Amendment No. 1 dated June 13, 1995 to
PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 5 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 (Subject to Completion, Issued June 8, 1995)
June , 1995
Rule 424(b)(3)
$
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Floating Rate Notes
NIKKEI 225 CASH EXCHANGEABLE NOTES DUE SEPTEMBER 30, 1998
Interest payable March 30, June 30, September 30 and December 30
The Nikkei 225 Cash Exchangeable Notes due September 30, 1998 (the "Notes")
are Medium-Term Notes, Series C (Senior Floating Rate Notes) of Morgan Stanley
Group Inc. (the "Company"), as further described below and in the Prospectus
Supplement under "Description of Notes - Floating Rate Notes". Interest will
be computed on an actual/360 basis. The interest rate in effect from June ,
1995 to and excluding June 30, 1995 is 1%. Thereafter the interest rate in
effect for the Interest Period commencing on each Interest Reset Date will be
the greater of (i) LIBOR (as defined herein and in the Prospectus Supplement)
minus % and (ii) 0%. The Notes will be exchangeable on certain dates at
the option of the holder but will not otherwise be redeemable by the Company
in whole or in part prior to the Maturity Date.
The Notes are issued in minimum denominations of $1,000 per Note and will
mature at par on September 30, 1998. On any Exchange Date (as defined
herein), the holder of a Note will have the right, upon completion and
execution of a Notice of Exchange, to exchange the Note and receive Parity.
Parity is an amount of cash in U.S. Dollars equal to the product of a)
(the "Exchange Ratio") and b) the Final Nikkei Value divided by Yen
per US $1.00. Due to this method of calculation, the determination of Parity
will not be affected by fluctuations in the U.S. Dollar/Japanese Yen exchange
rate. The Exchange Dates will be June 28, 1996, June 30, 1997, June 30, 1998
and September 29, 1998. The Final Nikkei Value will equal the arithmetic
average closing values (afternoon session) of the Nikkei 225 Index on the two
Nikkei Determination Days (as defined herein) immediately succeeding the
Exchange Date, except that the Final Nikkei Value with respect to the
September 29, 1998 Exchange Date (the "Final Exchange Date") will be the
arithmetic average closing values (afternoon session) of the Nikkei 225 Index
on certain scheduled Nikkei Determination Days preceding and excluding the
Maturity Date. (See "Final Nikkei Value" herein.) In the event that Parity
exceeds $1,000 per Note (Par) on the Final Exchange Date, holders of Notes
will automatically be deemed to have exchanged the Notes for Parity on the
Final Exchange Date. The Company will cause Parity to be determined by the
Calculation Agent for Chemical Bank, as Trustee (the "Trustee") under the
Senior Debt Indenture.
An investment in the Notes entails risks not associated with similar
investments in a conventional debt security, as described under "Risk Factors"
on PS-4 and PS-5 herein.
Application has been made to list the Notes on the New York Stock Exchange
("NYSE"). The NYSE symbol for the Notes is " ." It is not possible to
predict whether the Notes will trade in the secondary market or if such market
will be liquid or illiquid.
________________
PRICE 100% AND ACCRUED INTEREST, IF ANY
________________
Agent's Proceeds to
Price to Public(1) Commissions(2) Company(1)(3)
-------------------- ---------------- ---------------
Per Note.... 100% % %
Total....... $ $ $
_______________
(1) Plus accrued interest, if any, from June , 1995.
(2) The Company has agreed to indemnify the Agent against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deduction of expenses payable by the Company estimated at $
.
Capitalized terms not defined above have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY & CO.
Incorporated
Principal Amount:.............. $
Maturity Date:................. September 30, 1998
Base Rate:..................... LIBOR
LIBOR Currency:................ U.S. Dollars
Index Maturity:................ 3 Months
Spread (Plus or Minus):........ Minus %
Reference Screen:.............. Telerate Page 3750
Interest Accrual Date:......... June , 1995
Initial Interest Rate:......... 1% per annum
Initial Interest Reset Date:... June 30, 1995
Maximum Interest Rate:......... N/A
Minimum Interest Rate:......... 0%
Exchange Dates:................ June 28, 1996, June 30, 1997, June 30, 1998
and September 29, 1998, or if any such day is
not a Business Day the immediately succeeding
day that is a Business Day. On any Exchange
Date, the holder of a Note will have the
right, upon completion and execution of an
irrevocable notice of exchange delivered to
the Trustee on such Exchange Date (the
"Notice of Exchange"), to exchange the Note
and receive Parity. Parity is an amount of
cash in U.S. Dollars equal to the product of
a) (the "Exchange Ratio") and b) the
Final Nikkei Value divided by Yen per
US $1.00.
