PROSPECTUS SUPPLEMENT Rule No. 424(b)(2)
(To Prospectus dated May 1, 1996) File No. 333-1655
$4,286,270,654
Morgan Stanley Group Inc.
GLOBAL MEDIUM-TERM NOTES, SERIES C
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Due More Than Nine Months from Date of Issue
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Morgan Stanley Group Inc. (the "Company") may offer from time to time
its Global Medium-Term Notes, which are issuable in one or more series and may
be offered and sold in the United States, outside the United States or both in
and outside the United States simultaneously. The Global Medium-Term Notes,
Series C (the "Notes"), offered by this Prospectus Supplement are offered
primarily in the United States at an aggregate initial public offering price of
up to U.S.$4,286,270,654, or the equivalent thereof in other currencies,
including composite currencies such as the ECU (the "Specified Currency"). See
"Important Currency Exchange Information." Such aggregate offering price is
subject to reduction as a result of the sale by the Company of certain other
Debt Securities, including the sale outside the United States of the Company's
Global Medium-Term Notes, Series D, and Global Medium-Term Notes, Series E,
Warrants to purchase Debt Securities, and Preferred Stock. See"Plan of
Distribution." The Notes may be issued as Senior Indebtedness or Subordinated
Indebtedness. Subordinated Indebtedness will be subordinate to all Senior
Indebtedness. See "Description of Debt Securities -- Subordinated Debt" in the
accompanying Prospectus. The interest rate on each Note will be either a fixed
rate established by the Company at the date of issue of such Note, which may be
zero in the case of certain Original Issue Discount Notes, or a floating rate as
set forth therein and specified in the applicable Pricing Supplement. Such
interest rates may be determined by reference to the prices of certain
securities or commodities. A Fixed Rate Note may pay a level amount in respect
of both interest and principal amortized over the life of the Note (an
"Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement,
interest on each Fixed Rate Note is payable each March 1 and September 1 and at
maturity. Interest on each Floating Rate Note is payable on the dates set forth
herein and/or in the applicable Pricing Supplement. Unless otherwise specified
in the applicable Pricing Supplement, Amortizing Notes will pay principal and
interest semiannually each March 1 and September 1, or quarterly each March 1,
June 1, September 1 and December 1, and at maturity or upon earlier redemption
or repayment. Each Note will mature on any day more than nine months from the
date of issue, as set forth in the applicable Pricing Supplement. See
"Description of Notes." Unless otherwise specified in the applicable Pricing
Supplement, the Notes may not be redeemed by the Company or be repayable at the
option of the holder prior to maturity and will be issued in fully registered
form in denominations of $1,000 (or, in the case of Notes not denominated in
U.S. dollars, the equivalent thereof in the Specified Currency, rounded to the
nearest 1,000 units of the Specified Currency) or any amount in excess thereof
which is an integral multiple of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, 1,000 units of the Specified Currency). Any terms
relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement. Each Note
will be represented either by a Global Note registered in the name of a nominee
of The Depository Trust Company, as Depositary (a "Book-Entry Note"), or by a
certificate issued in definitive form (a "Certificated Note"), as set forth in
the applicable Pricing Supplement. Interests in Global Notes representing
Book-Entry Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary (with respect to participants'
interests) and its participants. Book-Entry Notes will not be issuable as
Certificated Notes except under the circumstances described in the accompanying
Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Agent's Proceeds to
Public(1) Commissions(2) Company(2)(3)
<S> <C> <C> <C>
Per Note...................... 100.000% .125% - .750% 99.875% - 99.250%
Total(4)...................... $4,286,270,654 $5,357,838-$32,147,030 $4,280,816-$4,254,123,624
<FN>
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(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount. If the Company issues any Note
at a discount from or at a premium over its principal amount, the Price to
Public of any Note issued at a discount or premium will be set forth in the
applicable Pricing Supplement.
(2) Unless otherwise specified in the applicable Pricing Supplement, the
commission payable to the Agent for each Note sold through the Agent will
range from .125% to .750% of the principal amount of such Note; provided,
however, that commissions with respect to Notes having a maturity of 30
years or greater will be negotiated. The Company may also sell Notes to the
Agent, as principal, at negotiated discounts, for resale to investors and
other purchasers.
(3) Before deducting expenses payable by the Company estimated at $2,453,890.
(4) Or the equivalent thereof in other currencies, including composite currencies.
</FN>
</TABLE>
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Offers to purchase the Notes are being solicited from time to time by
Morgan Stanley & Co. Incorporated, a wholly owned subsidiary of the Company
("Morgan Stanley" or the "Agent"), on behalf of the Company. The Agent has
agreed to use reasonable efforts to solicit purchases of such Notes. The Company
may also sell Notes to the Agent acting as principal for its own account or
otherwise as determined by such Agent. No termination date for the offering of
the Notes has been established. The Company or the Agent may reject any order in
whole or in part. The Notes will not be listed on any securities exchange, and
there can be no assurance that the Notes offered hereby will be sold or that
there will be a secondary market for the Notes. See "Plan of Distribution."
This Prospectus Supplement and the accompanying Prospectus may be used
by the Agent in connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale or otherwise. The Agent may act as principal or agent in such
transactions.
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MORGAN STANLEY & CO.
Incorporated
May 1, 1996
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus in
connection with the offer contained in this Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Agent. This Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy Securities by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation.
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IN CONNECTION WITH THIS OFFERING, THE AGENT MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES, OR ANY
SECURITIES THE PRICES OF WHICH MAY BE USED TO DETERMINE PAYMENTS ON SUCH NOTES,
AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SUCH TRANSACTIONS
WILL BE CARRIED OUT IN ACCORDANCE WITH ALL RELEVANT LAWS AND REGULATIONS.
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IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and
payments of principal, premium, if any, and interest on such Notes will be made
in U.S. dollars, unless otherwise provided in the applicable Pricing Supplement.
Currently, there are limited facilities in the United States for the conversion
of U.S. dollars into foreign currencies and vice versa. In addition, most banks
do not currently offer non-U.S. dollar denominated checking or savings account
facilities in the United States. Accordingly, unless otherwise specified in a
Pricing Supplement or unless alternative arrangements are made (and subject, in
the case of Book-Entry Notes, to any additional procedures that may be
required), payment of principal, premium, if any, and interest on Notes in a
Specified Currency other than U.S. dollars will be made to an account at a bank
outside the United States. See "Description of Notes" and "Foreign Currency
Risks."
If the applicable Pricing Supplement provides for payments of principal
of and interest on a non-U.S. dollar denominated Note to be made in U.S. dollars
or for payments of principal of and interest on a U.S. dollar denominated Note
to be made in a Specified Currency other than U.S. dollars, the conversion of
the Specified Currency into U.S. dollars or U.S. dollars into the Specified
Currency, as the case may be, will be handled by Morgan Stanley, in its capacity
as Exchange Rate Agent, or such other Exchange Rate Agent identified in the
Pricing Supplement. The costs of such conversion will be borne by the holder of
a Note through deductions from such payments.
References herein to "U.S. dollars" or "U.S.$" or "$" are to the
currency of the United States of America.
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DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
Debt Securities set forth in the Prospectus, to which reference is hereby made.
In particular, as used under this caption, the term "Company" means Morgan
Stanley Group Inc. The particular terms of the Notes sold pursuant to any
pricing supplement (a "Pricing Supplement") will be described therein. The terms
and conditions set forth in "Description of Notes" will apply to each Note
unless otherwise specified in the applicable Pricing Supplement and in such
Note.
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If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit (the "ECU"), in which the
principal, premium, if any, and interest, if any, with respect to such Note are
to be paid, along with any other terms relating to the non-U.S. dollar
denomination, including exchange rates for the Specified Currency as against the
U.S. dollar at selected times during the last five years, and any exchange
controls affecting such Specified Currency. See "Foreign Currency Risks."
General
The Notes may be issued under the Senior Debt Indenture ("Senior
Notes") or the Subordinated Debt Indenture ("Subordinated Notes"). The Notes
issued under each Indenture, together with the Company's Global Medium-Term
Notes, Series D, and its Global Medium-Term Notes, Series E, referred to below
under "Plan of Distribution," will constitute a single series under such
Indenture, together with any medium-term notes of the Company issued in the
future under such Indenture which are designated by the Company as constituting
a single series of securities with the Notes and the Global Medium-Term Notes,
Series D, and Global Medium-Term Notes, Series E, for purposes of such
Indenture. Neither Indenture limits the amount of additional indebtedness that
the Company may incur. At February 29, 1996, the Company had approximately $9.7
billion aggregate principal amount of medium-term notes outstanding under the
Senior Debt Indenture and approximately $94.4 million aggregate principal amount
of medium-term notes outstanding under the Subordinated Debt Indenture. Such
aggregate principal amounts may be increased from time to time as authorized by,
or pursuant to authority delegated by, the Board of Directors of the Company.
For the purpose of this paragraph, (i) the principal amount of any Original
Issue Discount Note (as defined below) means the Issue Price (as defined below)
of such Note and (ii) the principal amount of any Note issued in a foreign
currency or composite currency means the U.S. dollar equivalent on the date of
issue of the Issue Price of such Note.
Notes issued under the Senior Debt Indenture will rank pari passu with
all other Senior Indebtedness of the Company and with all other unsecured and
unsubordinated indebtedness of the Company. Notes issued under the Subordinated
Debt Indenture will rank pari passu with all other subordinated indebtedness of
the Company and, together with such other subordinated indebtedness, will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company. See "Description of Debt Securities -- Subordinated
Debt" in the Prospectus. At February 29, 1996, there was outstanding
approximately $21.5 billion of Senior Indebtedness, approximately $1.3 billion
of subordinated indebtedness and approximately $865.3 million of Capital Units.
Each Capital Unit consists of a subordinated debenture of Morgan Stanley Finance
plc, a subsidiary of the Company, guaranteed by the Company on a subordinated
basis and a related purchase contract issued by the Company requiring the holder
to purchase one depositary share representing ownership of a 1/8 interest in a
share of the Company's preferred stock.
