PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 64 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 March 15, 1996
Rule 424(b)(3)
$6,001,875
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
5% MANDATORILY EXCHANGEABLE NOTES DUE MARCH 16, 1998
Mandatorily Exchangeable For Shares of Common Stock of
THE AES CORPORATION
The 5% Mandatorily Exchangeable Notes due March 16, 1998 (the "Notes") are
Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan Stanley Group
Inc. (the "Company"), as further described below and in the Prospectus
Supplement under "Description of Notes - Fixed Rate Notes."
The principal amount of each of the Notes being offered hereby will be $24.25
(the "Initial Price"). The Notes will mature on March 16, 1998. Interest on
the Notes, at the rate of 5.0% of the principal amount per annum, is payable
quarterly in arrears on each March 15, June 15, September 15 and December 15,
beginning June 15, 1996.
At maturity (including as a result of acceleration or otherwise), the
principal amount of each Note will be mandatorily exchanged by the Company
into a number of shares of the common stock, par value $0.01 per share (the
"AES Stock") of The AES Corporation ("AES") at the Exchange Rate (or, at the
Company's option, cash equal to $34.04 in the case of clause (a) below). The
Exchange Rate for each $24.25 principal amount of any Note is equal to,
subject to certain adjustments, either (a) if the product of the Exchange
Factor (as defined below) and the Market Price per share of AES Stock,
determined as of the maturity of the Notes (as defined herein, the "Maturity
Price"), is greater than $34.04 (the "Cap Price"), (i) the product of (x) the
Exchange Factor and (y) the Cap Price divided by the Maturity Price times (ii)
one share of AES Stock or (b) if the Maturity Price is less than or equal to
the Cap Price, the product of the Exchange Factor and one share of AES Stock.
The Exchange Factor will be set initially at 1.0, but will be subject to
adjustment upon the occurrence of certain corporate events. See "Exchange at
Maturity," "Maturity Price," "Exchange Factor" and "Antidilution Adjustments"
in this Pricing Supplement.
Cash dividends have not been paid on the AES Stock since December 1993. The
opportunity for equity appreciation afforded by an investment in the Notes is
less than that afforded by an investment in the AES Stock because at maturity
a holder may receive less than one share of AES Stock per Note. The value of
the AES Stock received by a holder of the Notes upon exchange at maturity,
determined as described herein, may be more or less than the principal amount
of the Notes.
AES is not affiliated with the Company, is not involved in this offering of
Notes and will have no obligations with respect to the Notes. See "Historical
Information" in this Prospectus Supplement for information on the range of
Market Prices for AES Stock.
The Company will cause the Market Price, any adjustments to the Exchange
Factor and any other antidilution adjustments to be determined by the
Calculation Agent for Chemical Bank, as 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 through PS-6 herein.
PRICE 100% AND ACCRUED INTEREST
Proceeds to
Agent's -------------
Price to Public(1) Commissions(2) Company(1)
-------------------- ---------------- -------------
Per Note.... 100% 0.25% 99.75%
Total....... $6,001,875 $15,005 $5,986,870
_______________
(1) Plus accrued interest, if any, from March 22, 1996.
(2) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY & CO.
Incorporated
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount:.............. $6,001,875
Maturity Date:................. March 16, 1998
Interest Rate:................. 5.0% per annum
Interest Payment Dates......... March 15, June 15, September 15 and December
15, beginning June 15, 1996
Specified Currency:............ U.S. Dollars
Issue Price:................... 100%
Original Issue Date (Settlement
Date):........................ March 22, 1996
Book Entry Note or Certificated
Note:......................... Book Entry
Senior Note or Subordinated
Note:......................... Senior
Denominations:................. $24.25 and integral multiples thereof
Trustee:....................... Chemical Bank
Exchange at Maturity:.......... At maturity (including as a result of
acceleration or otherwise), the principal
amount of each Note will be mandatorily
exchanged by the Company, upon delivery of
such Note to the Trustee, into a number of
shares of AES Stock at the Exchange Rate (or,
at the Company's option, cash equal to $34.04
in the case of clause (a) below). The
Exchange Rate for each $24.25 principal
amount of any Note is equal to either (a) if
the Maturity Price (as defined below) is
greater than $34.04 (the "Cap Price"), (i)
the product of (x) the Exchange Factor and
(y) the Cap Price divided by the Maturity
Price times (ii) one share of AES Stock or
(b) if the Maturity Price is less than or
equal to the Cap Price, the product of the
Exchange Factor and one share of AES Stock,
subject in each case to any applicable
antidilution adjustments as set forth under
"Antidilution Adjustments" below.