In the event that Parity exceeds $1,000 per
Note (Par) on the Final Exchange Date,
holders of Notes will automatically be deemed
to have exchanged the Notes for Parity on the
Final Exchange Date. Parity will be greater
than $1,000 per Note (Par) only if the Final
Nikkei Value with respect to any Exchange
Date is greater
than (the "Exchange Level").
In the case of each Exchange Date other than
the Final Exchange Date, a holder exercising
such exchange right will receive payment of
Parity on the third Business Day after the
second Nikkei Determination Day immediately
succeeding such Exchange Date. Holders
deemed to have automatically exercised their
exchange right on the Final Exchange Date
will receive payment of Parity on the
Maturity Date.
The Company shall cause the Calculation Agent
to provide written notice to the Trustee at
its New York office of the Parity amount
promptly at the opening of business New York
time on the second Business Day after the
second Nikkei Determination Day immediately
succeeding each Exchange Date other than the
Final Exchange Date (if any holder has
exercised such exchange right on such
Exchange Date) and promptly at the opening of
business on the Business Day immediately
preceding the Maturity Date.
Any holder of a Note that exercises the right
to exchange such Note and receive Parity on
an Exchange Date prior to the Final Exchange
Date may receive less than $1,000 per Note
(Par). Furthermore, because the Final Nikkei
Value will only be determined after such
Exchange Date, a holder of a Note will not be
able to determine, on such Exchange Date, the
closing values of the Nikkei 225 that will
be used in calculating the Final Nikkei Value
and the Parity amount of such Note (and will
thus be unable to determine with certainty
such amounts at the time a Notice of Exchange
is submitted). In addition, any downward
movement in the level of the Nikkei 225
between the Exchange Date on which the holder
of a Note submits a Notice of Exchange and
the time at which the Final Nikkei Value with
respect to such Exchange Date is determined
(which period will, at a minimum, represent
two Business Days on which the Tokyo Stock
Exchange and the Osaka Securities Exchange
are open for business and, if a Market
Disruption Event exists, may be longer) will
result in such holder receiving a lower
Parity amount than anticipated by such holder
(including an amount less than the par value)
based on the level of the Nikkei 225 most
recently reported prior to exercise. See
"Final Nikkei Value" below.
Exchange Ratio.................
Interest Payment Dates:........ Each March 30, June 30, September 30 and
December 30, commencing June 30, 1995, or if
any such day is not a Business Day the
immediately succeeding day that is a Business
Day, unless (except in the case of September
30, 1998) such succeeding Business Day falls
in the next calendar month in which case such
Interest Payment Date shall be the first
preceding day that is a Business Day.
Interest Payment Period:....... Quarterly, except for the period commencing
on the Interest Accrual Date and ending June
30, 1995.
Interest Reset Period:......... The period from and including June 30, 1995
to but excluding the September 30, 1995
Interest Payment Date and each successive
period beginning on, and including, an
Interest Payment Date and ending on, but
excluding, the next succeeding Interest
Payment Date.
Interest Reset Dates:.......... The first Interest Payment Date and each
successive Interest Payment Date thereafter.
Specified Currency:............ U.S. Dollars
Issue Price:................... 100%
Settlement Date (Original
Issue Date):................... June , 1995
Book Entry Note or
Certificated Note:............. Book Entry Note
Senior Note or Subordinated
Note:.......................... Senior Note
Minimum Denominations:......... $1,000
Calculation Agent:............. Morgan Stanley & Co. Incorporated ("MS & Co.")
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in determining the Final Nikkei Value with
respect to any Exchange Date. See "Final
Nikkei Value" below. MS & Co., as a
registered broker-dealer, is required to
maintain policies and procedures regarding
the handling and use of confidential
proprietary information, and such policies
and procedures will be in effect throughout
the term of the Notes to restrict the use of
information relating to the calculation of
the Nikkei Final Value prior to its
dissemination. MS & Co. is obligated to
carry out its duties and functions as
Calculation Agent in good faith and using its
reasonable judgment.
Trustee:....................... Chemical Bank
Final Nikkei Value:............ The arithmetic average of the closing values
(afternoon session) of the Nikkei Stock
Average (the "Nikkei 225") calculated and
published by Nihon Keizai Shimbun, Inc.