Fixed Rate Notes, Amortizing Notes and Original Issue Discount Notes
will mature on any day more than nine months from the date of issue, as set
forth in the applicable Pricing Supplement. Floating Rate Notes (including
Renewable Notes, as defined below) will mature on an Interest Payment Date (as
defined below) more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Except as may be specified for Notes denominated
in foreign or composite currencies or as otherwise provided in the applicable
Pricing Supplement, the Notes will be issued only in fully registered form in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000.
Unless otherwise provided in the applicable Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars will be issued in
denominations of the equivalent of $1,000 (rounded to an integral multiple of
1,000 units of such Specified Currency), or any amount in excess thereof which
is an integral multiple of 1,000 units of such Specified Currency, as determined
by reference to the noon dollar buying rate in New York City for cable transfers
of such Specified Currency published by the Federal Reserve Bank of New York
(the "Market Exchange Rate") on the Business Day (as defined below) immediately
preceding the date of issuance; provided, however, that in the case of ECUs, the
Market Exchange Rate shall be the rate of exchange determined by the Commission
of the European Communities (or any successor thereto) as published in the
Official Journal of the
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European Communities, or any successor publication, on the Business Day
immediately preceding the date of issuance.
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Book-Entry Note or a Certificated Note. Only Notes
payable solely in U.S. dollars may be issued as Book-Entry Notes. Except as set
forth in the Prospectus under "Description of Debt Securities -- Registered
Global Securities," Book-Entry Notes will not be issuable as Certificated Notes.
See "Book-Entry System" below.
The Notes may be presented for payment of principal, premium, if any,
and interest, transfer of the Notes will be registrable and the Notes will be
exchangeable at the agency in the Borough of Manhattan, The City of New York,
maintained by the Company for such purpose; provided that Book-Entry Notes will
be exchangeable only in the manner and to the extent set forth under
"Description of Debt Securities -- Registered Global Securities" in the
Prospectus. On the date hereof, the agent for the payment, transfer and exchange
of the Notes (the "Paying Agent") is Chemical Bank, acting through its corporate
trust office at 450 West 33rd Street, New York, New York 10001.
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto (unless such Note is to be sold
at 100% of its principal amount), the interest rate or interest rate formula,
ranking, maturity, currency or composite currency, principal amount and any
other terms on which each such Note will be issued.
As used herein, the following terms shall have the meanings set forth
below:
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in The City of New York and (i) with
respect to LIBOR Notes (as defined below), that is also a London Banking Day,
(ii) with respect to Notes denominated in a Specified Currency other than U.S.
dollars, Australian dollars or ECUs, in the principal financial center of the
country of the Specified Currency, (iii) with respect to Notes denominated in
Australian dollars, in Sydney and (iv) with respect to Notes denominated in
ECUs, that is not a non-ECU clearing day, as determined by the ECU Banking
Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in the
relevant Index Currency (as defined below) are transacted in the London
interbank market.
"Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the relevant
Indenture.
The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day.
Payment Currency
If the applicable Pricing Supplement provides for all or a portion of
payments of interest and principal on a non-U.S. dollar denominated Note to be
made, at the option of the holder of such Note, in U.S. dollars, conversion of
the Specified Currency into U.S. dollars will be based on the highest bid
quotation in The City of New York received by the Exchange Rate Agent at
approximately 11:00 A.M., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent unless the Exchange Rate
Agent is Morgan Stanley) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
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<PAGE>
amount of the Specified Currency payable to the holders of Notes and at which
the applicable dealer commits to execute a contract. If such bid quotations are
not available, payments will be made in the Specified Currency. All currency
exchange costs will be borne by the holders of Notes by deductions from such
payments.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date; provided, however, that if such Specified
Currency is replaced by a single European currency (expected to be named the
Euro), the payment of principal of, premium, if any, or interest on any Note
denominated in such currency shall be effected in the new single European
currency in conformity with legally applicable measures taken pursuant to, or by
virtue of, the treaty establishing the European Community (the "EC"), as amended
by the treaty on European Union (as so amended, the "Treaty"). Any payment made
under such circumstances in U.S. dollars (or, if applicable, such new single
European currency) where the required payment is in a Specified Currency other
than U.S. dollars will not constitute an Event of Default.
Special Provisions Relating to Notes Denominated in ECU
Valuation of the ECU
Subject to the provisions under "Payment in a Component Currency"
below, the value of the ECU, in which the Notes may be denominated or may be
payable, is equal to the value of the ECU that is from time to time used as the
unit of account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly and references to ECU in the
Notes shall thereafter be construed as references to the ECU as so changed. From
the start of the third stage of European monetary union, the value of the ECU as
against the currencies of member states participating in the third stage will be
irrevocably fixed and the ECU will become a currency in its own right, replacing
all or some of the currencies of the 15 member states of the EC (as of the date
of this Prospectus Supplement, such currencies include the Austrian shilling,
Belgian franc, Danish krone, Dutch guilder, Finnish markka, French franc, German
mark, Greek drachma, Irish pound, Italian lira, Luxembourg franc, Portuguese
escudo, Spanish peseta, Swedish krona and pound sterling). Such new single
European currency is expected to be named the Euro. Once the ECU becomes a
currency in its own right in accordance with the Treaty, all references to ECU
in the Notes shall be construed as references to such currency.
Payment in a Component Currency
With respect to each due date for the payment of principal of, or
interest on, the Notes on or after the first business day in Brussels on which
the ECU ceases to be used as the unit of account of the EC and has not become a
currency in its own right replacing all or some of the currencies of the member
states of the EC, the Company shall choose a substitute currency (the "Chosen
Currency"), which may be any currency which was, on the last day on which the
ECU was used as the unit of account of the EC, a component currency of the ECU
or U.S. dollars, in which all payments due on or after that date with respect to
the Notes and coupons shall be made. Notice of the Chosen Currency so selected
shall, where practicable, be published in the manner described in "Notices"
below. The amount of each payment in such Chosen Currency shall be computed on
the basis of the equivalent of the ECU in that currency, determined as described
below, as of the fourth business day in Brussels prior to the date on which such
payment is due.
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On the first business day in Brussels on which the ECU ceases to be
used as the unit of account of the EC and has not become a currency in its own
right replacing all or some of the currencies of the member states of the EC,
the Company shall select a Chosen Currency in which all payments with respect to
Notes and coupons having a due date prior thereto but not yet presented for
payment are to be made. Notice of the Chosen Currency so selected shall, where
practicable, be published in the manner described in "Notices" below. The amount
of each payment in such Chosen Currency shall be computed on the basis of the
equivalent of the ECU in that currency, determined as described below, as of
such first business day.
The equivalent of the ECU in the relevant Chosen Currency as of any
date (the "Day of Valuation") shall be determined by, or on behalf of, the
Exchange Rate Agent on the following basis. The amounts and components composing
the ECU for this purpose (the "Components") shall be the amounts and components
that composed the ECU as of the last date on which the ECU was used as the unit
of account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S. dollar equivalent of the Components in the
Chosen Currency as set forth below, calculating the equivalent in the Chosen
Currency of such aggregate amount in U.S. dollars.
The U.S. dollar equivalent of each of the Components shall be
determined by, or on behalf of, the Exchange Rate Agent on the basis of the
middle spot delivery quotations prevailing at 2:30 P.M., Brussels time, on the
Day of Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from
one or more major banks, as selected by the Company, in the country of issue of
the component currency in question.
If for any reason no direct quotations are available for a Component as
of a Day of Valuation from any of the banks selected for this purpose, in
computing the U.S. dollar equivalent of such Component, the Exchange Rate Agent
shall (except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 P.M.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the Company, in
a country other than the country of issue of such component currency.
Notwithstanding the foregoing, the Exchange Rate Agent shall determine the U.S.
dollar equivalent of such Component on the basis of such cross rates if the
Company or such agent judges that the equivalent so calculated is more
representative than the U.S. dollar equivalent calculated as provided in the
first sentence of this paragraph. Unless otherwise specified by the Company, if
there is more than one market for dealing in any component currency by reason of
foreign exchange regulations or for any other reason, the market to be referred
to in respect of such currency shall be that upon which a nonresident issuer of
securities denominated in such currency would purchase such currency in order to
make payments in respect of such securities.
Payments in the Chosen Currency will be made at the specified office of
a paying agent in the country of the Chosen Currency or, if none, or at the
option of the holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the holder with, a
bank in the principal financial center of the country of the Chosen Currency.
All determinations referred to above made by, or on behalf of, the
Company or by, or on behalf of, the Exchange Rate Agent shall be at such
entity's sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes and coupons.
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Notes Denominated in the Currencies of EC Member States
If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by a new single European currency (expected to
be named the Euro), the payment of principal of, premium, if any, or interest
on, the Notes denominated in such currencies shall be effected in the new single
European currency in conformity with legally applicable measures taken pursuant
to, or by virtue of, the Treaty.
Interest and Principal Payments
Interest will be payable to the person in whose name the Note is
registered at the close of business on the applicable Record Date; provided that
the interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date. See "United States Federal
Taxation -- Discount Notes" below.
U.S. dollar payments of interest, other than interest payable at
maturity (or on the date of redemption or repayment, if a Note is redeemed or
repaid by the Company prior to maturity), will be made by check mailed to the
address of the person entitled thereto as shown on the Note register. U.S.
dollar payments of principal, premium, if any, and interest upon maturity,
redemption or repayment will be made in immediately available funds against
presentation and surrender of the Note. Notwithstanding the foregoing, (a) the
Depositary (as defined below), as holder of Book-Entry Notes, shall be entitled
to receive payments of interest by wire transfer of immediately available funds
and (b) a holder of $10,000,000 (or the equivalent) or more in aggregate
principal amount of Certificated Notes having the same Interest Payment Date
shall be entitled to receive payments of interest by wire transfer of
immediately available funds upon written request to the Paying Agent not later
than 15 calendar days prior to the applicable Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Book-Entry Notes denominated in a Specified Currency
electing to receive payments of principal or any premium or interest in a
currency other than U.S. dollars must notify the participant through which its
interest is held on or prior to the applicable Record Date, in the case of a
payment of interest, and on or prior to the sixteenth day prior to maturity (or
the date of redemption or repayment if a Note is redeemed or repaid prior to
maturity), in the case of principal or premium of such beneficial owner's
election to receive all or a portion of such payment in a Specified Currency.