The Company shall, or shall cause the
Calculation Agent to, (i) provide written
notice to the Trustee on or prior to 10:30
a.m. on the NYSE Trading Day immediately
prior to maturity of the Notes of the
Company's determination to deliver AES Stock
or cash equal to the Cap Price and (ii)
deliver such shares of AES Stock or cash to
the Trustee for delivery to the holders. The
Calculation Agent shall calculate the
Exchange Factor and determine the Exchange
Rate applicable at the maturity of the Notes.
References to payment "per Note" refer to
each $24.25 principal amount of any Note.
No Fractional Shares:.......... Upon mandatory exchange of the Notes, the
Company will pay cash in lieu of issuing
fractional shares of AES Stock in an amount
equal to the corresponding fractional Market
Price of such fraction of AES Stock as
determined by the Calculation Agent as of the
maturity of the Notes.
Exchange Factor:............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
through and including the second NYSE Trading
Day immediately prior to maturity. See
"Antidilution Adjustments" below.
Initial Price:................. $24.25
Maturity Price:................ Maturity Price means the product of (i) the
Market Price of one share of AES Stock and
(ii) the Exchange Factor, each determined as
of the second NYSE Trading Day immediately
prior to maturity.
Cap Price:..................... $34.04
Market Price:.................. If AES Stock (or any other security for which
a Market Price must be determined) is listed
on a national securities exchange, is a
security of The Nasdaq National Market
("NASDAQ NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of
Securities Dealers, Inc. (the "NASD"), the
Market Price for one share of AES Stock (or
one unit of any such other security) on any
NYSE Trading Day means (i) the last reported
sale price, regular way, on such day on the
principal United States securities exchange
registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on
which AES Stock is listed or admitted to
trading or (ii) if not listed or admitted to
trading on any such securities exchange or if
such last reported sale price is not
obtainable, the last reported sale price on
the over-the-counter market as reported on
the NASDAQ NMS or OTC Bulletin Board on such
day. If the last reported sale price is not
available pursuant to clause (i) or (ii) of
the preceding sentence, the Market Price for
any NYSE Trading Day shall be the mean, as
determined by the Calculation Agent, of the
bid prices for AES Stock obtained from as
many dealers in such stock, but not exceeding
three, as will make such bid prices available
to the Calculation Agent. The term "NASDAQ
NMS" shall include any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
NYSE Trading Day:.............. A day on which trading is generally conducted
in the over-the-counter market for equity
securities in the United States and on the
New York Stock Exchange, as determined by the
Calculation Agent, and on which a Market
Disruption Event (as defined below) has not
occurred.
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 making
adjustments to the Exchange Factor or
other antidilution adjustments or
determining any Market Price or whether a
Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good
faith and using its reasonable judgment.
Risk Factors:.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional debt security,
including the following:
The Notes combine features of equity and debt
instruments. Accordingly, the terms of the
Notes differ from those of ordinary debt
securities in that the value of the AES Stock
that a holder of the Notes will receive upon
mandatory exchange of the principal amount
thereof at maturity is not fixed, but is
based on the price of the AES Stock and the
Exchange Rate as determined at such price.
Because the price of the AES Stock is subject
to market fluctuations, the value of the AES
Stock received by a holder of Notes upon
exchange at maturity, determined as described
herein, may be more or less than the
principal amount of the Notes. If the
Maturity Price of the AES Stock is less than
the Initial Price, the amount receivable upon
exchange will be less than the principal
amount of the Notes, in which case an
investment in the Notes may result in a loss.