("NKS") on the two Nikkei Determination Days
immediately succeeding the Exchange Date,
except that the Final Nikkei Value with
respect to the September 29, 1998 Exchange
Date (the "Final Exchange Date") will be the
arithmetic average of the closing values
(afternoon session) on the first two Nikkei
Determination Days during the period of 15
Business Days preceding, and excluding, the
Maturity Date on which, without giving effect
to any Market Disruption Events, the Tokyo
Stock Exchange ("TSE") and the Osaka
Securities Exchange ("OSE") would be
scheduled to be open for business; provided
that if, due to Market Disruption Events,
there is only one Nikkei Determination Day
during such period, then the Final Nikkei
Value with respect to the Final Exchange Date
shall be the arithmetic average of the
closing value (afternoon session) of the
Nikkei 225 on such day and the Exchange
Level; and provided further that if, due to
Market Disruption Events, there are no Nikkei
Determination Days during such period, then
the Final Nikkei Value with respect to the
Final Exchange Date shall be deemed to be the
Exchange Level. See "Adjustments to Index,"
"Market Disruption Event" and "Discontinuance
of the Index" below.
Nikkei Determination Day:...... A Business Day which is also a day on which
the TSE and the OSE are each open for
business and on which a Market Disruption
Event has not occurred. See "Market
Disruption Event" below.
NYSE Listing:.................. Although application has been made to list
the Notes on the NYSE, it is not possible to
predict whether the Notes will trade in the
secondary market or if such market will be
liquid or illiquid. To the extent any
holders exercise their rights to exchange
Notes and receive Parity, the number of Notes
outstanding will decrease, which could result
in a decrease in the liquidity of the Notes.
Risk Factors................... An investment in the Notes entails
significant risks not associated with similar
investments in a conventional debt security.
Because the interest rate applicable to the
Notes includes a spread below the floating
U.S. Dollar LIBOR rate, it will result in an
interest rate that is less than that which
would be payable on a conventional fixed-rate
debt security if the Company were to issue
such a security at the same time, including
the possibility that no interest will be
paid.
The market value for the Notes will be
affected by a number of factors independent
of the creditworthiness of the Company and the
value of the Nikkei 225, including, but not
limited to, the volatility of the Nikkei 225,
the volatility of the U.S. Dollar/Japanese Yen
exchange rate, the time remaining to any
Exchange Date or the maturity of the Notes
and market interest rates in the U.S. and
Japan. In addition, the value of the Nikkei
225 depends on a number of interrelated
factors, including economic, financial and
political events, over which the Company has
no control. The historical experience of the
Nikkei 225 should not be taken as an
indication of its future performance during
the term of any Note.
At any Exchange Date, including the Final
Exchange Date, Parity will be greater than
$1,000 per Note (Par) only if the Final Nikkei
Value with respect to any Exchange Date is
greater than the Exchange Level. See also
"Use of Proceeds and Hedging" below.
Furthermore, holders of the Notes should be
aware that there is no principal protection
with respect to exchanges made prior to the
Final Exchange Date. Any holder of a Note
that exercises the right to exchange such
Note and receive Parity on an Exchange Date
prior to the Final Exchange Date may receive
less than $1,000 per Note (Par).
Because the Final Nikkei Value with respect
to an Exchange Date other than the Final
Exchange Date will be determined after such
Exchange Date, a holder of a Note will not be
able to determine, on such Exchange Date, the
closing values of the Nikkei 225 that will
be used in calculating the Final Nikkei Value
and the Parity amount of such Note (and will
thus be unable to determine with certainty
such amounts at the time a Notice of Exchange
is submitted). In addition, any downward
movement in the level of the Nikkei 225
between the Exchange Date on which the holder
of a Note submits a Notice of Exchange and
the time at which the Final Nikkei Value with
respect to such Exchange Date is determined
will result in such holder receiving a lower
Parity amount than anticipated by such holder
based on the level of the Nikkei 225 most
recently reported prior to exercise. See
"Final Nikkei Value" above.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain adjustments to the
value of the Nikkei 225 and to the Exchange
Ratio that may influence the determination of
the Final Nikkei Value and Parity. See
"Adjustments to the Index," "Market
Disruption Event" and "Discontinuance of the
Index."