Such participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date, in the case of a payment of interest,
and on or prior to the twelfth Business Day prior to maturity (or the date of
redemption or repayment if a Note is redeemed or repaid prior to maturity) in
the case of a payment of principal or premium. The Depositary will notify the
Paying Agent of such election on or prior to the fifth Business Day after such
Record Date, in the case of a payment of interest, and on or prior to the tenth
Business Day prior to maturity (or the date of redemption or repayment if a Note
is redeemed or repaid prior to maturity) in the case of a payment of principal
or premium. If complete instructions are received by the participant and
forwarded by the participant to the Depositary, and by the Depositary to the
Paying Agent, on or prior to such dates, the beneficial owner will receive
payments in the Specified Currency by wire transfer of immediately available
funds to an account maintained by the payee with a bank located outside the
United States; otherwise the beneficial owner will receive payments in U.S.
dollars.
Certain Notes, including Original Issue Discount Notes, may be
considered to be issued with original issue discount, which must be included in
income for United States federal income tax purposes at a constant yield. See
"United States Federal Taxation -- Discount Notes" below. Unless otherwise
specified in the applicable Pricing Supplement, if the principal of any Original
Issue Discount Note is declared to be due and payable immediately as described
under "Description of Debt Securities -- Events of Default" in the Prospectus,
the amount of principal
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due and payable with respect to such Note shall be limited to the aggregate
principal amount of such Note multiplied by the sum of its Issue Price
(expressed as a percentage of the aggregate principal amount) plus the original
issue discount amortized from the date of issue to the date of declaration,
which amortization shall be calculated using the "interest method" (computed in
accordance with generally accepted accounting principles in effect on the date
of declaration). Special considerations applicable to any such Notes will be set
forth in the applicable Pricing Supplement.
Fixed Rate Notes
Each Fixed Rate Note will bear interest from the date of issuance at
the annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually on each March 1 and September 1 and at maturity or upon any
earlier redemption or repayment. Payments of principal and interest on
Amortizing Notes, which are securities on which payments of principal and
interest are made in equal installments over the life of the security, will be
made either quarterly on each March 1, June 1, September 1 and December 1 or
semiannually on each March 1 and September 1, as set forth in the applicable
Pricing Supplement, and at maturity or upon any earlier redemption or repayment.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each
Amortizing Note will be provided to the original purchaser and will be
available, upon request made to the Company, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note would fall on a
day that is not a Business Day, the interest payment shall be postponed to the
next day that is a Business Day, and no interest on such payment shall accrue
for the period from and after the Interest Payment Date. If the maturity date
(or date of redemption or repayment) of any Fixed Rate Note would fall on a day
that is not a Business Day, the payment of interest and principal (and premium,
if any) may be made on the next succeeding Business Day, and no interest on such
payment shall accrue for the period from and after the maturity date (or date of
redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest
from and including the date of issue or from and including the last date in
respect of which interest has been paid, as the case may be, to, but excluding,
the Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
Floating Rate Notes
Each Floating Rate Note will bear interest from the date of issuance
until the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base Rate"),
which may be adjusted by a Spread and/or Spread Multiplier (each as defined
below). The applicable Pricing Supplement will designate one or more of the
following Base Rates as applicable to each Floating Rate Note: (a) the CD Rate
(a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (c) the Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a
"LIBOR Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate
(a "Treasury Rate Note"), (g) the Constant-Maturity Treasury Rate (a "CMT Rate
Note") or (h) such other Base Rate or interest rate formula as is set forth in
such Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for
any Floating Rate Note is the period of maturity of the instrument or obligation
from which the Base Rate is calculated and will be specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii)
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multiplied by the Spread Multiplier, if any. The "Spread" is the number of basis
points (one one-hundredth of a percentage point) specified in the applicable
Pricing Supplement to be added to or subtracted from the Base Rate for such
Floating Rate Note, and the "Spread Multiplier" is the percentage specified in
the applicable Pricing Supplement to be applied to the Base Rate for such
Floating Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note
may also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate
of interest that may accrue during any interest period ("Minimum Interest
Rate"). In addition to any Maximum Interest Rate that may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on a
Floating Rate Note will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of general
application. Under current New York law, the maximum rate of interest, subject
to certain exceptions, for any loan in an amount less than $250,000 is 16% and
for any loan in the amount of $250,000 or more but less than $2,500,000 is 25%
per annum on a simple interest basis. These limits do not apply to loans of
$2,500,000 or more.
Unless otherwise specified in the applicable Pricing Supplement, the
rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. The determination of the rate of interest at which a Floating Rate
Note will be reset on any Interest Reset Date will be made on the Interest
Determination Date (as defined below) pertaining to such Interest Reset Date.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of March, June, September and December; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, if any Interest
Payment Date (other than the maturity date or any earlier redemption or
repayment date) for any Floating Rate Note would fall on a day that is not a
Business Day with respect to such Floating Rate Note, such Interest Payment Date
will be the following day that is a Business Day with respect to such Floating
Rate Note, except that, in the case of a LIBOR Note, if such Business Day is in
the next succeeding calendar month, such Interest Payment Date shall be the
immediately preceding day that is a Business
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Day with respect to such LIBOR Note. If the maturity date or any earlier
redemption or repayment date of a Floating Rate Note would fall on a day that is
not a Business Day, the payment of principal, premium, if any, and interest will
be made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after such maturity, redemption or
repayment date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement,
interest payments for Floating Rate Notes shall be the amount of interest
accrued from and including the date of issue or from and including the last date
to which interest has been paid to, but excluding, the Interest Payment Date or
maturity date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be
calculated by multiplying the principal amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor will be computed by adding
the interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, and all dollar amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent, with one-half cent rounded upward. The interest rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
The interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
The applicable Pricing Supplement shall specify a calculation agent
(the "Calculation Agent") with respect to any issue of Floating Rate Notes. Upon
the request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date
for CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, Prime
Rate Notes and CMT Rate Notes will be the second Business Day next preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a LIBOR Note will be the second London Banking Day
preceding such Interest Reset Date, except that the Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note for which the Index
Currency is pounds sterling will be such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, but such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction falls on a day that is an Interest Reset Date,
such Interest Reset Date will be the next following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
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CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date, the rate on such
date for negotiable certificates of deposit having the Index Maturity designated
in the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "CD Rate" in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published by 9:00 A.M.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination Date of three leading dealers of commercial paper
in The City of New York selected by the Calculation Agent for commercial paper
of the specified Index Maturity, placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized rating agency;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting offered rates as mentioned in this sentence, the
Commercial Paper Rate in effect for the applicable period will be the same as
the Commercial Paper Rate for the immediately preceding Interest Reset Period
(or, if there was no such Interest Reset Period, the rate of interest payable on
the
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Commercial Paper Rate Notes for which such Commercial Paper Rate is being
determined shall be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D x 360 x 100
------------------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Index Maturity.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 11:00 A.M., New York City time, on such Interest Determination
Date, arranged by three leading brokers of Federal funds transactions in The
City of New York selected by the Calculation Agent; provided, however, that if
the brokers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "Federal Funds Rate" in effect for the applicable period
will be the same as the Federal Funds Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Federal Funds Rate Notes for which such Federal Funds
Rate is being determined shall be the Initial Interest Rate).
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" for each Interest Determination Date will be determined by the
Calculation Agent as follows:
(i) As of the Interest Determination Date, the Calculation
Agent will determine (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the arithmetic mean of the offered rates
(unless the specified Designated LIBOR Page (as defined below) by its
terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency for the period of the
Index Maturity, each as designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, which appear on the
Designated LIBOR Page at approximately 11:00 A.M., London time, on such
Interest Determination Date, if at least two such offered rates appear
(unless, as aforesaid, only a single rate is required) on such
Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement, the rate for deposits in the Index
Currency for the period of the Index Maturity, each as designated in
the
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applicable Pricing Supplement, commencing on the second London Banking
Day following such Interest Determination Date (or, if pounds sterling
is the Index Currency, commencing on such Interest Determination Date),
that appears on the Designated LIBOR Page at approximately 11:00 A.M.,
London time, on such Interest Determination Date. If fewer than two
offered rates appear (if "LIBOR Reuters" is specified in the applicable
Pricing Supplement and calculation of LIBOR is based on the arithmetic
mean of the offered rates), or if no rate appears (if the applicable
Pricing Supplement specifies either (x) "LIBOR Reuters" and the
Designated LIBOR Page by its terms provides only for a single rate or
(y) "LIBOR Telerate"), LIBOR in respect of that Interest Determination
Date will be determined as if the parties had specified the rate
described in (ii) below.