The opportunity for equity appreciation
afforded by an investment in the Notes is
less than that afforded by an investment in
the AES Stock because at maturity a holder
will receive less than one share of AES Stock
per Note if the value of such AES Stock (as
adjusted by the Exchange Factor) has
appreciated above the Cap Price. In
addition, because the Exchange Rate and the
Maturity Price are determined as of the
second NYSE Trading Day prior to maturity of
the Notes and because the price of AES Stock
may fluctuate after such NYSE Trading Day and
prior to its delivery at maturity, the value
of any AES Stock delivered at maturity may be
less than the Cap Price even if the Maturity
Price, as so determined, was greater than the
Cap Price. The amount payable at maturity
with respect to each Note will not under any
circumstances exceed $34.04 per Note.
Although the amount that holders of the Notes
are entitled to receive at maturity is
subject to adjustment for certain corporate
events, such adjustments do not cover all
events that could affect the Market Price of
the AES Stock, including, without limitation,
the occurrence of a partial tender or
exchange offer for the AES Stock by AES or
any third party. Such other events may
adversely affect the market value of the
Notes.
There can be no assurance as to how the
Notes will trade in the secondary market
or whether such market will be liquid or
illiquid. Securities with characteristics
similar to the Notes are novel securities,
and there is currently no secondary market
for the Notes. The market value for the
Notes will be affected by a number of
factors in addition to the
creditworthiness of the Company and the
value of AES Stock, including, but not
limited to, the volatility of AES Stock,
the dividend rate on AES Stock, market
interest and yield rates and the time
remaining to the maturity of the Notes.
In addition, the value of AES Stock
depends on a number of interrelated
factors, including economic, financial and
political events, that can affect the
capital markets generally and the market
segment of which AES is a part and over
which the Company has no control. The
market value of the Notes is expected to
depend primarily on changes in the Market
Price of AES Stock. The price at which a
holder will be able to sell Notes prior to
maturity may be at a discount, which could
be substantial, from the principal amount
thereof, if, at such time, the Market
Price of AES Stock is below, equal to or
not sufficiently above the Initial Price.
The historical Market Prices of AES Stock
should not be taken as an indication of
AES Stock's future performance during the
term of any Note.
The Notes will not be listed on any national
securities exchange or accepted for quotation
on a trading market and, as a result, pricing
information for the Notes may be difficult to
obtain.
The Company is not affiliated with AES and,
although the Company as of the date of this
Pricing Supplement does not have any material
non-public information concerning AES,
corporate events of AES, including those
described below in "Antidilution
Adjustments," are beyond the Company's
ability to control and are difficult to
predict.
AES is not involved in the offering of the
Notes and has no obligations with respect to
the Notes, including any obligation to take
the interests of the Company or of holders of
Notes into consideration for any reason. AES
will not receive any of the proceeds of the
offering of the Notes made hereby and is not
responsible for, and has not participated in,
the determination of the timing of, prices
for or quantities of, the Notes offered
hereby.
Holders of the Notes will not be entitled to
any rights with respect to the AES Stock
(including, without limitation, voting
rights, the rights to receive any dividends
or other distributions in respect thereof and
the right to tender or exchange AES Stock in
any partial tender or exchange offer by AES
or any third party) until such time as the
Company shall deliver shares of AES Stock to
holders of the Notes at maturity.
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
Exchange Factor and other antidilution
adjustments that may influence the
determination of the amount of AES Stock or
other property receivable at the maturity of
the Notes. See "Antidilution Adjustments"
and "Market Disruption Event."
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.
Antidilution Adjustments:...... The Exchange Factor (and, in the case of
paragraph 5 below, the determination of the
Exchange Rate) will be adjusted as follows:
1. If AES Stock is subject to a stock
split or reverse stock split, then once
such split has become effective, the
Exchange Factor will be adjusted to equal
the product of the prior Exchange Factor
and the number of shares issued in such
stock split or reverse stock split with
respect to one share of AES Stock.