NKS is under no obligation to continue the
calculation or dissemination of the Nikkei
225. In the event that NKS discontinues or
suspends calculation or publication of the
Nikkei 225 or that the calculation of the
Nikkei 225 is changed in a material respect,
the Calculation Agent may calculate a stock
average comparable to the Nikkei 225 and the
Final Nikkei Value shall be calculated based
on such comparable index at each Exchange
Date. See "Adjustments to the Index,"
"Market Disruption Event" and "Discontinuance
of the Index" below. The Company, the
Calculation Agent and the Trustee disclaim
all responsibility for the calculation or
other maintenance of or any adjustments to
the Nikkei 225.
Upon the occurrence of certain events
described under "Discontinuance of the
Index", a Successor Index (which will also
relate to the trading of equity securities in
Japan) will be substituted for the Nikkei 225
as the basis of the calculation of the Final
Nikkei Value and of Parity. In the event
that a Successor Index is substituted for the
Nikkei 225, no assurance can be given as to
whether the Final Nikkei Value calculated on
the basis of such Successor Index will be
more than, less than or equal to the Final
Nikkei Value or Parity amount which would
have been payable had such substitution not
occurred.
Although this Pricing Supplement sets forth
procedures for making adjustments to the
calculation of the Final Nikkei Value under
certain circumstances, a discontinuance of
the publication of the Nikkei 225 or an
adjustment to its method of calculation may
adversely affect trading in the Notes.
The Nikkei 225 does not reflect the payment
of dividends on the stocks underlying it and
therefore the yield to maturity of the Notes
based on the Nikkei 225 will not produce the
same yield as if such underlying stocks were
purchased and held for a similar period.
Furthermore, an investment in the underlying
stocks would, unlike the calculation of
Parity with respect to the Notes, be affected
by fluctuations in the exchange rate between
the Japanese Yen and the investment currency
of the holder of the Notes.
It is suggested that prospective investors
who consider purchasing the Notes should
reach an investment decision only after
carefully considering the suitability of the
Notes in light of their particular
circumstances.
Investors should also consider the tax
consequences of investing in the Notes. See
"United States Federal Taxation" below.
The Nikkei 225 Index:.......... All information regarding the Nikkei 225 set
forth herein, including, without limitation,
its make-up, method of calculation and
changes in its components, has been derived
from information made publicly available by
NKS. Although the Company believes the
following description of the Nikkei 225 to be
accurate as of the date of this Pricing
Supplement, it disclaims all responsibility
for any future changes NKS may make with
respect to the Nikkei 225, including those
related to its composition and calculation.
Characteristics
The Nikkei 225 is one of Japan's major stock
market indices. Nihon Keizai Shimbun, Inc.
has calculated and published the Nikkei 225
since 1970.
The Nikkei 225 is an average price adjusted
by the Dow method, which is regarded as being
suitable for monitoring the level of the
stock market and its changes.
The constituents of the Nikkei 225 are 225
actively traded stocks listed on the 1st
section of the TSE.
Since October 1991, constituents of the
Nikkei 225 are reviewed every year and
relatively low liquidity stocks are replaced
by high liquidity stocks. The Nikkei 225
therefore responds to changes in the stock
market while maintaining continuity.
Deletion and Addition Rules
Since October 1, 1991, the constituents of
the Nikkei 225 have been reviewed in
accordance with the following rules once a
year.
Constituents of the Nikkei 225
The Nikkei 225 is calculated from the prices
of 225 TSE 1st section stocks selected to
represent the overall performance of the stock
market. The intention is to maintain
continuity while at the same time keeping it
composed of stocks of higher market liquidity.
High Liquidity Group
Stocks with relatively high market liquidity
are selected from the TSE 1st section listing
and are categorized as the "high liquidity
group". The market liquidity of each stock
is measured by that stocks trading volume and
its price fluctuation per trading volume for
the preceding 10 years. The stocks ranking
in the first half of the TSE 1st section as
measured by these two parameters form the
high liquidity group.
Standard for Deletion
Any constituent stock shall be deleted from
the Nikkei 225 if it ceases to be traded on
the TSE 1st section for any of the following
reasons:
(i) bankruptcy;
(ii) merger or acquisition by another
company;
(iii) delisting or moving to "Seiri-Post" due
to excess debt, etc.;
(iv) moving to the 2nd section.
Constituent stocks having relatively low
market liquidity on the TSE 1st section (i.e.
those not belonging to the high liquidity
group) may be deleted. Such cases are
limited to a maximum of 3 per cent of the
total number of constituent stocks of the
Nikkei 225 i.e., 6 of them, per year.
