notice by the Trustee or the holders of at least 25% in
aggregate principal amount of the Outstanding Debt Securities of such
series as provided in the Indenture; and (g) any other Event of
Default provided with respect to Debt Securities of that series
(Section 501). If an Event of Default with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, either
the Trustee or the holders of at least 25% in aggregate principal
amount of the Outstanding Debt Securities of that series may declare
the principal amount of all the Debt Securities of that series to be
due and payable immediately. At any time after a declaration of
acceleration with respect to Debt Securities of any series has been
made, but before a judgment or decree based on acceleration
8
has been obtained, the holders of a majority in aggregate principal
amount of Outstanding Debt Securities of that series may rescind and
annul such acceleration, provided that, among other things, all Events
of Default with respect to such series, other than payment defaults
caused by such acceleration, have been cured or waived as provided in
the Indenture (Section 502).
"Material Subsidiary" means (a) Franklin Advisers, Inc., a
California corporation, (b) Franklin/Templeton Distributors, Inc., a
New York corporation, (c) Franklin/Templeton Investor Services, Inc.,
a California corporation, (d) Templeton Global Advisers Limited
(formerly Templeton, Galbraith & Hansberger, Ltd.), a Bahamas
corporation, (e) Templeton Investment Counsel, Inc., a Florida
corporation, (f) Franklin Mutual Advisers, Inc. (formerly Elmore
Securities Corporation), a Delaware corporation, subject to, and
effective upon, the consummation, if any, by Franklin Mutual Advisers,
Inc. of the acquisition of certain assets of HSC as described under
"Use of Proceeds," (g) any other Subsidiary which owns, directly or
indirectly, any of the capital stock of any corporation listed in (a)
through (f) above or any successor entity and (h) any other Subsidiary
with which any corporation listed in (a) through (f) above or any
successor entity is merged or consolidated or which acquires or
succeeds to a significant portion of the business, properties or
assets of any corporation listed in (a) through (f) above or any
successor entity.
ADDITIONAL PROVISIONS
The Indenture provides that, subject to the duty of the Trustee
during default to act with the required standard of care, the Trustee
will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders,
unless such holders shall have offered to the Trustee reasonable
indemnity (Section 601). Subject to such provisions for the
indemnification of the Trustee and certain other conditions, the
holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series will have the right to direct the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series (Section
512).
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: (i) such holder shall have previously
given to the Trustee written notice of a continuing Event of Default
with respect to Debt Securities of that series; (ii) the holders of
not less than 25% in aggregate principal amount of the Outstanding
Debt Securities of that series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee; (iii) the Trustee shall have failed to
institute such proceeding within 60 days after receipt of such written
request; and (iv) the Trustee shall not have received from the holders
of a majority in principal amount of the Outstanding Debt Securities
of that series a direction inconsistent with such request (Section
507). However, the holder of any Debt Security will have an absolute
right to receive payment of the principal of (and premium, if any) and
interest on such Debt Security on or after the due dates expressed in
such Debt Security and to institute suit for the enforcement of any
such payment (Section 508).
The Company is required to furnish to the Trustee annually a
statement as to performance by the Company of certain of its
obligations under the Indenture and as to any default in such
performance. The Company is also required to deliver to the Trustee,
within five days after the occurrence thereof, written notice of any
event which after notice or lapse of time or both would constitute an
Event or Default (Section 1009).