2. If AES Stock is subject to a stock
dividend (issuance of additional shares of
AES Stock) that is given ratably to all
holders of shares of AES Stock, then once the
dividend has become effective and AES Stock
is trading ex-dividend, the Exchange Factor
will be adjusted so that the new Exchange
Factor shall equal the prior Exchange Factor
plus the product of (i) the number of shares
issued with respect to one share of AES Stock
and (ii) the prior Exchange Factor.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends or
other distributions paid with respect to AES
Stock other than distributions described in
clause (v) of paragraph 5 below and
Extraordinary Dividends as described below.
A cash dividend or other distribution with
respect to AES Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or
other distribution exceeds the immediately
preceding non-Extraordinary Dividend for AES
Stock by an amount equal to at least 6% of
the Market Price of AES Stock on the NYSE
Trading Day preceding the ex-dividend date
for the payment of such Extraordinary
Dividend (the "ex-dividend date"). If an
Extraordinary Dividend occurs with respect to
AES Stock, the Exchange Factor with respect
to AES Stock will be adjusted on the
ex-dividend date with respect to such
Extraordinary Dividend so that the new
Exchange Factor will equal the product of (i)
the then current Exchange Factor and (ii) a
fraction, the numerator of which is the
Market Price on the NYSE Trading Day
preceding the ex-dividend date, and the
denominator of which is the amount by which
the Market Price on the NYSE Trading Day
preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with respect
to an Extraordinary Dividend for AES Stock
will equal (i) in the case of cash dividends
or other distributions that constitute
quarterly dividends, the amount per share of
such Extraordinary Dividend minus the amount
per share of the immediately preceding
non-Extraordinary Dividend for AES Stock or
(ii) in the case of cash dividends or other
distributions that do not constitute
quarterly dividends, the amount per share
of such Extraordinary Dividend. To the
extent an Extraordinary Dividend is not
paid in cash, the value of the non-cash
component will be determined by the
Calculation Agent, whose determination
shall be conclusive. A distribution on
the AES Stock described in clause (v) of
paragraph 5 below that also constitutes an
Extraordinary Dividend shall only cause an
adjustment to the Exchange Factor pursuant
to clause (v) of paragraph 5.
4. If AES issues rights or warrants to all
holders of AES Stock to subscribe for or
purchase AES Stock at an exercise price per
share less than the Market Price of the AES
Stock on (i) the date the exercise price of
such rights or warrants is determined and
(ii) the expiration date of such rights or
warrants, and if the expiration date of such
rights or warrants precedes the maturity of
the Notes, then the Exchange Factor will be
adjusted to equal the product of the prior
Exchange Factor and a fraction, the numerator
of which shall be the number of shares of AES
Stock outstanding immediately prior to the
issuance of such rights or warrants plus the
number of additional shares of AES Stock
offered for subscription or purchase pursuant
to such rights or warrants and the
denominator of which shall be the number of
shares of AES Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional shares
of AES Stock which the aggregate offering
price of the total number of shares of AES
Stock so offered for subscription or purchase
pursuant to such rights or warrants would
purchase at the Market Price on the
expiration date of such rights or warrants,
which shall be determined by multiplying such
total number of shares offered by the
exercise price of such rights or warrants and
dividing the product so obtained by such
Market Price.