Standard for Addition
If one or more constituent stocks are deleted
from the Nikkei 225, they are replaced by the
corresponding number of non-constituent
stocks which have been selected as
replacement candidates in accordance with the
following procedure.
Selection of Priority Industries
First, each industry's distribution in the
high liquidity group is identified and the
ideal number of Nikkei 225 constituents from
each industry is determined in proportion to
the number of stocks that industry has in the
high liquidity group. Then, by reference to
the ideal and actual numbers of the Nikkei
225 constituents from the relevant industry,
its shortage ratio is calculated. The
industry classification used here is as
defined by Nikkei (36 sectors).
Ideal number of constituents from the
industry (A)
= B x 225
---
C/2
Shortage Ratio
= A-D x 100
---
D
Where = B is the number of stocks the
industry has in the then high
liquidity group.
C is the total number of stocks
listed on the TSE 1st section.
D is the actual number of Nikkei
225 constituents from the
industry.
Addition candidates are selected from
industries having a larger shortage ratio
("priority industries").
Selection of Addition Candidates from
Priority Industries
Addition candidates are selected from each
priority industry in order of market
liquidity.
Notwithstanding the above, stocks may (in
principle) not be adopted as addition
candidates if they at the time of selection:
(i) have been listed on the TSE 1st
section for less than 3 years; or
(ii) have less than 60 million shares
outstanding (the number of
outstanding shares of stocks with
par value other than 50 yen is
calculated after converting to a
50-yen par value basis).
Exception
If a stock newly listed by the TSE on its 1st
section as an exceptional case is deemed to
be representative of the overall performance
of the market, such stock may replace a
Nikkei 225 constituent having lower market
liquidity.
Determination and announcement of the changes
Deletion/addition stocks are determined and
announced by NKS after taking counsel of
scholars, experts, etc.
Method of calculation
The Nikkei 225 is an average price of 225
stocks traded on the TSE 1st section.
However, it is different from a simple
average in that the divisor is adjusted to
maintain continuity. When there is a
non-market change in the price of the
constituents or constituents are changed, the
divisor is adjusted, so that the index level
remains unchanged by the event.
Use of the Nikkei 225 Index.... The use of and reference to the Nikkei 225 in
connection with the Notes has been consented
to by NKS, the publisher of the Nikkei 225.
All rights to the Nikkei 225 are owned by
NKS. The Company, the Calculation Agent and
the Trustee disclaim all responsibility for
the calculation or other maintenance of or any
adjustments to the Nikkei 225. In addition,
NKS has no relationship to the Company or the
Notes; it does not sponsor, endorse,
authorize, sell or promote the Notes, and has
no obligation or liability in connection with
the administration, marketing or trading of
the Notes or with the calculation of the
value of Parity or the Final Nikkei Value, as
described above.
The following table sets forth the high and
low daily closing values of the Nikkei 225
for each quarter, in the period from January
1, 1990 through June 13, 1995, as published
by NKS. The historical experience of the
Nikkei 225 should not be taken as an
indication of its future performance, and no
assurance can be given as to the level of the
Nikkei 225 as of the relevant Nikkei
Determination Days corresponding to any
Exchange Date.
Daily Closing Values in Japanese Yen
-----------------------------------------------------
End of
High Low Quarter
--------------- --------------- ---------------
1990:
1st Quarter...... 38,712.88 29,843.34 29,980.45
2nd Quarter...... 33,192.50 28,002.07 31,940.24
3rd Quarter...... 33,172.28 20,983.50 20,983.50
4th Quarter...... 25,352.63 20,221.86 23,848.71
1991:
1st Quarter...... 27,146.91 22,442.70 26,292.04
2nd Quarter...... 26,980.37 23,290.96 23,290.96
3rd Quarter...... 24,120.75 21,456.76 23,916.44
4th Quarter...... 25,222.28 21,502.90 22,983.77
1992:
1st Quarter...... 23,801.18 19,345.95 19,345.95
2nd Quarter...... 18,804.60 15,741.27 15,951.73
3rd Quarter...... 18,908.47 14,309.41 17,399.08
4th Quarter...... 17,690.67 15,993.48 16,924.95
1993:
1st Quarter...... 19,048.38 16,287.45 18,591.45
2nd Quarter...... 21,076.00 19,099.09 19,590.00
3rd Quarter...... 21,148.11 19,621.46 20,105.71
4th Quarter...... 20,500.25 16,078.71 17,417.24
1994:
1st Quarter...... 20,677.77 17,369.74 19,111.92
2nd Quarter...... 21,552.81 19,122.22 20,643.93
3rd Quarter...... 20,862.77 19,468.89 19,563.81
4th Quarter...... 20,148.83 18,666.93 19,723.06
1995:
1st Quarter...... 19,684.04 15,749.77 16,139.95
2nd Quarter through
June 13, 1995...... 17,103.69 14,599.68 14,599.68
Nikkei 225 Index
Underlying Stocks: A list of the issuers of the 225 stocks (each a
"Stock") constituting the Nikkei 225 Index is
available from the Nikkei Economic Electronic
Databank System and from the Stock Market
Indices Data Book published by NKS. NKS may
delete, add or substitute any Stock underlying
the Nikkei 225 Index.