9
OUTSTANDING DEBT SECURITIES
In determining whether the holders of the requisite principal
amount of Outstanding Debt Securities have given any request, demand,
authorization, direction, notice, consent or waiver under the
Indenture, (i) the portion of the principal amount of an Original
Issue Discount Security that shall be deemed to be Outstanding for
such purposes shall be that portion of the principal amount thereof
that could be declared to be due and payable upon acceleration
pursuant to the terms of such Original Issue Discount Security as of
the date of such determination, (ii) the principal amount of any
Indexed Security shall be the principal face amount of such Indexed
Security determined on the date of its original issuance and (iii) any
Debt Security owned by the Company or any other obligor on such Debt
Security or any Affiliate of the Company or such other obligor shall
be deemed not to be Outstanding (Section 101).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the holders of 66 2/3% in
aggregate principal amount of the Outstanding Debt Securities of each
series affected by such modification or amendment; provided, however,
-------- -------
that no such modification or amendment may, without the consent of
the holder of each Outstanding Debt Security affected thereby: (a)
change the stated maturity date of the principal of, or any premium or
installment of interest on, or any additional amounts with respect to,
any Debt Security; (b) reduce the principal amount of, or any premium
or interest on, any Debt Security; (c) reduce the amount of principal
of an Original Issue Discount Security payable upon acceleration of
the maturity thereof or the amount thereof provable in bankruptcy; (d)
adversely affect the right of repayment at the option of any holder;
(e) change the place of payment of, currency of payment of principal
of, or any premium or interest on, any Debt Security; (f) impair the
right to institute suit for the enforcement of any payment on or with
respect to any Debt Security; or (g) reduce the percentage in
principal amount of Outstanding Debt Securities of any series the
consent of whose holders is required for modification or amendment of
the Indenture or for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults (Section 902).
The holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of each series may, on behalf of all
holders of Debt Securities of that series, waive, insofar as that
series is concerned, compliance by the Company with certain
restrictive provisions of the Indenture (Section 1008). The holders
of a majority in aggregate principal amount of the Outstanding Debt
Securities of each series may, on behalf of all holders of Debt
Securities of that series, waive any past default under the Indenture
with respect to Debt Securities of that series, except a default in
the payment of principal or any premium or interest, or a default in
respect of a provision which under the Indenture cannot be modified or
amended without the consent of the holder of each affected Outstanding
Debt Security of that series (Section 513).
Modification and amendment of the Indenture may be made by the
Company and the Trustee without the consent of any holder for any of
the following purposes: (i) to evidence the succession of another
corporation to the Company; (ii) to add to the covenants of the
Company for the benefit of the holders of all or any series of Debt
Securities; (iii) to add Events of Default; (iv) to add or change any
provisions of the Indenture to facilitate the issuance of bearer Debt
Securities; (v) to add to, delete from or revise the conditions,
limitations and restrictions on the authorized amount, terms or
purposes of issue, authentication and delivery of Debt Securities;
(vi) to establish the form or terms of Debt Securities of any series
and any related coupons; (vii) to provide for the acceptance of
appointment by a successor Trustee; (viii) to cure any ambiguity,
defect or inconsistency in the Indenture, provided such action does
not adversely affect the interests of holders of Debt Securities of
any series or any related coupons in any material respect; (ix) to
supplement any of the provisions
10
of the Indenture to such extent as shall be necessary to permit or
facilitate the defeasance and discharge of any series of Debt
Securities, provided such action does not adversely affect the
interests of holders of Debt Securities of such series or any related
coupons in any material respect; (x) to secure the Debt Securities;
and (xi) to amend or supplement any provision contained in the
Indenture or in any supplemental indenture, provided that such
amendment or supplement does not materially adversely affect the
interests of the holders of any Debt Securities then Outstanding
(Section 901).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may consolidate or merge with or into, or transfer
its assets substantially as an entirety to, any corporation organized
under the laws of any domestic jurisdiction, provided that the
successor corporation assumes the Company's obligations on the Debt
Securities and under the Indenture, that immediately after giving
effect to the transaction no Event of Default, and no event which,
after notice or lapse of time, would become an Event of Default, shall
have occurred and be continuing, and that certain other conditions are
met (Section 801).
CONCERNING THE TRUSTEE
The Company and certain of its subsidiaries maintain banking
relationships with the Trustee in the ordinary course of their
businesses.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities being offered hereby:
(i) directly to purchasers; (ii) through agents; (iii) through
underwriters; (iv) through dealers; or (v) through a combination of
any such methods of sale. Such underwriters, agents or dealers may
include, and may include a group of underwriters managed by one or
both of, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Goldman, Sachs & Co.