5. If (i) there occurs any reclassification
of AES Stock, (ii) AES, or any surviving
entity or subsequent surviving entity of AES
(an "AES Successor") has been subject to a
merger, combination or consolidation and is
not the surviving entity, (iii) any statutory
exchange of securities of AES or any AES
Successor with another corporation occurs
(other than pursuant to clause (ii) above),
(iv) AES is liquidated, (v) AES issues to all
of its shareholders equity securities of an
issuer other than AES (other than in a
transaction described in clauses (ii), (iii)
or (iv) above) (a "Spin-off Event") or (vi) a
tender or exchange offer is consummated for
all the outstanding shares of AES Stock (any
such event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the Exchange Rate in respect of
the amount payable upon exchange at maturity
for each Note will be adjusted to provide
that each holder of Notes will receive at
maturity, in respect of each $24.25 principal
amount of each Note, securities, cash or any
other assets distributed in any such
Reorganization Event, including, in the case
of a Spin-off Event, the share of AES Stock
with respect to which the spun-off security
was issued (collectively, the "Exchange
Property") (or, at the sole option of the
Company, cash equal to the Cap Price, in the
case of clause (a) below) in an amount with a
value equal to either (a) if the Transaction
Value (as defined below) is greater than the
Cap Price, the Cap Price or (b) if the
Transaction Value is less than or equal to
the Cap Price, the Transaction Value;
provided that, if the Exchange Property
received in any such Reorganization Event
consists only of cash, the maturity date of
the Notes will be deemed to be accelerated to
the date on which such cash is distributed to
holders of AES Stock. If Exchange Property
consists of more than one type of property,
holders of Notes will receive at maturity a
pro rata share of each such type of Exchange
Property. "Transaction Value" means the sum
of (i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of AES Stock, as adjusted
by the Exchange Factor, (ii) for any property
other than cash or securities received in any
such Reorganization Event, the market value
of such Exchange Property received for each
share of AES Stock at the date of the receipt
of such Exchange Property, as adjusted by the
Exchange Factor, as determined by the
Calculation Agent and (iii) for any security
received in any such Reorganization Event, an
amount equal to the Market Price per share
of such security as of the second NYSE
Trading Day immediately prior to the maturity
of the Notes multiplied by the quantity of
such security received for each share of AES
Stock, as adjusted by the Exchange Factor.
For purposes of paragraph 5 above, in the
case of a consummated tender or exchange
offer for all Exchange Property of a
particular type, Exchange Property shall be
deemed to include the amount of cash or other
property paid by the offeror in the tender or
exchange offer with respect to such Exchange
Property (in an amount determined on the
basis of the rate of exchange in such tender
or exchange offer). In the event of a tender
or exchange offer with respect to Exchange
Property in which an offeree may elect to
receive cash or other property, Exchange
Property shall be deemed to include the
kind and amount of cash and other property
received by offerees who elect to receive
cash.
No adjustments to the Exchange Factor or
Exchange Rate will be required unless such
adjustment would require a change of at least
0.1% in the Exchange Factor or Exchange Rate
then in effect. The Exchange Factor or
Exchange Rate resulting from any of the
adjustments specified above will be rounded
to the nearest one thousandth with five
ten-thousandths being rounded upward.
No adjustments to the Exchange Factor or
Exchange Rate will be made other than those
specified above. The adjustments specified
above do not cover all events that could
affect the Market Price of the AES Stock,
including, without limitation, a partial
tender or exchange offer for the AES Stock.
NOTWITHSTANDING THE FOREGOING, THE AMOUNT
PAYABLE AT MATURITY WITH RESPECT TO EACH NOTE
WILL NOT UNDER ANY CIRCUMSTANCES EXCEED
$34.04 PER NOTE.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Exchange Factor or Exchange Rate and of
any related determinations and
calculations with respect to any
distributions of stock, other securities
or other property or assets (including
cash) in connection with any corporate
event described in paragraph 5 above, and
its determinations and calculations with
respect thereto shall be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or Exchange Rate upon written
request by any holder of the Notes.
Market Disruption Event:....... "Market Disruption Event" means, with respect
to AES Stock:
(i) a suspension, absence or material
limitation of trading of AES Stock on the
primary market for AES Stock for more than
two hours of trading or during the one-half
hour period preceding the close of trading in
such market; or the suspension or material
limitation on the primary market for trading
in options contracts related to AES Stock, if
available, during the one-half hour period
preceding the close of trading in the
applicable market, in each case as determined
by the Calculation Agent in its sole
discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that the event
described in clause (i) above materially
interfered with the ability of the Company or
any of its affiliates to unwind all or a
material portion of the hedge with respect to
the Notes.
