PRICING SUPPLEMENT
Filed pursuant to Rule 424(b)(5)
Registration Statement Nos. 333-129157 and 333-129157-01
Pricing Supplement No. 2 Dated April 6, 2006
(To Prospectus dated March 15, 2006 and
Prospectus Supplement dated
March 15, 2006)
CUSIP: 02003MAR5
Allstate Life Global Funding
Callable Secured Medium Term Notes
Issued Through
Allstate Life Global Funding Trust 2006-2
The description in this pricing supplement of the particular terms of
the Secured Medium Term Notes offered hereby (the "Notes"), the Funding
Agreement(s) (specified below) issued by Allstate Life Insurance Company
("Allstate Life") and deposited into Allstate Life Global Funding Trust 2006- 2
(the "Trust") by Allstate Life Global Funding ("Global Funding") and the Funding
Note (specified below) issued by Global Funding to the Trust supplements the
description of the general terms and provisions of the notes, the funding
agreements and the funding notes set forth in the accompanying prospectus and
prospectus supplement, to which reference is hereby made.
The Notes will represent the obligations of the issuing entity only and
will not represent the obligations of, or interest in, any other person or
entity, including Global Funding, Allstate Life or any of their respective
affiliates. The Notes will constitute asset-backed securities within the meaning
of Regulation AB under the Securities Act of 1933, as amended.
THE NOTES
Principal Amount: $750,000,000 Agent(s) Discount: 0.1500%
Issue Price: 100% Original Issue Date: April 12, 2006
Net Proceeds to the Trust: $748,875,000 Stated Maturity Date:
Initial Maturity Date: May 4, 2007, or if
such day is not a Business Day, the immediately
preceding Business Day
Final Maturity Date: May 4, 2011, or if such day
is not a Business Day, the immediately preceding
Business Day
Specified Currency: U.S. Dollars Depositary: The Depository Trust Company
Interest Payment Dates: The 4th of each month, commencing Interest Reset Dates: The 4th of each month; provided that
on May 4, 2006; provided that if if any Interest Reset Date would
any Interest Payment Date would otherwise be a day that otherwise be a day that is not a Business Day, such Interest
is not a Business Day, such Interest Payment Date shall Reset Date shall be the immediately succeeding Business Day,
be the immediately succeeding Business Day, except that, except that, if such Business Day is in the succeeding calendar
if such Business Day is in the succeeding calendar month, month, such Interest Reset Date shall be the immediately
if such Business Day is in the shall be the immediately preceding Business Day. However, this convention will not
preceding Business Day. However, this convention will not extend beyond any Final Maturity Date.
extend beyond any Final Maturity Date. The final Interest
Payment Date for the Notes, or any portion of the Notes
maturing prior to the Final Maturity Date, will be the
relevant maturity date and interest for the final Interest
Period will accrue from and including the Interest Payment
Date immediately preceding such maturity date to but
excluding the relevant maturity date.
Initial Interest Payment Date: May 4, 2006 Initial Interest Reset Date: May 4, 2006
Regular Record Date: 15 calendar days prior to the Interest Payment Date
Fiscal Year of Trust (not applicable unless different than as specified in the
prospectus and prospectus supplement):
Type of Interest Rate: [ ] Fixed Rate [X] Floating Rate
Fixed Rate Notes: [ ] Yes [X] No. If, Yes,
Interest Rate:
Floating Rate Notes: [X] Yes [ ] No. If, Yes,
Regular Floating Rate Notes: [X] Yes [ ] No. If, Yes,
Interest Rate: Interest Rate Basis plus Spread
Interest Rate Basis(es): See below
Inverse Floating Rate Notes: [ ] Yes [X] No. If, Yes,
Fixed Interest Rate:
Floating Interest Rate:
Interest Rate Basis(es):
Floating Rate/Fixed Rate Notes: [ ] Yes [X] No. If, Yes,
Floating Interest Rate:
Interest Rate Basis(es):
Fixed Interest Rate:
Fixed Rate Commencement Date:
2
Initial Interest Rate*, if any: The Initial Interest Rate for the Notes offered by this
Pricing Supplement will be based on an interpolated one
month LIBOR rate minus 0.02% determined in accordance with
the provisions of this Pricing Supplement and the
Prospectus Supplement subject to adjustment in accordance
with the Modified Following Adjusted Business Day
convention.