Adjustments to the Index: If at any time the method of calculating the
Nikkei 225, or the value thereof, is changed in
a material respect, or if the Nikkei 225 is in
any other way modified so that the Nikkei 225
does not, in the reasonable opinion of the
Calculation Agent, fairly represent the value
of the Nikkei 225 had such changes or
modifications not been made (except for changes
in the Stocks by NKS, as described above under
"The Nikkei 225 Index"), then, from and after
such time, the Calculation Agent shall, at the
close of business in New York, New York, on each
date that the closing value (afternoon session)
of the Nikkei 225 is to be calculated to
determine the Final Nikkei Value, make such
adjustments as, in the good faith judgment of
the Calculation Agent may be necessary in order
to arrive at a calculation of a value of a
stock index comparable to the Nikkei 225 as if
such changes or modifications had not been
made, and calculate such closing value with
reference to the Nikkei 225, as adjusted.
Accordingly, if the method of calculating the
Nikkei 225 is modified so that the value of the
Nikkei 225 is a fraction or a multiple of what
it would have been if it had not been modified
(e.g., due to a split in the Nikkei 225), then
the Calculation Agent shall adjust the Nikkei
225 in order to arrive at a value of the Nikkei
225 as if it had not been modified (e.g., as if
such split had not occurred). The Calculation
Agent shall promptly give notice to the holders
of the Notes of such adjusted value.
Market Disruption Event: "Market Disruption Event" means the occurrence
or existence of both of the following events on
a Business Day that would otherwise be a Nikkei
Determination Day as determined by the
Calculation Agent:
(i) a suspension or absence of trading
on the TSE of 20% or more of the Stocks which
then comprise the Nikkei 225 (or a Successor
Index, as defined below) during the one-half
hour period preceding the close of trading on
the TSE; and
(ii) the suspension or material
limitation on the Singapore International
Monetary Exchange Ltd. (the "SIMEX"), Osaka
Securities Exchange (the "OSE") and the other
major securities markets for trading in
futures or options contracts related to the
Nikkei 225 or a Successor Index (as defined
below) taken as a whole, during the one-half
hour period preceding the close of trading
on the applicable exchange.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a limitation
on the hours or number of days of trading will
not constitute a Market Disruption Event if it
results from an announced change in the regular
business hours of the relevant exchange, (2) a
decision to permanently discontinue trading in
the relevant contract will not constitute a
Market Disruption Event, (3) a suspension of
trading in a futures or options contract on the
Nikkei 225 by the TSE, the OSE or other major
securities market by reason of (x) a price
change exceeding limits set by such securities
exchange or market, (y) an imbalance of orders
relating to such contracts or (z) a disparity
in bid and ask quotes relating to such
contracts will constitute a suspension or
material limitation of trading in futures or
options contracts related to the Nikkei 225 and
(4) an "absence of trading" on the SIMEX, OSE
or a major securities market on which futures or
options contracts related to the Nikkei 225 are
traded will not include any time when the
SIMEX, OSE or such securities market, as the
case may be, itself is closed for trading under
ordinary circumstances.
The Calculation Agent shall promptly give
notice to the holders of the Notes, by
publication in The Wall Street Journal (or
another newspaper of general circulation), if a
Market Disruption Event shall have occurred on
any day that would otherwise have been a Nikkei
Determination Day.