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 option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to New York Stock
Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the
New York Stock Exchange, any other self-
regulatory organization or the Securities
and Exchange Commission of similar scope
as determined by the Calculation Agent) on
trading during significant market
fluctuations shall constitute a Market
Disruption Event, (4) a suspension of
trading in an options contract on AES
Stock by the primary securities market
trading in such options, if available, 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 options contracts related to
AES Stock and (5) an "absence of trading"
on the primary securities market on which
options contracts related to AES Stock are
traded will not include any time when such
securities market is itself closed for
trading under ordinary circumstances.
AES Stock; Public Information.. AES Stock is registered under the Exchange
Act. Companies with securities registered
under the Exchange Act are required to file
periodically certain financial and other
information specified by the Securities and
Exchange Commission (the "Commission").
Information provided to or filed with the
Commission is available at the offices of the
Commission specified under "Available
Information" in the accompanying Prospectus.
In addition, information regarding AES may be
obtained from other sources including, but
not limited to, press releases, newspaper
articles and other publicly disseminated
documents. The Company makes no
representation or warranty as to the accuracy
or completeness of such reports.
THIS PRICING SUPPLEMENT RELATES ONLY TO THE
NOTES OFFERED HEREBY AND DOES NOT RELATE TO
AES STOCK OR OTHER SECURITIES OF AES. ALL
DISCLOSURES CONTAINED IN THIS PRICING
SUPPLEMENT REGARDING AES ARE DERIVED FROM THE
PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE
PRECEDING PARAGRAPH. NEITHER THE COMPANY NOR
THE AGENT HAS PARTICIPATED IN THE PREPARATION
OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE
INQUIRY WITH RESPECT TO AES NEITHER THE
COMPANY NOR THE AGENT MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE
DOCUMENTS OR ANY OTHER PUBLICLY AVAILABLE
INFORMATION REGARDING AES ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO
ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO
THE DATE HEREOF (INCLUDING EVENTS THAT WOULD
AFFECT THE ACCURACY OR COMPLETENESS OF THE
PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE
PRECEDING PARAGRAPH) THAT WOULD AFFECT THE
TRADING PRICE OF AES STOCK (AND THEREFORE THE
INITIAL PRICE AND THE CAP PRICE) HAVE BEEN
PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF
ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING AES COULD AFFECT THE VALUE
RECEIVED AT MATURITY WITH RESPECT TO THE
NOTES AND THEREFORE THE TRADING PRICES OF THE
NOTES.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES
MAKES ANY REPRESENTATION TO ANY PURCHASER OF
NOTES AS TO THE PERFORMANCE OF AES STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
AES including extending loans to, or making
equity investments in, AES or providing
advisory services to AES, including merger
and acquisition advisory services. In the
course of such business, the Company or its
affiliates may acquire non-public information
with respect to AES and, in addition, one or
more affiliates of the Company may publish
research reports with respect to AES The
Company does not make any representation to
any purchaser of Notes with respect to any
matters whatsoever relating to AES Any
prospective purchaser of a Note should
undertake an independent investigation of AES
as in its judgment is appropriate to make an
informed decision with respect to an
investment in AES Stock.
Historical Information......... The following table sets forth the high and
low Market Prices and Dividends per Share
during 1993, 1994, 1995 and during 1996,
through March 15, 1996. The Market Price on
March 15, 1996 was $24.375. The Market
Prices and Dividends per Share listed below
were obtained from Bloomberg Financial
Markets and the Company believes such
information to be accurate. However, neither
the Company nor the Agent makes any
representation as to the accuracy of such
information. The historical prices of AES
Stock should not be taken as an indication of
future performance, and no assurance can be
given that the price of AES Stock will not
decrease so that the beneficial owners of the
Notes will receive at maturity shares of AES
Stock worth less than the principal amount of
the Notes. Nor can assurance be given that
the price of AES Stock will increase above
the Initial Price so that at maturity the
beneficial owners of the Notes will receive
an amount in excess of the principal
amount of the Notes.