Interest Rate Basis(es). Check all that apply:
[ ] CD Rate [ ] Federal Funds Rate
[ ] CMT Rate [X ] LIBOR
[ ] Commercial Paper Rate [ ] EURIBOR
[ ] Constant Maturity Swap Rate [ ] Prime Rate
[ ] Eleventh District Cost of Funds [ ] Treasury Rate
[ ] Federal Fund Open Rate
If LIBOR:
LIBOR Page: 3750
[X] LIBOR Moneyline Telerate: [ ] LIBOR Reuters:
LIBOR Currency: U.S. Dollars
If CMT Rate:
Designated CMT Moneyline Telerate Page:
If CMT Moneyline Telerate Page 7052: [ ] Weekly Average
[ ] Monthly Average
Designated CMT Maturity Index:
Index Maturity: One month
Spread (+/-): See Additional Provisions for Floating Rate Notes
Spread Multiplier: Not applicable
Interest Reset Date(s): Each Interest Payment Date
Interest Determination Date(s): The second London banking day preceding the related
Interest Reset Date
Maximum Interest Rate, if any: Not applicable
3
Minimum Interest Rate, if any: Not applicable
* From the Original Issue Date to the Initial Interest Payment Date, the Initial
Interest Rate shall be deemed to be:
Calculation Agent, if any: J.P. Morgan Trust Company, National Association
Exchange Rate Agent, if any: Not applicable
Computation of Interest (not applicable unless different than as specified in
the prospectus and prospectus supplement):
Day Count Convention (not applicable unless different than as specified in the
prospectus and prospectus supplement):
Amortizing Notes: [ ] Yes [X] No. If, Yes,
Amortizing Schedule:
Additional/Other Terms:
Discount Notes: [ ] Yes [X] No. If, Yes,
Total Amount of Discount:
Initial Accrual Period of Discount:
Additional/Other Terms:
Redemption Provisions: [X] Yes [] No. If, Yes,
Initial Redemption Date:
Initial Redemption Percentage:
Annual Redemption Percentage:
Additional/Other Terms:
See Additional Provisions for Floating Rate Notes
Reduction (if any):
Redemption: [ ] In whole only and not in part
[ ] May be in whole or in part
Additional/Other Terms:
Repayment: [ ] Yes [X] No. If, Yes,
Repayment Date(s):
Repayment Price:
Repayment: [ ] In whole only and not in part
[ ] May be in whole or in part
Additional/Other Terms:
Sinking Fund (not applicable unless specified):
Additional Amounts to be Paid for Withholding Tax (not applicable unless
specified):
4
Securities Exchange Listing: [ ] Yes [X] No. If Yes, Name of Exchange:
Authorized Denominations: $1,000
Ratings:
The Notes issued under the Program are rated "AA" by Standard & Poor's, a division of The Mc-Graw Hill Companies, Inc.
("S&P"). It is anticipated that Moody's Investors Service, Inc. ("Moody's") will rate the Notes "Aa2" on the Original
Issue Date.
Agent(s) Purchasing Notes as Principal: [X ] Yes [ ] No. If Yes,
Agent(s) Principal Amount
Morgan Stanley & Co. Incorporated $250,000,000
Banc of America Securities LLC $250,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated $250,000,000
------------
Total: $750,000,000
============
Agent(s) Acting as Agent: [ ] Yes [X] No. If Yes,
Additional/Other Terms: Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC and Merrill Lynch, Pierce,
Fenner & Smith Incorporated have agreed to
reimburse Allstate Life Insurance Company for
certain costs and expenses relating to the
offering, sale and issuance of the Notes and
maintenance of the Program.
Special Tax Considerations: See Special Tax Considerations
ADDITIONAL PROVISIONS FOR FLOATING RATE NOTES
EXTENSION ELECTION:
The Notes will mature on the Initial Maturity Date, unless the maturity
of all or any portion of the principal amount of the Notes is extended in
accordance with the procedures described below. In no event will the maturity of
the Notes be extended beyond the Final Maturity Date.