Discontinuance of the Index: If the NKS discontinues publication of the
Nikkei 225 and NKS or another entity publishes
a successor or substitute index that the
Calculation Agent determines, in its sole
discretion, within two Nikkei Determination
Days of such discontinuance, to be comparable
to the Nikkei 225 (any such index referred to
hereinafter as a "Successor Index"), then, upon
the Calculation Agent's notification of such
determination to the Trustee and the Company,
the Calculation Agent will substitute the
Successor Index as calculated by the NKS or such
other entity for the Nikkei 225, as the case
may be, and calculate the Final Nikkei Value as
described above under "Exchange Dates" and
"Final Nikkei Value". After such substitution,
the Exchange Ratio would be modified as follows:
New Exchange Ratio = Original Exchange Ratio x Most Recent Nikkei 225 Value
----------------------------
Successor Index Value
where "Most Recent Nikkei 225 Value" and
"Successor Index Value" are the closing levels
(afternoon session) of the respective indexes on
the day of such substitution; provided that if
the Successor Index is first published on the
Business Day immediately following the
discontinuance of the Nikkei 225, the Successor
Index Value shall be the closing level
(afternoon session) on such first publication
day and the "Most Recent Nikkei 225 Value" will
be based on the final published value of the
Nikkei 225.
Upon any selection by the Calculation Agent of
a Successor Index, the Company shall cause
notice thereof and of any adjustment to the
Exchange Ratio to be given to holders of the
Notes.
If NKS discontinues publication of the Nikkei
225 and a Successor Index is not selected,
within two Nikkei Determination Days of such
discontinuance, by the Calculation Agent (or
such Successor Index is no longer published on
any of the Nikkei Determination Days), the
value to be substituted for the Nikkei 225 for
any such Nikkei Determination Day used to
calculate the Final Nikkei Value, with respect
to all succeeding Exchange Dates, will be the
final published closing level (afternoon
session) of the Nikkei 225 (or such Successor
Index) prior to such discontinuance. Any
determination by the Calculation Agent that
there is no successor or substitute index
comparable to the Nikkei 225 will be final. If
a Successor Index is selected, such Successor
Index shall be substituted for the Nikkei 225
for all purposes, including for purposes of
determining whether a Market Disruption Event
exists.
Notwithstanding these alternative arrangements,
discontinuance of the publication of the Nikkei
225 may adversely affect trading in the Notes.
Use of Proceeds and Hedging: The net proceeds to be received by the Company
from the sale of the Notes will be used for
general corporate purposes and, in part, by the
Company or one or more of its affiliates in
connection with hedging the Company's
obligations under the Notes. See also "Use of
Proceeds" in the accompanying Prospectus.
On the Tokyo trading day on the date of this
Pricing Supplement, the Company, through its
subsidiaries, may hedge its anticipated exposure
in connection with the Notes by taking
positions in futures contracts listed on the
OSE linked to the Nikkei 225, positions in the
component stocks of the Nikkei 225 or positions
in any other instruments that it may wish to
use in connection with such hedging. In the
event that the Company pursues such a hedging
strategy, the price at which the Company is
able to purchase such positions will be a
factor in determining the pricing of the Notes.
Purchase activity could potentially increase
the prices of such futures contracts or the
Stocks, and therefore effectively increase the
level to which the Nikkei 225 must rise before
a holder of a Note will receive more than the
par value of the Note upon exercise of the
right to exchange such Note for Parity.
Although the Company has no reason to believe
that its hedging activity had a material impact
on the price of such futures contracts or the
Stocks, there can be no assurance that the
Company will not affect such prices as a result
of its hedging activities. The Company,
through its subsidiaries, may modify its hedge
position throughout the life of the Notes by
purchasing and selling the securities and
instruments listed above and other available
securities and instruments, including, but not
limited to, options contracts listed on the OSE
linked to the Nikkei 225, futures or options
contracts listed on the SIMEX linked to the
Nikkei 225, over-the-counter options linked to
the Nikkei 225 and/or, in the event of a
substitution of a Successor Index for the
Nikkei 225, futures or options contracts listed
on the SIMEX or OSE linked to the Successor
Index (as defined herein), listed options
linked to any Successor Index, over-the-counter
options linked to any Successor Index and the
component stocks of any Successor Index.
United States Federal Taxation:The following discussion supplements the
"United States Federal Taxation" section in the
accompanying Prospectus Supplement. Any
limitations on disclosure and any defined terms
contained therein are equally applicable to the
summary below.