The distribution of the Debt Securities may be effected from time
to time in one or more transactions: (i) at a fixed price or prices,
which may be changed; (ii) at market prices prevailing at the time of
sale; (iii) at prices related to such prevailing market prices; or
(iv) at negotiated prices.
Offers to purchase Debt Securities may be solicited directly by
the Company or by agents designated by the Company from time to time.
Any such agent, which may be deemed to be an underwriter as that term
is defined in the Securities Act, involved in the offer or sale of the
Debt Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company to such agent
will be set forth, in the Prospectus Supplement or Pricing Supplement.
Unless otherwise indicated in the Prospectus Supplement or Pricing
Supplement, any such agent will be acting on a reasonable efforts
basis.
If an underwriter or underwriters are utilized in the sale, the
Company will execute an underwriting agreement with such underwriters
at the time of sale to them and the names of the underwriters and the
terms of the transaction will be set forth in the Prospectus
Supplement or Pricing Supplement, which will be used by the
underwriters to make resales of the Debt Securities in respect of
which this Prospectus is delivered to the public.
11
If a dealer is utilized in the sale of the Debt Securities in
respect of which this Prospectus is delivered, the Company will sell
such Debt Securities to the dealer, as principal. The dealer may then
resell such Debt Securities to the public at varying prices to be
determined by such dealer at the time of resale.
Certain of the underwriters, dealers or agents may be customers
of, engage in transactions with, and perform services for, the Company
or one or more of its affiliates in the ordinary course of business.
Underwriters, dealers, agents and other persons may be entitled, under
agreements which may be entered into with the Company, to
indemnification against certain civil liabilities, including
liabilities under the Securities Act.
If so indicated in the Prospectus Supplement or Pricing
Supplement, the Company will authorize agents and underwriters to
solicit offers by certain institutions to purchase Debt Securities
from the Company at the public offering price set forth in the
Prospectus Supplement or Pricing Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on
the date stated in the Prospectus Supplement or Pricing Supplement.
Each Contract will be for an amount not less than, and, unless the
Company otherwise agrees, the aggregate principal amount of Debt
Securities sold pursuant to Contracts shall be not less nor more than,
the respective amounts stated in the Prospectus Supplement or Pricing
Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable
institutions and other institutions, but shall in all cases be subject
to the approval of the Company. Contracts will not be subject to any
conditions except (i) that the purchase by an institution of the Debt
Securities covered by its Contract shall not at the time of delivery
be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject and (ii) if such Debt Securities
are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of such Debt Securities less
the principal amount thereof covered by applicable Contracts. A
commission indicated in the Prospectus Supplement or Pricing
Supplement will be paid to underwriters and agents soliciting
purchases of Debt Securities pursuant to Contracts accepted by the
Company.
ERISA CONSIDERATIONS
Section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code"), prohibits the borrowing of money, the sale of property
and certain other transactions involving the assets of plans that are
qualified under the Code ("Qualified Plans") or individual retirement
accounts ("IRAs") and persons who have certain specified relationships
to them. Section 406 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), prohibits similar transactions
involving employee benefit plans that are subject to ERISA ("ERISA
Plans"). Qualified Plans, IRAs and ERISA Plans are hereinafter
collectively referred to as "Plans."
Persons who have such specified relationships are referred to as
"parties in interest" under ERISA and as "disqualified persons" under
the Code. "Parties in interest" and "disqualified persons" encompass
a wide range of persons, including any fiduciary (e.g., investment
manager, trustee or custodian), any person providing services (e.g., a
broker), the Plan sponsor, an employee organization any of whose
members are covered by the Plan, and certain persons related to or
affiliated with any of the foregoing.
The Company's subsidiaries are considered "parties in interest"
or "disqualified persons" with respect to many Plans, including IRAs
established with any of them. The purchase and/or holding of Debt
Securities by a Plan with respect to which any of the Company's
subsidiaries is a fiduciary and/or a service provider (or otherwise is
a "party in interest" or "disqualified person") would constitute or
result in a prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code, unless such Debt Securities are acquired or
held
12
pursuant to and in accordance with an applicable statutory or
administrative exemption. An IRA that engages in a non-exempt
prohibited transaction could forfeit its tax-exempt status under
Section 408 of the Code.