During the notice period for each Election Date (as defined below), you
may elect to extend the maturity of your Notes with respect to all or any
portion of the Principal Amount equal to $1,000 and integral multiples of $1,000
in excess thereof so that the maturity of your Notes with respect to the entire
Principal Amount or such portion thereof will be extended to the date occurring
366 calendar days from, and including, the 4th day of the month immediately
following such Election Date. However, if that 366th calendar day is not a
Business Day, the maturity of your Notes with respect to the entire Principal
Amount or such portion thereof will be extended to the
5
immediately preceding Business Day. The Election Dates will be the 4th calendar
day of each month from, and including, May 4, 2006 to, and including, April 4,
2010, whether or not any such day is a Business Day.
To make your election effective on any Election Date, you must deliver
to J.P. Morgan Trust Company, National Association, the Paying Agent for the
Notes, through the normal clearing system channels described in more detail
below, a notice of election (each, an "Election Notice") during the notice
period for that Election Date. The notice period for each Election Date will
begin on the fifth Business Day prior to the Election Date and end on the
Election Date; provided, however, that if the Election Date is not a Business
Day, the notice period will be extended to the next day that is a Business Day.
Your Election Notice must be delivered to the Paying Agent no later than 12:00
p.m., New York City time, on the Election Date. Upon delivery to the Paying
Agent of an Election Notice to extend the maturity of the Notes with respect to
all or any portion of the Principal Amount equal to $1,000 and integral
multiples of $1,000 in excess thereof during a notice period, that election will
be revocable during each day of such notice period, until 12:00 p.m., New York
City time, on the last Business Day in such notice period, at which time such
Election Notice will become irrevocable.
The Notes are issued in registered global form and remain on deposit
with DTC, the depositary for the Notes. Therefore, you must exercise the option
to extend the maturity of your Notes through the depositary. To ensure that the
depositary receives timely notice of your election to extend the maturity of all
or a portion of your Notes, so that it can deliver notice of your election to
the Paying Agent prior to the close of business in New York City on the last
Business Day in the notice period, you must instruct the direct or indirect
participant through which you hold an interest in the Notes in accordance with
the then applicable operating procedures of the depositary.
The depositary must receive any notice of election from its
participants no later than 12:00 noon (New York City time) on the last Business
Day in the notice period for the depositary to deliver timely notice of your
election to the Paying Agent. Different firms have different deadlines for
accepting instructions from their customers. You should consult the direct or
indirect participant through which you hold an interest in the Notes to
ascertain the deadline for ensuring that timely notice will be delivered to the
depositary.
If you do not make an election to extend the maturity of your Notes
with respect to all or any portion of the Principal Amount equal to $1,000 or
any multiple of $1,000 in excess thereof during the notice period for any
Election Date, the Principal Amount or any portion thereof equal to $1,000 or
any multiple of $1,000 in excess thereof for which you have failed to make such
an election will become due and payable on the date that is 366 calendar days
from, and including, such Election Date or, if such 366th calendar day is not a
Business Day, the immediately preceding Business Day. The principal amount of
the Notes for which such election is not exercised will be represented by a note
issued on such Election Date. The note so issued will have the same terms as the
Notes, except that it will not be extendible, will have a separate CUSIP number,
its maturity date will be the date that is 366 calendar days from, and
including, such Election Date or, if such 366th calendar day is not a Business
Day, the immediately preceding Business Day and will be subject to Contingent
Redemption as described below. The failure to elect to extend the maturity of
all or any portion of the Notes will be irrevocable and will be binding upon any
subsequent holder of such Notes.