United States Holders. The Notes will be
treated as debt for United States federal
income tax purposes. Although proposed Treasury
regulations addressing the treatment of
contingent debt instruments were issued on
December 15, 1994, such regulations, which
generally would require current accrual of
contingent amounts and would affect the
character of gain on the sale, exchange or
retirement of a Note, by their terms apply only
to debt instruments issued on or after the 60th
day after the date the regulations are
finalized. Under general United States federal
income tax principles, a United States Holder
would be required to include any contingent
amount paid in excess of the Note's principal
amount upon exercise of the exchange option at
the time it accrues or is received in
accordance with the United States Holder's
method of accounting for federal income tax
purposes. With respect to an accrual basis
taxpayer, such taxpayer would be required to
include any such amount in income upon the
exercise of the exchange option only at the
time such amount becomes fixed and
determinable, which is on the second Nikkei
Determination Date after each Exchange Date,
except with respect to the Final Exchange Date
for which such amount becomes fixed and
determinable on the last Business Day (in the
relevant 15 Business Day period) used as a
reference in the calculation of the Final
Nikkei Value for such Note. It is unclear
under existing law whether payments of
contingent amounts in excess of the Notes'
principal amount will be treated as ordinary or
capital in character. If a United States
Holder receives an amount that is less than the
principal amount of the Notes upon exercising
the exchange option prior to maturity, such
loss is likely to be treated as capital in
character.
United States Holders that have acquired debt
instruments similar to the Notes and have
accounted for such debt instruments under
proposed, but subsequently withdrawn, Treasury
regulation Section 1.1275-4(g) may be deemed
to have established a method of accounting that
must be followed with respect to the Notes,
unless consent of the Commissioner of the
Internal Revenue Service is obtained to change
such method. Absent such consent, such a
Holder would be required to account for the
Note in the manner prescribed in withdrawn
Treasury regulation Section 1.1275-4(g). The
Internal Revenue Service, however, would not be
required to accept such method as correct.
Any gain or loss recognized on the sale or
exchange of a Note prior to maturity will be
treated as capital in character.
There can be no assurance that the ultimate tax
treatment of the Notes would not differ
significantly from the description herein.
Prospective investors are urged to consult
their tax advisors as to the possible
consequences of holding the Notes.
See also "United States Federal Taxation" in
the accompanying Prospectus Supplement.
Foreign Holders. As used herein, the term
"Foreign Holder" means a beneficial owner of a
Note that is for United States federal income
tax purposes (i) a nonresident alien
individual, (ii) a corporation, partnership or
other entity that was not created or organized
in or under the laws of the United States or
any political subdivision thereof or (iii) a
nonresident alien or foreign fiduciary or
grantor of a trust or estate.
A Foreign Holder will generally not be subject
to United States federal income taxes,
including withholding taxes, on payments of
principal, premium, if any, or interest on a
Note, or any gain arising from the sale or
disposition of a Note provided that (i) any
such income is not effectively connected with
the conduct of a trade or business within the
United States, (ii) such Foreign Holder is not
a person who owns (directly or by attribution)
ten percent or more of the total combined
voting power of all classes of stock of the
Company, (iii) the Foreign Holder (if an
individual) is not present in the United States
183 days or more during the taxable year of the
disposition, (iv) the Foreign Holder does not
have a "tax home" (as defined in section
911(d)(3) of the Code) or an office or other
fixed place of business in the United States
and (v) the required certification of the
non-United States status of the beneficial
owner is provided to the Company or the Agent.
The 31% "backup" withholding and information
reporting requirements will generally not apply
to payments by the Company or its agents of
principal, premium, if any, and interest on a
Note, and to proceeds of the sale or redemption
of a Note before maturity, if the required
certification of the holder's non-United States
status is provided to the Company or the Agent.
Foreign Holders of Notes should consult their
tax advisors regarding the application of
information reporting and backup withholding in
their particular situations, the availability
of an exemption therefrom, and the procedure
for obtaining such an exemption, if available.
Any amounts withheld from a payment to a
Foreign Holder under the backup withholding
rules will be allowed as a credit against such
Holder's United States federal income tax
liability and may entitle such Holder to a
refund, provided that the required information
is furnished to the United States Internal
Revenue Service (the "Service").
A Note held by an individual who at the time of
his death is not a citizen or domiciliary of
the United States will not be subject to United
States federal estate tax as a result of such
individual's death, provided that (i) interest
paid to such individual on such Note would not
be effectively connected with the conduct by
such individual of a trade or business within
the United States and (ii) such individual is
not a person who owns (directly or by
attribution) ten percent or more of the total
combined voting power of all classes of stock
of the Company.