Applicable exemptions may include the exemption for services
under Section 408(b)(2) of ERISA and certain prohibited transaction
class exemptions (e.g., Prohibited Transaction Class Exemption 84-14
relating to qualified professional asset managers, Prohibited
Transaction Class Exemption 96-23 relating to certain in-house asset
managers and Prohibited Transaction Class Exemptions 75-1 and 86-128
relating to securities transactions involving employee benefit plans
and broker-dealers).
In accordance with ERISA's general fiduciary requirement, a
fiduciary with respect to any ERISA Plan who is considering the
purchase of Debt Securities on behalf of such plan should determine
whether such purchase is permitted under the governing plan document
and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of
its portfolio. No IRA established with, or for which services are
provided by, any subsidiary of the Company should acquire any Debt
Securities and other Plans established with, or for which services are
provided by, any subsidiary of the Company should consult with counsel
prior to making any such acquisition.
LEGAL OPINIONS
The legality of the Debt Securities offered hereby will be passed
upon for the Company by Weil, Gotshal & Manges LLP, New York, New
York, and for the underwriters or agents by Brown & Wood LLP, San
Francisco, California.
EXPERTS
The audited consolidated financial statements and schedules of
the Company as of September 30, 1995 and 1994 and for each of the
three years in the period ended September 30, 1995, have been
incorporated herein by reference in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given the authority of that
firm as experts in accounting and auditing. The audited financial
statements of HSC as of December 31, 1995 and 1994 and for each of the
two years in the period ended December 31, 1995, have been
incorporated herein by reference in reliance on the report of Graber &
Co., independent accountants, given the authority of that firm as
experts in accounting and auditing.
13
No dealer, salesperson or
other individual has been au-
thorized to give any informa-
tion or to make any repre-
sentations not contained or
incorporated by reference in
this Prospectus Supplement,
the applicable Pricing
Supplement or the Prospectus
in connection with the offer $500,000,000
made by this Prospectus
Supplement, the applicable
Pricing Supplement and the
Prospectus. If given or made,
such information or represen-
tations must not be relied
upon as having been authorized
by the Company or the Agents.
Neither the delivery of this
Prospectus Supplement, the FRANKLIN RESOURCES, INC.
applicable Pricing Supplement
or the Prospectus nor any sale
made hereunder and thereunder
shall under any circumstance
create an implication that MEDIUM-TERM NOTES
there has not been any change
in the affairs of the Company
since the date hereof. This
Prospectus Supplement, the -----------------------------
applicable Pricing Supplement PROSPECTUS SUPPLEMENT
and the Prospectus do not
constitute an offer or solici- -----------------------------
tation by anyone in any state
in which such offer or
solicitation is not authorized
or in which the person making
such offer is not qualified to
do so or to anyone to whom it MERRILL LYNCH & CO.
is unlawful to make such offer GOLDMAN, SACHS & CO.
or solicitation.
_______________
TABLE OF CONTENTS
Page
----
Prospectus Supplement
--------------------- OCTOBER 9, 1996
Description of Notes . S-3
Special Provisions and
Risks Relating to
Foreign Currency
Notes . . . . . . . . S-23
Certain United States
Federal Income
Tax Considerations . S-26
Plan of Distribution . S-39
Prospectus
----------
Available Information . 2
Incorporation of Certain
Documents by Reference. 2
Forward-Looking Statements 3
The Company. . . . . . 4
Use of Proceeds . . . 4
Ratio of Earnings to Fixed
Charges . . . . . . . . 5
Description of Debt
Securities . . . . . . 5
Plan of Distribution . 11
ERISA Considerations . 12
Legal Opinions . . . . 13
Experts . . . . . . . . 13
NYFS08...:\60\46360\0018\1798\FRM9246M.31B