If, with respect to any Election Date you do not make an election to
extend the maturity of
6
your Notes with respect to all or any portion of the Principal Amount equal to
$1,000 or any multiple of $1,000 in excess thereof, the Issuer may, at its
option, redeem all or any portion of the Principal Amount equal to $1,000 or any
multiple of $1,000 in excess thereof for which you have failed to make such an
election on each Interest Payment Date in respect of any such amount other than
the Maturity Date applicable thereto (each, a "Contingent Redemption Date")
together with any unpaid interest accrued thereon up to but excluding the
applicable Contingent Redemption Date. The Issuer shall give a written notice of
redemption to you not more than 20 days nor less than 15 days prior to the
Contingent Redemption Date. The Issuer shall give written notice of redemption
(each, a "Notice of Redemption") to each holder of the Senior Extendible
Securities to be redeemed not more than 20 days nor less than 15 days prior to
the applicable Contingent Redemption Date. Each such Notice of Redemption shall
state: (i) the Contingent Redemption Date; (ii) the Redemption Price; (iii) if
less than all outstanding Notes of the Series are to be redeemed, the
identification (and, in the case of partial redemption, the principal amount) of
the particular Note or Notes to be redeemed; (iv) in case any Note is to be
redeemed in part, on and after the applicable Contingent Redemption Date upon
surrender of the Note Certificate representing such Note, that the holder of
such Note will receive, without charge, a new Note Certificate representing an
authorized denomination of the principal amount of such Note remaining
unredeemed; (v) that on the applicable Contingent Redemption Date, the
Redemption Price shall become due and payable upon each such Note or portion
thereof to be redeemed, and if applicable, that interest thereon shall cease to
accrue on and after the applicable Contingent Redemption Date; (vi) the place or
places where each applicable Note Certificate representing such Note or Notes is
to be surrendered for payment of the Redemption Price together with any unpaid
interest accrued thereon to the applicable Contingent Redemption Date; and (vii)
the CUSIP number or any other numbers used to identify such Notes.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in London and New York,
New York.
SPREAD:
The table below indicates the applicable Spread for the Interest Reset
Dates occurring during each of the indicated periods.
For Interest Reset Dates occurring: Spread:
From, and including, the Issue Date to but excluding May 4, 2007 Minus 0.02%
From, and including, May 4, 2007 to but excluding May 4, 2008 Plus 0.00%
From, and including, May 4, 2008 to but excluding May 4, 2009 Plus 0.02%
From, and including, May 4, 2009 to but excluding May 4, 2010 Plus 0.03%
From, and including, May 4, 2010 to but excluding May 4, 2011 Plus 0.03%
7
THE FUNDING AGREEMENT(S)
Funding Agreement Issuer: Allstate Life Insurance Company
Funding Agreement No.: FA - 41092
Deposit Amount: $750,000,000
Issue Price: 100%
Net Deposit Amount: $748,875,000
Effective Date: April 12, 2006
Specified Currency: U.S. Dollars
Interest Payment Dates: The 4th of each month, commencing on May 4, 2006;
provided that if any Interest Payment Date would
otherwise be a day that is not a Funding Agreement
Business Day, such Interest Payment Date shall be the
immediately succeeding Funding Agreement Business Day,
except that, if such Funding Agreement Business Day is
in the succeeding calendar month, such Interest Payment
Date shall be the immediately preceding Funding Agreement
Business Day. However, this convention will not extend
beyond any Final Maturity Date. The final Interest
Payment Date for the Funding Agreement, or any
portion of the Funding Agreement maturing prior
to the Final Maturity Date, will be the relevant
maturity date and interest for the final Interest
Accrual Period will accrue from and including the
Interest Payment Date immediately
8
preceding such maturity date to but excluding the relevant
maturity date.
Initial Interest Payment Date: May 4, 2006
Interest Reset Dates: The 4th of each month; provided that if any Interest
Reset Date would otherwise be a day that is not a Funding
Agreement Business Day, such Interest Reset Date shall be
the immediately succeeding Funding Agreement Business Day,
except that, if such Funding Agreement Business Day
is in the succeeding calendar month, such Interest Reset
Date shall be the immediately preceding Funding Agreement
Business Day. However, this convention will not extend
beyond any Funding Agreement Maturity Date.
Initial Interest Reset Date: May 4, 2006
Type of Interest Rate: [ ] Fixed Rate [X] Floating Rate
Fixed Rate Funding Agreement: [ ] Yes [X] No. If Yes,
Interest Rate:
Floating Rate Funding Agreement: [X] Yes [ ] No. If Yes,
Floating Rate Funding Agreement: [X] Yes [ ] No. If Yes,
Interest Rate: Interest Rate Basis plus Spread
Interest Rate Basis(es): See below
Inverse Floating Rate Funding Agreement: [ ] Yes [X] No. If Yes,
Fixed Interest Rate:
Floating Interest Rate:
Interest Rate Basis(es):
Floating Rate/Fixed Rate Funding Agreement: [ ] Yes [X] No. If Yes,
Floating Interest Rate:
Interest Rate Basis(es):
Fixed Interest Rate:
Fixed Rate Commencement Date:
Initial Interest Rate, if any: The Initial Interest Rate for the
9
Funding Agreement offered by this Pricing Supplement
will be based on an interpolated one month LIBOR rate
minus 0.02% determined in accordance with the provisions of
this Pricing Supplement and the Prospectus Supplement
subject to adjustment in accordance with the Modified
Following Adjusted Business Day convention.