Dividends
per
AES* High Low Share**
- ----------------------- ----------- --- -----------
(CUSIP # 00130H105)
1993:
First Quarter.......... $19 29/32 $17 5/32 $.2589
Second Quarter......... 20 23/32 18 39/64 -
Third Quarter.......... 21 1/32 19 37/64 .1618
Fourth Quarter......... 22 21/32 20 1/16 .1618
1994:
First Quarter.......... 23 25/32 20 -
Second Quarter......... 21 1/2 16 3/8 -
Third Quarter.......... 19 3/4 15 3/4 -
Fourth Quarter......... 21 1/4 17 3/4 -
1995:
First Quarter.......... 19 3/4 16 5/16 -
Second Quarter......... 19 16 1/4 -
Third Quarter.......... 21 18 1/2 -
Fourth Quarter......... 23 7/8 19 -
1996:
First Quarter
through
March 15, 1996....... 24 3/4 21 -
* Historical prices and Dividends per Share
have been adjusted for a 3 for 2 stock split
of the AES Stock and for a 3.0% stock
dividend, both of which became effective in
the First Quarter of 1994.
** AES paid semiannual dividends of $.2589
through the First Quarter of 1993 and
beginning in the Third Quarter of 1993, it
paid quarterly dividends of $.1618, each
adjusted as described in the preceding
footnote. AES has not paid cash dividends on
the AES Stock since December 1993. The
Company makes no representation as to the
amount of dividends, if any, that AES will
pay in the future. In any event, holders of
the Notes will not be entitled to receive
dividends, if any, that may be payable on AES
Stock.
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.
Prior to and on the date of this Pricing
Supplement, the Company, through its
subsidiaries and others, hedged its
anticipated exposure in connection with the
Notes by taking positions in AES Stock. Such
hedging was carried out in a manner designed
to minimize any impact on the price of AES
Stock. Purchase activity could potentially
have increased the price of AES Stock, and
therefore effectively have increased the
level to which AES Stock must rise before a
holder of a Note would receive at maturity an
amount of AES Stock worth as much as or more
than the principal amount of the Notes.
Although the Company has no reason to believe
that its hedging activity had a material
impact on the price of AES Stock, there can
be no assurance that the Company did not, or
in the future will not, affect such price as
a result of its hedging activities. The
Company, through its subsidiaries, is likely
to modify its hedge position throughout the
life of the Notes by purchasing and selling
AES Stock, options contracts on AES Stock
listed on major securities markets or
positions in any other instruments that it
may wish to use in connection with such
hedging.
United States Federal Taxation: The following discussion is based on the
opinion of Davis Polk & Wardwell, special tax
counsel to the Company. This discussion
supplements the "United States Federal
Taxation" section in the accompanying
Prospectus Supplement and should be read in
conjunction therewith. Any limitations on
disclosure and any defined terms contained
therein are equally applicable to the summary
below.
Because of the absence of authority on point,
there are substantive uncertainties regarding
the U.S. federal income tax consequences of
an investment in the Notes. The Company
intends to treat the Notes as indebtedness of
the Company and such treatment is binding on
the Company and on all holders except for
holders who disclose on their tax returns
that they are treating the Notes in a manner
that is inconsistent with the Company's
treatment of the Notes. The Company's
treatment is not, however, binding upon the
Internal Revenue Service or the courts, and
there can be no assurance that it will be
accepted.
The Company presently intends to treat the
coupon interest on the Notes as reportable
interest. Under this approach, such interest
would be taxable to a United States Holder as
ordinary interest income at the time it
accrues or is received in accordance with the
United States Holder's method of accounting
for United States 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 debt, by
their terms apply only to debt instruments
issued on or after the 60th day after the
regulations are finalized.
Under general United States federal income
tax principles, upon maturity of a Note, a
United States Holder will recognize gain or
loss, if any, equal to the difference between
the amount realized at maturity and such
Holder's tax basis in the Note. It is
unclear under existing law whether gain
recognized at maturity will be treated as
ordinary or capital in character. Subject to
further guidance from the Internal Revenue
Service, however, the Company intends to
treat such gain as interest income and to
report such amounts accordingly.
Prospective investors should consult with
their tax advisors regarding the character
of gain recognized at maturity.
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 regulations 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 Notes in
the manner prescribed in such withdrawn
Treasury regulations. 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 the establishment
of the Maturity Price 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.