(ii) With respect to an Interest Determination Date on which
fewer than two offered rates appear (if "LIBOR Reuters" is specified in
the applicable Pricing Supplement and calculation of LIBOR is based on
the arithmetic mean of the offered rates) or no rate appears (if the
applicable Pricing Supplement specifies either (x) "LIBOR Reuters" and
the Designated LIBOR Page by its terms provides only for a single rate
or (y) "LIBOR Telerate"), the Calculation Agent will request the
principal London offices of each of four major reference banks in the
London interbank market, as selected by the Calculation Agent (after
consultation with the Company), to provide the Calculation Agent with
its offered quotations for deposits in the Index Currency for the
period of the specified Index Maturity, commencing on the second London
Banking Day immediately following such Interest Determination Date (or,
if pounds sterling is the Index Currency, commencing on such Interest
Determination Date), to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination
Date and in a principal amount equal to an amount of not less than $1
million (or the equivalent in the Index Currency, if the Index Currency
is not the U.S. dollar) that is representative of a single transaction
in such Index Currency in such market at such time. If at least two
such quotations are provided, LIBOR determined on such Interest
Determination Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR determined on such
Interest Determination Date will be the arithmetic mean of rates quoted
at approximately 11:00 A.M. (or such other time specified in the
applicable Pricing Supplement), in the applicable principal financial
center for the country of the Index Currency on such Interest
Determination Date, by three major banks in such principal financial
center selected by the Calculation Agent (after consultation with the
Company) on such Interest Determination Date for loans in the Index
Currency to leading European banks, for the period of the specified
Index Maturity commencing on the second London Banking Day immediately
following such Interest Determination Date (or, if pounds sterling is
the Index Currency, commencing on such Interest Determination Date) and
in a principal amount of not less than $1 million (or the equivalent in
the Index Currency, if the Index Currency is not the U.S. dollar) that
is representative of a single transaction in such Index Currency in
such market at such time; provided, however, that if the banks selected
as aforesaid by the Calculation Agent are not quoting rates as
mentioned in this sentence, "LIBOR" for such Interest Reset Period will
be the same as LIBOR for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the LIBOR Notes for which LIBOR is being determined
shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
designated in the applicable Pricing Supplement, the display on the Reuters
Monitor Money Rates Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency, or (b) if "LIBOR
Telerate" is designated in the applicable Pricing Supplement, the display on the
Dow Jones Telerate Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency. If neither LIBOR Reuters
nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for
the applicable Index Currency will be determined as if LIBOR Telerate (and, if
the U.S. dollar is the Index Currency, Page 3750) had been specified.
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Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 Page (as defined
below) as such bank's prime rate or base lending rate as in effect for such
Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 Page for such Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting rates as set forth above, the "Prime Rate" in effect for such Interest
Reset Period will be the same as the Prime Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Prime Rate Notes for which such Prime Rate is being
determined shall be the Initial Interest Rate). "Reuters Screen USPRIME1 Page"
means the display designated as Page "USPRIME1" on the Reuters Monitor Money
Rates Service (or such other page as may replace the USPRIME1 Page on that
service for the purpose of displaying prime rates or base lending rates of major
United States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no such auction is held on such
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on such
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent
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are not quoting bid rates as mentioned in this sentence, the "Treasury Rate" for
such Interest Reset Date will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Treasury Rate Notes for which
the Treasury Rate is being determined shall be the Initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Determination Date, the rate displayed
for the Index Maturity designated in such CMT Rate Note on the Designated CMT
Telerate Page (as defined below) under the caption "... Treasury Constant
Maturities ... Federal Reserve Board Release H.15 " under the column for the
Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT
Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week or the month, as applicable,
ended immediately preceding the week in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or if not published by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to the related Interest Reset Date as may then
be published by either the Board of Governors of the Federal Reserve System or
the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agent or its affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent, after consultation with the Company, and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury notes with an original maturity of the number of years that is the next
highest to the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index and in an amount of at least
$100,000,000. If three or four (and not five) of such Reference Dealers are
quoting as described above, then the CMT Rate will be based on the arithmetic
mean of the offer prices obtained and neither the highest nor the lowest of such
quotes will be eliminated; provided, however, that if fewer than three Reference
Dealers selected by the Calculation Agent are quoting as described herein, the
CMT Rate for such Interest Reset Date will be the same as the CMT Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the CMT Rate Notes for which the
CMT Rate is being determined shall be the Initial Interest Rate). If two
Treasury notes with an
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original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the quotes
for the Treasury note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service on the page designated in an applicable Pricing Supplement (or
any other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to
maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30
years) specified in an applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
Renewable Notes
The Company may also issue from time to time variable rate renewable
notes (the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement. Renewable Notes are Book-Entry Floating Rate Notes.
The Renewable Notes will mature on an Interest Payment Date as
specified in the applicable Pricing Supplement (the "Initial Maturity Date"),
unless the maturity of all or any portion of the principal amount thereof is
extended in accordance with the procedures described below. On the Interest
Payment Dates in March and September in each year (unless different Interest
Payment Dates are specified in the applicable Pricing Supplement) (each such
Interest Payment Date, an "Election Date"), the maturity of the Renewable Notes
will be extended to the Interest Payment Date occurring twelve months after such
Election Date (unless a different extension period is specified in the
applicable Pricing Supplement), unless the holder thereof elects to terminate
the automatic extension of the maturity of the Renewable Notes or of any portion
thereof having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof by delivering a notice to such effect to the Paying Agent not less than
nor more than a number of days to be specified in the applicable Pricing
Supplement prior to such Election Date. Such option may be exercised with
respect to less than the entire principal amount of the Renewable Notes;
provided that the principal amount for which such option is not exercised is at
least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not be
extended beyond the Final Maturity Date, as specified in the applicable Pricing
Supplement (the "Final Maturity Date"). If the holder elects to terminate the
automatic extension of the maturity of any portion of the principal amount of
the Renewable Notes and such election is not revoked as described below, such
portion will become due and payable on the Interest Payment Date falling six
months (unless another period is specified in the applicable Pricing Supplement)
after the Election Date prior to which the holder made such election.
Unless otherwise specified in the applicable Pricing Supplement, an
election to terminate the automatic extension of maturity may be revoked as to
any portion of the Renewable Notes having a principal amount of $1,000 or any
multiple of $1,000 in excess thereof by delivering a notice to such effect to
the Paying Agent on any day following the effective date of the election to
terminate the automatic extension of maturity and prior to the date 15 days
before the date on which such portion would otherwise mature. Such a revocation
may be made for less than the entire principal amount of the Renewable Notes for
which the automatic extension of maturity has been terminated; provided that the
principal amount of the Renewable Notes for which the automatic extension of
maturity has been terminated and for which such a revocation has not been made
is at least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, a revocation may not be made during the period
from and including a Record Date to but excluding the immediately succeeding
Interest Payment Date.
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An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option
of the Company on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price of 100% of
the principal amount of the Renewable Notes to be redeemed, together with
accrued and unpaid interest to the date of redemption. Notwithstanding anything
to the contrary in this Prospectus Supplement, notice of redemption will be
provided by mailing a notice of such redemption to each holder by first-class
mail, postage prepaid, at least 180 days and not more than 210 days prior to the
date fixed for redemption.
Renewable Notes may also be issued, from time to time, with the Spread
or Spread Multiplier to be reset by a remarketing agent in remarketing
procedures (the "Remarketing Procedures") to be specified in such Renewable
Notes and in the applicable Pricing Supplement. A description of the Remarketing
Procedures, the terms of the remarketing agreement between the Company and the
remarketing agent and the terms of any additional agreements with other parties
that may be involved in the Remarketing Procedures will be set forth in the
applicable Pricing Supplement.
Exchangeable Notes
Notes may be issued, from time to time, that are optionally or
mandatorily exchangeable into the securities of an entity unaffiliated with the
Company, into a basket of such securities, into an index or indices of such
securities or into any combination of the above, as may be set forth in the
applicable Pricing Supplement (the "Exchangeable Notes"). The Exchangeable Notes
may or may not bear interest or be issued with original issue discount or at a
premium.
Unless otherwise specified in the applicable Pricing Supplement,
optionally Exchangeable Notes (the "Optionally Exchangeable Notes") will entitle
the holder of such a Note, during a period, or at specific times, to exchange
such Note for the underlying security, basket of securities or index or indices
of securities (or combination thereof) at a specified rate of exchange. If so
specified in the applicable Pricing Supplement, Optionally Exchangeable Notes
will be redeemable at the option of the Company prior to maturity. If the holder
of an Optionally Exchangeable Note does not elect to exchange such Note prior to
maturity or any applicable redemption date, such holder will receive the
principal amount of such Note.
Unless otherwise specified in the applicable Pricing Supplement,
mandatorily Exchangeable Notes (the "Mandatorily Exchangeable Notes") do not
entitle the holder of such a Note to exchange such Note prior to maturity; at
maturity, the holder is required to exchange such Note for the underlying
security, basket of securities or index or indices of securities (or combination
thereof) at a specified rate of exchange, and, therefore, the holder of a
Mandatorily Exchangeable Note may receive less than the principal amount of such
Note at maturity. If so indicated in the applicable Pricing Supplement, the
specified rate at which a Mandatorily Exchangeable Note may be exchanged may
vary depending on the value of the underlying security, basket of securities or
index or indices (or combination thereof) so that, upon exchange, the holder
participates in a percentage, which may be less than, equal to, or greater than
100% of the change in value of the underlying security, basket of securities or
index or indices (or combination thereof).
Upon exchange, at maturity or otherwise, the holder of an Exchangeable
Note may receive, at the specified exchange rate, either the underlying security
or the securities constituting the relevant basket or index or indices at the
specified exchange rate or the cash value of such underlying security or
securities, as may be specified in the applicable Pricing Supplement. The
underlying security or securities constituting any basket, index or indices may
be the securities of either U.S. or foreign entities or both, and the
Exchangeable Notes may or may not provide for protection against fluctuations in
the rate of currency exchange between the currency in which such Note is
denominated and the currency or currencies in which the market prices of such
underlying security or securities are
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quoted, as may be specified in the applicable Pricing Supplement. Exchangeable
Notes may have other terms, which will be specified in the applicable Pricing
Supplement.
If an Optionally Exchangeable Note is represented by a Registered
Global Security, the Depositary's nominee will be the holder of such Note or any
interest therein and therefore will be the only entity that can exercise a right
to exchange. In order to ensure that the Depositary's nominee will timely
exercise a right to exchange with respect to a particular Note or any portion
thereof, the beneficial owner of such Note must instruct the broker or other
direct or indirect participant through which it holds an interest in such Note
to notify the Depositary of its desire to exercise a right to exchange.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline for such an instruction in order for
timely notice to be delivered to the Depositary.
Payments upon Acceleration of Maturity
If the principal amount payable at maturity of any Exchangeable Note is
declared due and payable prior to maturity, the amount payable with respect to
(i) an Optionally Exchangeable Note will equal the face amount of such Note plus
accrued interest, if any, to but excluding the date of payment and (ii) a
Mandatorily Exchangeable Note will equal an amount determined as if the date of
such declaration were the maturity date plus accrued interest, if any, to but
excluding the date of payment.