Interest Rate Basis(es). Check all that apply:
[ ] CD Rate
[ ] CMT Rate [ ] Commercial Paper Rate
[ ] Constant Maturity Swap Rate [ ] Eleventh District Cost of Funds Rate
[X ] LIBOR [ ] Federal Funds Open Rate
[ ] EURIBOR [ ] Federal Funds Rate
[ ] Prime Rate [ ] Treasury Rate
If LIBOR:
LIBOR Page: 3750
[X] LIBOR Moneyline Telerate: [ ] LIBOR Reuters:
LIBOR Currency: U.S. Dollars
If CMT Rate:
Designated CMT Moneyline Telerate Page:
[ ] Weekly Average
If CMT Moneyline Telerate Page 7052: [ ] Monthly Average
Designated CMT Maturity Index:
Index Maturity: One month
Spread: See Additional Provisions for Floating Rate Notes
Spread Multiplier: Not applicable
Interest Reset Date(s): Each Interest Payment Date
Interest Determination Date(s): The second London banking day preceding the
related Interest Reset Date
Maximum Interest Rate, if any: Not applicable
10
Minimum Interest Rate, if any: Not applicable
* From the Original Issue Date to the Initial Interest Payment Date, the Initial
Interest Rate shall be deemed to be:
Calculation Agent, if any: J.P. Morgan Trust Company, National Association
Day Count Convention: Actual/360
Amortizing Funding Agreement: [ ] Yes [X] No. If Yes,
Amortizing Schedule:
Additional/Other Terms:
Additional/Other Terms:
Discount Funding Agreement: [ ] Yes [X] No. If Yes,
Total Amount of Discount:
Initial Accrual Period of Discount:
Additional/Other Terms:
Redemption Provisions: [X] Yes [ ] No. If Yes,
Initial Redemption Date:
Initial Redemption Percentage:
Annual Redemption Percentage Reduction
(if any):
Redemption: [ ] In whole only and not in part
[ ] May be in whole or in part
Additional/Other Terms:
Repayment: [ ] Yes [X] No. If Yes,
Repayment Date(s):
Repayment Price:
Repayment: [ ] In whole only and not in part
[ ] May be in whole or in part
Additional/Other Terms:
Sinking Fund (not applicable unless specified):
Additional Amounts to be Paid For Withholding Tax (not applicable unless
specified):
Ratings:
11
The Funding Agreements issued under the Program are rated AA by S&P. It is
anticipated that the Funding Agreement(s) will be rated Aa2 by Moody's on the
Original Issue Date.
Additional/Other Terms, if any: See Additional Provisions Relating to the Funding
Agreement
Special Tax Considerations:
ADDITIONAL PROVISIONS RELATING TO THE FUNDING AGREEMENT
Funding Agreement No. FA-41092 (the "Funding Agreement") shall be in
effect from April 12, 2006 until the Funding Agreement Initial Maturity Date (as
defined below), or, if such day is not a Funding Agreement Business Day, the
immediately preceding Funding Agreement Business Day, unless such date is
extended with respect to all or a portion of the principal amount of the Funding
Agreement on the initial Funding Agreement Election Date (as defined below) in
accordance with the procedures described below. In no event will the maturity of
the Funding Agreement be extended beyond the Funding Agreement Maturity Date (as
defined below).
During the notice period for each Funding Agreement Election Date
(as defined below), the Owner (as defined in the Funding Agreement) may
elect to extend the maturity of the Funding Agreement with respect to all or
any portion of the principal amount equal to $1,000 and integral multiples
of $1,000 in excess thereof so that the maturity of the Funding Agreement with
respect to the entire principal amount or such portion thereof will be
extended to the date occurring 366 calendar days from, and including, the
4th day of the month immediately following such Funding Agreement Election
Date. However, if that 366th calendar day is not a Funding Agreement Business
Day, the maturity of the Funding Agreement with respect to the entire principal
amount or such portion thereof will be extended to the immediately preceding
Funding Agreement Business Day.