Currency Linked Notes
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to the value of one or more
currencies (or composite currencies) as compared to the value of one or more
other currencies (or composite currencies) ("Currency Linked Notes").
Information as to the one or more currencies (or composite currencies) to which
the principal amount payable on any principal payment date or the amount of
interest payable on any interest payment date is indexed, the currency in which
the face amount of the Currency Linked Note is denominated (the "Denominated
Currency"), the currency in which principal on the Currency Linked Note will be
paid (the "Payment Currency"), specific historic exchange rate information, any
currency risks relating to the specific currencies selected, and certain
additional tax considerations, if any, will be set forth in the applicable
Pricing Supplement. The Denominated Currency and the Payment Currency may be the
same currency or different currencies. Unless otherwise specified in the
applicable Pricing Supplement, interest on Currency Linked Notes will be paid in
the Denominated Currency based on the face amount of the Currency Linked Note at
the rate per annum and on the dates set forth in the applicable Pricing
Supplement. Currency Linked Notes may include, but are not limited to, Notes of
the types described below.
Principal Exchange Rate Linked Securities (PERLS)
PERLS are Currency Linked Notes pursuant to which the principal amount
payable on any principal payment date equals the Payment Currency equivalent at
such date of a fixed amount of a designated currency (or composite currency)
(the "Indexed Currency"). Generally, the fixed amount of Indexed Currency to
which the principal of a PERLS will be linked will be approximately equal in
value to the face amount of the PERLS in the Denominated Currency based on the
exchange rate between the Indexed Currency and the Denominated Currency in
effect at the time of pricing. The Denominated Currency, the Indexed Currency
and the Payment Currency will be identified in the applicable Pricing
Supplement. In addition, the fixed amount of the Indexed Currency to which the
principal of the PERLS is linked will be set forth in the applicable Pricing
Supplement for a specific representative face amount of the PERLS as well as for
the aggregate face amount of all PERLS forming part of the same issue (the
"Conversion Reference Amount").
Holders of PERLS may receive an amount of principal greater than, less
than or equal in value to the face amount of the PERLS, depending on the change,
if any, in the relative exchange rates of the Denominated
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Currency, the Payment Currency and the Indexed Currency from the issue date to
the date that is two Exchange Rate Days (as defined below) preceding the
maturity date.
The Payment Currency equivalent of any Indexed Currency amount on any
date will be determined by an exchange rate agent (identified in the applicable
Pricing Supplement) based on the arithmetic mean of the quotations obtained by
such agent from reference dealers (identified in the applicable Pricing
Supplement) at 11:00 A.M., New York City time, on the second Exchange Rate Day
preceding such date for the purchase by the reference dealers of the Conversion
Reference Amount of the Indexed Currency with the Payment Currency for
settlement on such date; provided that if there is no cross-exchange rate
available in New York City between the Indexed Currency and the Payment
Currency, the quotations will be calculated by the exchange rate agent at the
time referred to above using the U.S. dollar equivalent of the Indexed Currency
and the Payment Currency as the basis for comparing the values of such
currencies; and provided further that if the Payment Currency and the Indexed
Currency are identical, then the Payment Currency equivalent of any Indexed
Currency amount will be such amount.
"Exchange Rate Day" means, with respect to any currency conversion, any
day other than a Saturday or Sunday or a day on which banking institutions in
New York City are authorized or required by law or executive order to close and
that is a business day in each of the cities designated in the Pricing
Supplement for the currencies being converted and, in the case of conversions
involving ECUs, that is not a non-ECU clearing day, as determined by the ECU
Banking Association in Paris.
Reverse Principal Exchange Rate Linked Securities (Reverse PERLS)
Reverse PERLS are Currency Linked Notes pursuant to which the principal
amount payable on any principal payment date equals the Payment Currency
equivalent at such date of a fixed amount of a designated currency (or composite
currency) (the "First Indexed Currency") minus the Payment Currency equivalent
at maturity of a fixed amount of another designated currency (or composite
currency) (the "Second Indexed Currency"); provided that the minimum principal
amount payable at maturity will be zero. Generally, the fixed amount of the
First Indexed Currency to which the principal of a Reverse PERLS will be linked
will be approximately equal in value to twice the face amount of the Reverse
PERLS in the Denominated Currency, and the fixed amount of the Second Indexed
Currency to which the principal of a Reverse PERLS will be linked will be
approximately equal in value to the face amount of the Reverse PERLS in the
Denominated Currency, in each case based on the exchange rate between each
Indexed Currency and the Denominated Currency in effect at the time of pricing.
Holders of Reverse PERLS may receive an amount of principal greater
than, less than (with a minimum of zero) or equal in value to the face amount of
the Reverse PERLS, depending on the change, if any, in the relative exchange
rates of the Denominated Currency, the Payment Currency and the First and Second
Indexed Currencies from the issue date to the date that is two Exchange Rate
Days preceding the maturity date.
The Denominated Currency, the First and Second Indexed Currencies and
the Payment Currency will be identified in the applicable Pricing Supplement. In
addition, the fixed amounts of the First and Second Indexed Currencies to which
the principal of the Reverse PERLS is linked will be set forth in the applicable
Pricing Supplement for a specific representative face amount of the Reverse
PERLS as well as for the aggregate face amount of all Reverse PERLS forming part
of the same issue (respectively, the "First Conversion Reference Amount" and the
"Second Conversion Reference Amount").
The Payment Currency equivalent of any First Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
First Conversion Reference Amount of the First Indexed Currency with the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the First Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange
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rate agent at the time referred to above using the U.S. dollar equivalent of the
First Indexed Currency and the Payment Currency as the basis for comparing the
values of such currencies; provided further that if the First Indexed Currency
and the Payment Currency are identical, then the Payment Currency equivalent of
any First Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Second Indexed Currency amount
on any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from the reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the sale by the reference dealers of the Second
Conversion Reference Amount of the Second Indexed Currency for the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Second Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Second Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Second
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Second Indexed Currency amount will be such amount.
Multicurrency Principal Exchange Rate Linked Securities
(Multicurrency PERLS)
Multicurrency PERLS are Currency Linked Notes pursuant to which the
principal amount payable on any principal payment date equals the Payment
Currency equivalent at such date of a fixed amount of a designated currency (or
composite currency) (the "First Indexed Currency") plus or minus the Payment
Currency equivalent at maturity of a fixed amount of a second designated
currency (or composite currency) (the "Second Indexed Currency") plus or minus
the Payment Currency equivalent at maturity of a fixed amount of a third
designated currency (or composite currency) (the "Third Indexed Currency");
provided that the minimum principal amount payable at maturity will be zero.
Generally, the added and subtracted fixed amounts of the First, Second and Third
Indexed Currencies (each, an "Indexed Currency") to which the principal of a
Multicurrency PERLS will be linked will have an aggregate value approximately
equal to the face amount of the Multicurrency PERLS in the Denominated Currency
based on exchange rates between each Indexed Currency and the Denominated
Currency in effect at the time of pricing.
Holders of Multicurrency PERLS may receive an amount of principal
greater than, less than (with a minimum of zero) or equal in value to the face
amount of the Multicurrency PERLS, depending on the change, if any, in the
relative exchange rates for the Denominated Currency, the Payment Currency and
the First, Second and Third Indexed Currencies from the issue date to the date
that is two Exchange Rate Days preceding the maturity date.
The Denominated Currency, each Indexed Currency, the Payment Currency
and whether the fixed amounts of the Second and Third Indexed Currencies are to
be added or subtracted to determine the principal amount payable at maturity of
the Multicurrency PERLS will be set forth in the applicable Pricing Supplement.
In addition, the fixed amounts of the First, Second and Third Indexed Currencies
to which the principal of the Multicurrency PERLS is linked will be set forth in
the applicable Pricing Supplement for a specific representative face amount of
the Multicurrency PERLS as well as for the aggregate face amount of all
Multicurrency PERLS forming part of the same issue (respectively, the "First
Conversion Reference Amount," the "Second Conversion Reference Amount" and the
"Third Conversion Reference Amount," each a "Conversion Reference Amount"). As
used herein, "Added Indexed Currency" means the First Indexed Currency and any
other Indexed Currency that is added to determine the principal amount payable
at maturity of the Multicurrency PERLS and a "Subtracted Indexed Currency" means
an Indexed Currency that is subtracted to determine the principal amount payable
at maturity of the Multicurrency PERLS.
The Payment Currency equivalent of any Added Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the
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quotations obtained by such agent from reference dealers (identified in the
applicable Pricing Supplement) at 11:00 A.M., New York City time, on the second
Exchange Rate Day preceding such date for the purchase by the reference dealers
of the applicable Conversion Reference Amount of the Added Indexed Currency with
the Payment Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Added Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Added Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Added
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Added Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Subtracted Indexed Currency
amount on any date will be determined by an exchange rate agent (identified in
the applicable Pricing Supplement) based on the arithmetic mean of the
quotations obtained by such agent from reference dealers (identified in the
applicable Pricing Supplement) at 11:00 A.M., New York City time, on the second
Exchange Rate Day preceding such date for the sale by the reference dealers of
the applicable Conversion Reference Amount of the Subtracted Indexed Currency
for the Payment Currency, for settlement on such date; provided that if there is
no cross-exchange rate available in New York City between the Subtracted Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Subtracted Indexed Currency and the Payment Currency as the
basis for comparing the values of such currencies; provided further that if the
Subtracted Indexed Currency and the Payment Currency are identical, then the
Payment Currency equivalent of any Subtracted Indexed Currency amount will be
such amount.
Payments upon Acceleration of Maturity
If the principal amount payable at maturity of any PERLS, Reverse PERLS
or Multicurrency PERLS is declared due and payable prior to maturity, the amount
payable with respect to such Note will be paid in the Denominated Currency and
will equal the face amount of such Note plus accrued interest to but excluding
the date of payment.
Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or
Indices
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more commodity
prices, securities of entities unaffiliated with the Company, baskets of such
securities or indices and on such other terms as may be set forth in the
relevant Pricing Supplement.
An investment in such Notes or Currency Linked Notes entails
significant risks not associated with similar investments in a conventional debt
security. If the interest rate of such a Note or Currency Linked Note is so
indexed, it may result in an interest rate that is less than that payable on a
conventional fixed-rate debt security issued at the same time, including the
possibility that no interest will be paid, and, if the principal amount of such
a Note or Currency Linked Note is so indexed, the principal amount payable at
maturity may be less than the original purchase price of such Note (if permitted
pursuant to the terms of such Note) including the possibility that no principal
will be paid. The market values for such Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value of the
applicable currency, security or basket of securities, commodity or index,
including the volatility of the applicable currency, security or basket of
securities, commodity or index, the time remaining to the maturity of the Notes,
the outstanding principal amount of the Notes and market interest rates. The
value of the applicable currency, security or basket of securities, commodity or
index depends on a number of interrelated factors, including economic, financial
and political events, over which the Company has no control. Additionally, if
the formula used to determine the principal amount, premium, if any, or interest
payable with respect to such Notes contains a multiple or leverage factor, the
effect of any change in the applicable currency, security or basket of
securities, commodity or index may be increased. The historical experience of
the relevant currencies, securities or baskets of securities, commodities or
indices should not be taken as an indication
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of future performance of such currencies, securities or baskets of securities,
commodities or indices during the term of any Note.
Extension of Maturity
The Pricing Supplement relating to each Fixed Rate Note (other than an
Amortizing Note or a Currency Linked Note) will indicate whether the Company has
the option to extend the maturity of such Fixed Rate Note for one or more
periods of one or more whole years (each, an "Extension Period") up to but not
beyond the date (the "Final Maturity Date") set forth in such Pricing
Supplement. If the Company has such option with respect to any such Fixed Rate
Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Company may exercise such option with respect to an Extendible Note
by notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, first-class mail, postage prepaid, setting forth (a)
the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension
Period; and (d) the provisions, if any, for redemption during the Extension
Period, including the date or dates on which, the period or periods during which
and the price or prices at which such redemption may occur during the Extension
Period. Upon the mailing by the Paying Agent of an Extension Notice to the
holder of an Extendible Note, the maturity of such Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, such Note will have the same terms it had prior to the
mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate for the Extension Period
by causing the Paying Agent to send notice of such higher interest rate to the
holder of such Note by first-class mail, postage prepaid, or by such other means
as shall be agreed between the Company and the Paying Agent. Such notice shall
be irrevocable. All Extendible Notes with respect to which the Maturity Date is
extended in accordance with an Extension Notice will bear such higher interest
rate for the Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be so repaid on such Maturity Date, the holder thereof
must follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).
Book-Entry System
Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue
Date, interest rate, if any, amortization schedule, if any, ranking, maturity
date and other terms, if any, will be represented by a single Global Note, and
all Floating Rate Book-Entry Notes having the same Issue Date, Initial Interest
Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity,
Spread and/or Spread Multiplier, if any, Minimum Interest
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Rate, if any, Maximum Interest Rate, if any, ranking, maturity date and other
terms, if any, will be represented by a single Global Note. Each Global Note
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary"), and registered
in the name of a nominee of the Depositary. Certificated Notes will not be
exchangeable for Book-Entry Notes (or interests therein) and, except under the
circumstances described in the Prospectus under "Description of Debt Securities
- -- Registered Global Securities," Book-Entry Notes (or interests therein) will
not be exchangeable for Certificated Notes and will not otherwise be issuable as
Certificated Notes.
A further description of the Depositary's procedures with respect to
Global Notes representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Global Securities." The Depositary has
confirmed to the Company, the Agent and each Trustee that it intends to follow
such procedures.
Optional Redemption
If applicable, the Pricing Supplement will indicate the terms on which
the Notes will be redeemable at the option of the Company. Notice of redemption
will be provided by mailing a notice of such redemption to each holder by
first-class mail, postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to the respective address of each holder
as that address appears upon the books maintained by the Paying Agent. The
Notes, except for Amortizing Notes, will not be subject to any sinking fund.
Repayment at the Noteholders' Option; Repurchase
If applicable, the Pricing Supplement relating to each Note will
indicate that the Note will be repayable at the option of the holder on a date
or dates specified prior to its maturity date and, unless otherwise specified in
such Pricing Supplement, at a price equal to 100% of the principal amount
thereof, together with accrued interest to the date of repayment, unless such
Note was issued with original issue discount, in which case the Pricing
Supplement will specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Paying Agent must receive at
least 15 days but not more than 30 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" on the reverse of the Note
duly completed or (ii) a telegram, telex, facsimile transmission or a letter
from a member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of such telegram, telex, facsimile transmission or letter; provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if such Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
authorized denomination.
If a Note is represented by a Registered Global Security, the
Depositary's nominee will be the holder of such Note and therefore will be the
only entity that can exercise a right to repayment. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
other direct or indirect participant through which it holds an interest in such
Note to notify the Depositary of its desire to exercise a right to repayment.
Different firms have different cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other direct or indirect participant through which it holds an
interest in a Note in order to ascertain
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the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to the Depositary.
The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the relevant Trustee for
cancellation.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in Notes that are denominated in, or the payment of which
is related to the value of, a Specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and the various foreign currencies (or composite currencies) and the
possibility of the imposition or modification of exchange controls by either the
U.S. or foreign governments. Such risks generally depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between U.S. dollars and certain foreign currencies have been highly
volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations in such rate that may occur
during the term of any Note. Depreciation against the U.S. dollar of the
currency in which a Note is payable would result in a decrease in the effective
yield of such Note below its coupon rate and, in certain circumstances, could
result in a loss to the investor on a U.S. dollar basis. In addition, depending
on the specific terms of a Currency Linked Note, changes in exchange rates
relating to any of the currencies involved may result in a decrease in its
effective yield and, in certain circumstances, could result in a loss of all or
a substantial portion of the principal of a Note to the investor.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN FINANCIAL AND LEGAL
ADVISORS AS TO ANY SPECIFIC RISKS ENTAILED BY AN INVESTMENT BY SUCH INVESTOR IN
NOTES DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF,
FOREIGN CURRENCY. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO
ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on the Notes. Such persons should consult their own counsel
with regard to such matters.
Foreign exchange rates can either float or be fixed by sovereign
governments. Exchange rates of most economically developed nations are permitted
to fluctuate in value relative to the U.S. dollar. National governments,
however, rarely voluntarily allow their currencies to float freely in response
to economic forces. From time to time governments use a variety of techniques,
such as intervention by a country's central bank or imposition of regulatory
controls or taxes, to affect the exchange rate of their currencies. Governments
may also issue a new currency to replace an existing currency or alter the
exchange rate or relative exchange characteristics by devaluation or revaluation
of a currency. Thus, a special risk in purchasing non-U.S. dollar denominated
Notes or Currency Linked Notes is that their U.S. dollar-equivalent yields could
be affected by governmental actions, which could change or interfere with
theretofore freely determined currency valuation, fluctuations in response to
other market forces, and the movement of currencies across borders. There will
be no adjustment or change in the terms of such Notes in the event that exchange
rates should become fixed, or in the event of any devaluation or revaluation or
imposition of exchange or other regulatory controls or taxes, or in the event of
other developments affecting the U.S. dollar or any applicable Specified
Currency.
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Governments have imposed from time to time, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a specified foreign currency at the time of payment of principal
of, premium, if any, or interest on a Note. Even if there are no actual exchange
controls, it is possible that the Specified Currency for any particular Note not
denominated in U.S. dollars would not be available when payments on such Note
are due, including as a result of the replacement of such Specified Currency by
a single European currency (expected to be named the Euro). In that event, the
Company would make required payments in U.S. dollars on the basis of the Market
Exchange Rate on the date of such payment, or if such rate of exchange is not
then available, on the basis of the Market Exchange Rate as of the most recent
practicable date; provided, however, that, if the Specified Currency is not
available because it has been replaced by a single European currency, the
Company would make such payments in the new single European currency in
conformity with legally applicable measures taken pursuant to, or by virtue of,
the Treaty. See "Description of Notes -- Payment Currency."
With respect to any Note denominated in, or the payment of which is
related to the value of, a foreign currency or currency unit, the applicable
Pricing Supplement will include information with respect to applicable current
exchange controls, if any, and historic exchange rate information on such
currency or currency unit. The information contained therein shall constitute a
part of this Prospectus Supplement and is furnished as a matter of information
only and should not be regarded as indicative of the range of or trends in
fluctuations in currency exchange rates that may occur in the future.
Governing Law and Judgments
The Notes will be governed by and construed in accordance with the laws
of the State of New York. If a court in the United States were to grant a
judgment in an action based on Notes denominated in a Specified Currency other
than U.S. dollars, it is likely that such court would grant judgment only in
U.S. dollars. If the court were a New York court, however, such court would
grant a judgment in the Specified Currency. Such judgment would then be
converted into U.S. dollars at the rate of exchange prevailing on the date of
entry of the judgment.
UNITED STATES FEDERAL TAXATION
In the opinion of Shearman & Sterling, counsel to the Company, the
following summary accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Notes. This summary
is based on the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"), and existing and proposed Treasury regulations, revenue rulings
and judicial decisions. This summary deals only with the Notes held as capital
assets within the meaning of Section 1221 of the Code. It does not discuss all
of the tax consequences that may be relevant to holders in light of their
particular circumstances or to holders subject to special rules, such as persons
other than United States Holders (as defined below), life insurance companies,
dealers in securities or foreign currencies, persons holding the Notes as part
of a hedging transaction, "straddle," conversion transaction, or other
integrated transaction, or United States Holders whose functional currency (as
defined in Section 985 of the Code) is not the United States dollar. Persons
considering the purchase of the Notes should consult with their own tax advisors
with regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences arising under the
laws of any state, local or foreign tax jurisdiction.
As used herein, the term "United States Holder" means a beneficial
owner of a Note that is for United States federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
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Payments of Interest on the Notes
Interest paid on a Note (whether in United States dollars or in other
than United States dollars), that is not a Discount Note, as defined below, will
generally 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 federal income tax purposes.