To make the Owner's election effective on any Funding Agreement
Election Date, the Owner must deliver to Allstate Life Insurance Company
("Allstate Life") a notice of election (each, a "Funding Agreement Election
Notice") during the notice period for that Funding Agreement Election Date. The
notice period for each Funding Agreement Election Date will begin on the fifth
Funding Agreement Business Day prior to the Funding Agreement Election Date and
end on the Funding Agreement Election Date; provided, however, that if the
Funding Agreement Election Date is not a Funding Agreement Business Day, the
notice period will be extended to the next day that is a Funding Agreement
Business Day. The Owner's Funding Agreement Election Notice must be delivered to
Allstate Life no later than 6:00 p.m., New York City time, on the last Funding
Agreement Election Date. Upon delivery to Allstate Life of a Funding Agreement
Election Notice to extend the maturity of the Funding Agreement with respect to
all or any portion of the principal amount equal to $1,000 and integral
multiples of $1,000 in excess thereof during a notice period, that election will
be revocable during each day of such notice period, until 12:00 p.m., New York
City time, on the last Funding Agreement Business Day in such notice period, at
which time such Funding Agreement Election Notice will become irrevocable.
If the Owner of the Funding Agreement does not make an election to
extend the maturity of the Funding Agreement with respect to all or any portion
of the principal amount equal to $1,000 or any multiple of $1,000 in excess
thereof during the notice period for any Funding Agreement Election Date, the
principal amount or any portion thereof equal to $1,000 or any multiple of
$1,000 in excess thereof for which the Owner has failed to make such an election
will become due and payable on the date that is 366 calendar days from, and
including, such Funding Agreement Election Date or, if such 366th calendar day
is not a Funding Agreement Business Day, the immediately preceding Funding
Agreement Business Day.
The "Funding Agreement Initial Maturity Date" will be May 4, 2007, or,
if such day is not a
12
Funding Agreement Business Day, the immediately preceding Funding Agreement
Business Day.
The "Funding Agreement Maturity Date" will be May 4, 2011, or, if such
day is not a Funding Agreement Business Day, the immediately preceding Funding
Agreement Business Day.
The "Funding Agreement Election Dates" will be the 4th calendar day of
each month from, and including, May 4, 2006 to, and including, April 4, 2010,
whether or not any such day is a Funding Agreement Business Day.
"Funding Agreement Business Day" means any day, other than a Saturday
or Sunday, that is neither a legal holiday nor a day on which commercial banks
are authorized or required by law, regulation or executive order to close in
New York, New York and London.
If, with respect to any Funding Agreement Election Date, the Owner does
not make an election to extend the maturity of the Funding Agreement with
respect to all or any portion of the principal amount equal to $1,000 or any
multiple of $1,000 in excess thereof, Allstate Life may, at its option, redeem
all or any portion of the principal amount equal to $1,000 or any multiple of
$1,000 in excess thereof for which the Owner has failed to make such an election
on each interest payment date under the Funding Agreement in respect of any such
amount other than the Funding Agreement Maturity Date applicable thereto (each,
a "Funding Agreement Contingent Redemption Date") together with any unpaid
interest accrued thereon up to but excluding the applicable Funding Agreement
Contingent Redemption Date.
Allstate Life shall give a written notice of prepayment to the Owner
not more than 20 days nor less than 15 days prior to the Funding Agreement
Contingent Redemption Date.
THE FUNDING NOTE
Funding Note Issuer: Allstate Life Global Funding
Funding Note No.: FA - 41092
Principal Amount: $750,000,000
13
The Funding Note will otherwise have payment and other terms substantially
similar to the Funding Agreement(s) and the Notes, except that the terms of the
Funding Note will provide that it will be cancelled immediately upon the sale
of, and deposit into, the Trust by Global Funding of the Funding Agreement(s).
SPECIAL TAX CONSIDERATIONS
The following summary supplements, and should be read in conjunction
with, the discussion set forth under "United States Federal Income Tax
Considerations" in the accompanying Prospectus Supplement.
An election to extend the maturity of all or any portion of the
principal amount of the Notes in accordance with the procedures described in
this Pricing Supplement should not be a taxable event for U.S. federal income
tax purposes. In addition, if the Trust fails to redeem the Notes on a
Contingent Prepayment Date, such failure to redeem the Notes should not be a
taxable event for U.S. federal income tax purposes.