Special rules governing the treatment of interest paid with respect to
Discount Notes, including certain Notes that pay interest annually that are
issued less than 15 calendar days before an Interest Payment Date, Notes that
mature one year or less from their date of issuance and Notes issued for an
amount less than their stated redemption price at maturity, are described under
"Discount Notes" below.
Discount Notes
The following discussion is a summary of the principal United States
federal income tax consequences of the ownership and disposition of Discount
Notes (as defined below) by United States Holders. Additional rules applicable
to Discount Notes that are denominated in a Specified Currency other than the
U.S. dollar, or have payments of interest or principal determined by reference
to the value of one or more currencies or currency units other than the U.S.
dollar, are described under "Foreign Currency Notes" below.
A Note that has an "issue price" that is less than its "stated
redemption price at maturity" will generally be considered to have been issued
bearing original issue discount ("OID") for United States federal income tax
purposes (a "Discount Note"), unless such difference is less than a specified de
minimis amount. The issue price of a Note issued for cash generally will be the
initial offering price to the public at which price a substantial amount of
Notes is sold. Such issue price does not change even if part of the issue is
subsequently sold at a different price. The stated redemption price at maturity
of a Discount Note is the total of all payments required to be made under the
Discount Note other than "qualified stated interest" payments. The term
"qualified stated interest" is defined as stated interest that is
unconditionally payable at least annually at a single fixed rate of interest. In
addition, qualified stated interest generally includes stated interest with
respect to a variable rate debt instrument that is unconditionally payable at
least annually at a single qualified floating rate or a rate that is determined
using a single fixed formula that is based on one or more qualified floating
rates. A rate is a qualified floating rate if variations in the rate can
reasonably be expected to measure contemporaneous fluctuations in the cost of
newly borrowed funds.
No payment of interest on a Note that matures one year or less from its
date of issuance will be considered qualified stated interest and accordingly
such a Note will be treated as a Discount Note.
A United States Holder of Discount Notes is required to include
qualified stated interest in income at the time it is received or accrued, in
accordance with such holder's method of accounting.
In addition, United States Holders of Discount Notes that mature more
than one year from the date of issuance will be required to include OID in
income for United States federal income tax purposes as it accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income, but such
holders will not be required to include separately in income cash payments
received on such Notes, even if denominated as interest, to the extent they do
not constitute qualified stated interest. The amount of OID includible in income
for a taxable year by the initial United States Holder of a Discount Note will
generally equal the sum of the "daily portions" of the total OID on the Discount
Note for each day during the taxable year in which such holder held the Discount
Note ("accrued OID"). Generally, the daily portion of the OID is determined by
allocation to each day in any "accrual period" a ratable portion of the OID
allocable to such accrual period. The term "accrual period" means an interval of
time of one year or less; provided that each scheduled payment of principal or
interest either occurs on the final day of an accrual period or the first day of
an accrual period. The amount of OID allocable to an accrual period will be the
excess of (a) the product of the
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"adjusted issue price" of the Discount Note at the beginning of such accrual
period and its "yield to maturity" over (b) the amount of any qualified stated
interest allocable to the accrual period. The "adjusted issue price" of a
Discount Note at the beginning of an accrual period will equal the issue price
plus the amount of OID previously includible in the gross income of any United
States Holder (without reduction for any premium or amortized acquisition
premium, as described below), less any payments made on such Discount Note
(other than qualified stated interest) on or before the first day of the accrual
period. The "yield to maturity" of the Discount Note will be computed on the
basis of a constant annual interest rate and compounded at the end of each
accrual period. Under the foregoing rules, United States Holders of Discount
Notes will generally be required to include in income increasingly greater
amounts of OID in successive accrual periods. Special rules will apply for
calculating OID for initial short or final accrual periods.
Notes that pay interest annually that are issued less than 15 calendar
days before an Interest Payment Date may be treated as Discount Notes. United
States Holders intending to purchase such Notes should refer to the applicable
Pricing Supplement.
Certain of the Discount Notes may be redeemable prior to maturity at
the option of the Company (a "call option") and/or repayable prior to maturity
at the option of the holder (a "put option"). Discount Notes containing either
or both of such features may be subject to rules that differ from the general
rules discussed above. Holders intending to purchase Discount Notes with either
or both of such features should carefully examine the applicable Pricing
Supplement and should consult with their own tax advisors with respect to either
or both of such features since the tax consequences with respect to OID will
depend, in part, on the particular terms and the particular features of the
purchased Note.
In general, a United States Holder who uses the cash method of tax
accounting and who holds a Discount Note that matures one year or less from the
date of its issuance (a "short-term Discount Note") is not required to accrue
OID for United States federal income tax purposes unless such holder elects to
do so. United States Holders who report income for United States federal income
tax purposes on the accrual method and certain other holders, including banks
and dealers in securities, are required to include OID (or alternatively
acquisition discount) on such short-term Discount Notes on a straight-line
basis, unless an election is made to accrue the OID according to a constant
yield method based on daily compounding. In the case of a United States Holder
who is not required, and does not elect, to include OID in income currently, any
gain realized on the sale, exchange or retirement of a short-term Discount Note
will be ordinary interest income to the extent of the OID accrued on a
straight-line basis (or alternatively under the constant yield method) through
the date of sale, exchange or retirement. In addition, such non-electing United
States Holders who are not subject to the current inclusion requirement
described in the second sentence of this paragraph will be required to defer the
deduction of all or a portion of any interest paid on indebtedness incurred to
purchase short-term Discount Notes until such OID is included in such holder's
income.
If the amount of OID with respect to a Note is less than the specified
de minimis amount (generally, 0.0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity), the
amount of OID is treated as zero and all stated interest is treated as qualified
stated interest. A United States Holder will be required to treat any stated
principal payment on a Note as capital gain to the extent of the product of the
total amount of de minimis OID and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Note.
United States Holders are permitted to elect to include all interest on
a Note using the constant yield method. For this purpose, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules apply to elections made with
respect to Notes with amortizable bond premium or market discount and United
States Holders considering such an election should consult their own tax
advisors. The election cannot be revoked without the approval of the Internal
Revenue Service.
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Market Discount and Premium
If a United States Holder purchases a Note (other than a Discount Note)
for an amount that is less than its stated redemption price at maturity or, in
the case of a Discount Note, its adjusted issue price, the amount of the
difference will be treated as "market discount" for United States federal income
tax purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a United States Holder
will be required to treat any partial principal payment (or, in the case of a
Discount Note, any payment that does not constitute qualified stated interest)
on, or any gain realized on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount that has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. If such Note is disposed of in a
nontaxable transaction (other than a nonrecognition transaction described in
Code Section 1276(c)), the amount of gain realized on such disposition for
purposes of the market discount rules shall be determined as if such holder had
sold the Note at its then fair market value. Market discount will be considered
to accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the United States Holder elects to accrue on the basis
of a constant interest rate. A different rule may apply to Discount Notes or
Amortizing Notes under forthcoming regulations.
A United States Holder may be required to defer the deduction of all or
a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry such Note until the maturity of the Note or its
earlier disposition (except for certain nonrecognition transactions). A United
States Holder may elect to include market discount in income currently as it
accrues (on either a ratable or a constant interest rate basis), in which case
the rules described above regarding the treatment as ordinary income of gain
upon the disposition of the Note and upon the receipt of certain cash payments
and regarding the deferral of interest deductions will not apply.
A United States Holder who purchases a Discount Note for an amount that
is greater than its adjusted issue price, but less than or equal to the sum of
all amounts payable on the Note, after the purchase date (other than qualified
stated interest), will be considered to have purchased such Note at an
"acquisition premium" within the meaning of the Code. Under the acquisition
premium rules of the Code, the amount of OID which such holder must include in
its gross income with respect to such Note for any taxable year will be reduced
by a fraction the numerator of which is the excess of the cost of the Note over
its adjusted issue price and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date (other than qualified
stated interest) over the adjusted issue price.
A United States Holder who purchases a Discount Note for an amount that
is greater than the sum of all amounts payable on the Note after the purchase
date (other than qualified stated interest) will be considered to have purchased
such Note at a "premium" within the meaning of the OID Regulations. In such
case, the holder is not required to include any OID in gross income.
If a United States Holder purchases a Note for an amount that is
greater than the amount payable at maturity (or on the earlier call date, in the
case of a Note that is redeemable at the option of the Company), such holder
will be considered to have purchased such Note with "amortizable bond premium"
equal in amount to such excess, and may elect (in accordance with applicable
Code provisions) to amortize such premium, using a constant yield method over
the remaining term of the Note and to offset interest otherwise required to be
included in income in respect of such Note during any taxable year by the
amortized amount of such excess for such taxable year. However, if such Note may
be optionally redeemed after the United States Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization of some bond premium until
later in the term of such Note.
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Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis in the Note. A taxpayer's amount realized on the sale, exchange or
retirement of a Note will be reduced by any amount attributable to accrued
interest (or, in the case of a Discount Note, accrued qualified stated
interest), which will be taxable as such unless previously taken into account. A
United States Holder's adjusted tax basis in a Note generally will equal the
cost of the Note to such holder, increased by the amounts of any market
discount, OID and de minimis OID previously included in income by the holder
with respect to such Note and reduced by any amortized bond premium and any
principal payments received by the United States Holder and, in the case of a
Discount Note, by the amounts of any other payments that do not constitute
qualified stated interest.
Subject to the discussion under "Foreign Currency Notes" below, gain or
loss recognized on the sale, exchange or retirement of a Note will be capital
gain or loss (except to the extent of any accrued market discount or, in the
case of a short-term Discount Note, any accrued OID which the United States
Holder has not previously included in income), and will generally be long-term
capital gain or loss if at the time of sale, exchange or retirement the Note has
been held for more than one year.
A United States Holder generally will not recognize gain or loss upon
the election (or revocation of such election) or failure to elect to terminate
the automatic extension of maturity of a Renewable Note.