Under the OID Treasury regulations promulgated under the Original Issue
Discount ("OID") provisions of the Internal Revenue Code of 1986, as amended
(the "Code") governing debt instruments issued with original issue discount
(referred to as the "OID Regulations"), for purposes of determining the yield
and maturity of a debt instrument that provides the holder with an unconditional
option or options (for example, an option to extend the maturity of a debt
instrument) exercisable on one or more dates during the term of the debt
instrument, a holder is deemed to exercise or not exercise an option or
combination of options in a manner that maximizes the yield on the debt
instrument. Since the Spread for the interest rate on the Notes will
periodically increase during the term of the Notes from an initial amount equal
to minus 0.02% to an amount equal to plus 0.03%, under the OID Regulations, the
maturity date of the Notes for U.S. federal income tax purposes should be
May 4, 2011 (the "Final Maturity Date") and not the Initial Maturity
Date. This is because the original holders of the Notes should be deemed to
elect to extend the maturity of all of the principal amount of the Notes to
the Final Maturity Date.
The Treasury regulations governing modifications of debt instruments
(referred to herein as the "Modification Regulations") provide, in substantive
part, that the exercise of an option by a holder of a debt instrument to extend
the final maturity date of a debt instrument is a taxable event if, based on all
the facts and circumstances, such extension of the final maturity date results
in the material deferral of scheduled payments. The Modification Regulations
provide a "safe-harbor" period in which the extension of the final maturity date
is not a material deferral of scheduled payments. The "safe-harbor" period
begins on the original maturity date of the debt instrument and extends for a
period equal to the lesser of five years or 50 percent of the original term of
the debt instrument. The Modification Regulations do not specifically address
the determination of maturity dates and debt instruments such as the Notes
(including their economic equivalence to an approximately five year debt
instrument containing put options). Since the Notes, as of the original issue
date, should be treated as maturing on the Final
14
Maturity Date, an election to extend the maturity of all or any portion of the
principal amount of the Notes, based upon both the OID Regulations and the
Modification Regulations, should not be treated as a modification and thus
should not be treated as a taxable event for U.S. federal income tax purposes.
In addition, the Notes should not constitute contingent payment debt
instruments that would be subject to the Treasury regulations governing
contingent payment obligations (the "Contingent Payment Regulations").
Furthermore, the Notes should not be considered to have OID for U.S. federal
income tax purposes as the difference between the stated redemption price at
maturity and the issue price of the Notes should be less than the de minimis
amount specified by the relevant provisions of the Code and the Treasury
regulations issued thereunder.
By purchasing the Notes, investors will be deemed to agree to report
the U.S. federal income tax consequences of their ownership of the Notes
consistently with the foregoing discussion.
Prospective investors should note that no assurance can be given that
the Internal Revenue Service (the "IRS") will accept, or that the courts will
uphold, the characterization and the tax treatment of the Notes described above.
If the IRS were successful in asserting that an election to extend the maturity
of all or any portion of the principal amount of the Notes is a taxable event
for U.S. federal income tax purposes, then investors would be required to
recognize gain, if any, upon the exercise of such election. Also, if the IRS
were successful in asserting that the Notes were subject to the Contingent
Payment Regulations, the timing and character of income thereon would be
affected. Among other things, investors may be required to accrue interest on
the Notes as OID income, subject to adjustments, at a "comparable yield"
multiplied by the adjusted issue price. Furthermore, in such case, any gain
recognized with respect to the Notes would generally be treated as ordinary
income rather than capital gain. However, because the Notes bear a variable
interest rate that is reset and payable every month, the Issuer expects that
(i) the accrual of income at the comparable yield, as adjusted on each
Interest Payment Date, should not significantly alter the timing of income
inclusion; and (ii) any gain recognized with respect to the Notes should not be
significant. Prospective investors are urged to consult their tax advisors
regarding the U.S. federal income tax consequences of investing in, and
extending the maturity of, the Notes.
Prospective investors should consult the summary describing the
principal U.S. federal income tax consequences of the ownership and disposition
of the Notes contained in the section called "United States Federal Income Tax
Considerations" in the accompanying Prospectus Supplement.
15