Foreign Currency Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Notes (other than the Currency Linked Notes described above) that
are denominated in a Specified Currency other than the U.S. dollar or the
payments of interest or principal on which are payable in one or more currencies
or currency units other than the U.S. dollar (a "Foreign Currency Note").
The rules discussed below will generally not apply to a United States
Holder that enters into a "qualified hedging transaction." A qualified hedging
transaction is an integrated economic transaction consisting of a qualifying
debt instrument, such as a Foreign Currency Note, and a "section 1.988-5(a)
hedge," as defined in section 1.988-5(a)(4) of the Treasury regulations.
Generally, such an integrated economic transaction, if identified as such by
either the United States Holder or the Service, is treated as a single
transaction for United States federal income tax purposes, the effect of which
is to treat such a holder as owning a synthetic debt instrument that is subject
to rules applicable to Discount Notes. The rules with respect to a qualified
hedging transaction are extremely complex and special rules may apply in certain
circumstances, and persons that are considering hedging the currency risk are
urged to consult with their own tax advisors with respect to the application of
these rules.
A United States Holder who uses the cash method of accounting and who
receives a payment of interest with respect to a Foreign Currency Note (other
than a Discount Note (except to the extent any qualified stated interest is
received) in which OID is accrued on a current basis) will be required to
include in income the U.S. dollar value of the foreign currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S. dollar
value will be the United States Holder's tax basis in the foreign currency.
A United States Holder (to the extent the above paragraph is not
applicable) will be required to include in income the U.S. dollar value of the
amount of interest income (including OID or market discount and reduced by
premium, acquisition premium and amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Foreign Currency Note during an accrual period. The U.S.
dollar value of such accrued income will be determined by translating such
income at the average rate of exchange for the accrual period or, with respect
to an accrual period that spans two taxable years, at the average
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rate for the partial period within the taxable year. The average rate of
exchange for the accrual period (or partial period) is the simple average of the
exchange rates for each business day of such period (or other method if such
method is reasonably derived and consistently applied). A United States Holder
may elect to determine the U.S. dollar value of such accrued income by
translating such income at the spot rate on the last day of the interest accrual
period (or, in the case of a partial accrual period, the spot rate on the last
day of the taxable year) or, if the date of receipt is within five business days
of the last day of the interest accrual period, the spot rate on the date of
receipt. Such United States Holder will recognize ordinary gain or loss with
respect to accrued interest income on the date such income is received. The
amount of ordinary gain or loss recognized will equal the difference between the
U.S. dollar value of the foreign currency payments received (determined on the
date such payment is received) in respect of such accrual period and the U.S.
dollar value of interest income that has accrued during such accrual period (as
determined above).
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Any gain or loss realized by a United States
Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase Foreign Currency Notes) will be
ordinary income or loss.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
such purchase or adjustment. A United States Holder who converts U.S. dollars to
a foreign currency and immediately uses that currency to purchase a Foreign
Currency Note denominated in the same currency ordinarily will not recognize
gain or loss in connection with such conversion and purchase. However, a United
States Holder who purchases a Foreign Currency Note with previously owned
foreign currency will recognize ordinary income or loss in an amount equal to
the difference, if any, between such holder's tax basis in the foreign currency
and the U.S. dollar fair market value of the Foreign Currency Note on the date
of purchase. For purposes of determining the amount of any gain or loss
recognized by a United States Holder on the sale, exchange or retirement of a
Foreign Currency Note, the amount realized upon such sale, exchange or
retirement will be the U.S. dollar value of the foreign currency received,
determined on the date of sale, exchange or retirement.
Gain or loss realized upon the sale, exchange or retirement of a
Foreign Currency Note will be ordinary income or loss to the extent it is
attributable to fluctuations in currency exchange rates. Gain or loss
attributable to fluctuations in exchange rates will equal the difference between
the U.S. dollar value of the foreign currency principal amount of such Note,
determined on the date such payment is received or such Note is disposed of,
including any payment with respect to accrued interest, and the U.S. dollar
value of the foreign currency principal amount of such Note, determined on the
date such United States Holder acquired such Note, and the U.S. dollar value of
accrued interest received (determined by translating such interest at the
average exchange rate for the accrual period). The foreign currency principal
amount of a Foreign Currency Note generally equals the United States Holder's
purchase price in units of foreign currency. Such foreign currency gain or loss
will be recognized only to the extent of the total gain or loss recognized by a
United States Holder on the sale, exchange or retirement of the Foreign Currency
Note.
The source of exchange gain or loss will be determined by reference to
the residence of the holder or the "qualified business unit" of the holder on
whose books the Note is properly reflected. Any gain or loss recognized by such
a United States Holder in excess of such foreign currency gain or loss will be
capital gain or loss (except to the extent of any accrued market discount or, in
the case of a short-term Discount Note, any accrued OID), and generally will be
long-term capital gain or loss if the holding period of the Foreign Currency
Note exceeds one year.
Any gain or loss that is treated as ordinary income or loss, as
described above, generally will not be treated as interest income or expense
except to the extent provided by administrative pronouncements of the Service.
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OID, market discount, premium, acquisition premium and amortizable bond
premium of a Foreign Currency Note are to be determined in the relevant foreign
currency. The amount of such discount or premium that is taken into account
currently under general rules applicable to Notes other than Foreign Currency
Notes is to be determined for any accrual period in the relevant foreign
currency and then translated into the United States Holder's functional currency
on the basis of the average exchange rate in effect during such accrual period.
The amount of accrued market discount (other than market discount that is
included in income on a current basis) taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of a Foreign Currency Note will be the U.S. dollar value of such
accrued market discount (determined on the date of receipt of such partial
principal payment or upon the sale, exchange, retirement or other disposition).
Any loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium will be a capital loss to the extent of
such bond premium. If such an election is made, amortizable bond premium taken
into account on a current basis shall reduce interest income in units of the
relevant foreign currency. Exchange gain or loss is realized on such amortized
bond premium with respect to any period by treating the bond premium amortized
in such period as a return of principal.
The Code and the applicable regulations do not discuss the tax
consequences of an issuance of a Foreign Currency Note that is denominated in,
or has payments of interest or principal determined by reference to, a so-called
hyperinflationary currency or more than one currency. On March 17, 1992,
Treasury regulations were proposed with regard to debt instruments denominated
in a hyperinflationary currency and certain debt instruments denominated in more
than one currency. These proposed regulations are proposed to be effective for
transactions entered into on or after the date such regulations are finalized.
A Foreign Currency Note will be considered to be a debt instrument
denominated in a hyperinflationary currency if it is denominated in a Specified
Currency of a country in which there is cumulative inflation of at least 100%
during the 36 calendar month period ending on the last day of the preceding
calendar year. Under the proposed regulations, a United States Holder that
acquires a Foreign Currency Note that is denominated in a hyperinflationary
currency will recognize gain or loss for its taxable year determined by
reference to the change in exchange rates between the first day of the taxable
year (or the date the Note was acquired, if later) and the last day of the
taxable year (or the date the Note was disposed of, if earlier). Such gain or
loss will reduce or increase the amount of interest income otherwise required to
be taken into account. Special rules apply to the extent such loss exceeds the
amount of interest income otherwise taken into account.
Under the proposed regulations, a Foreign Currency Note will be
considered to be a "dual currency debt instrument" if (i) the qualified stated
interest is denominated in or determined by reference to a single currency, (ii)
the stated redemption price at maturity is denominated in or determined by
reference to a different currency, and (iii) the amount of all payments in each
currency is fixed on the issue date. A Foreign Currency Note (other than a dual
currency debt instrument) will be considered to be a "multicurrency debt
instrument" if payments are to be made in more than one currency and the amount
of all payments in each currency is fixed on the issue date. A dual currency
debt instrument will be treated as two hypothetical debt instruments, a zero
coupon bond denominated in the currency of the stated redemption price at
maturity and an installment obligation denominated in the currency of the
qualified stated interest. A multicurrency debt instrument will be treated
similarly and separated into component hypothetical debt instruments in each
currency. The OID and foreign currency rules discussed above will apply to each
hypothetical debt instrument. The proposed regulations do not apply to any
Foreign Currency Note that is denominated in, or has payments of interest or
principal determined by reference to, more than one currency except to the
extent the Note meets the definition of a dual currency debt instrument or
multicurrency debt instrument.
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Exchangeable Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Exchangeable Notes.
There are substantial uncertainties regarding the United States federal
income tax consequences of an investment in Exchangeable Notes because of the
absence of authority that addresses instruments having characteristics similar
to such instruments. Optionally Exchangeable Notes for which the principal
amount payable in cash equals or exceeds the issue price will be treated as
indebtedness of the Company for United States federal income tax purposes.
Unless otherwise noted in the applicable Pricing Supplement, the Company intends
to treat other Exchangeable Notes as indebtedness of the Company and such
characterization is binding on all United States Holders except for holders who
disclose a different position on their United States federal income tax return.
In any case, the Company's treatment is not binding upon the Service or the
courts, and there can be no assurance that it will be accepted.
Under current law, interest paid on an Exchangeable Note will 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 federal income tax purposes. Any difference between
the issue price of such a Note and its principal amount will be treated as OID
under "Discount Notes," above. Under current law, a United States Holder will
not be required to include as income any increase in the value of an
Exchangeable Note attributable to the exchange feature before the sale, exchange
or retirement of the Note unless such holder becomes entitled to a fixed amount
of cash (or the equivalent) under such exchange feature before such sale,
exchange or retirement. In such a case, a United States Holder may be required
to recognize amounts in respect of an exchange feature prior to the sale,
exchange or retirement of the Note.
Upon the sale, exchange or retirement of an Exchangeable Note, a United
States Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement of an
Exchangeable Note and such holder's tax basis in the Note. If the Company
delivers property (other than cash) to a holder in retirement of an Exchangeable
Note, the amount realized would equal the fair market value of the property,
determined at the time of such retirement, increased by any cash received in
lieu of fractional stock or securities, and reduced by any amount attributable
to accrued interest, which will be taxable as such unless previously taken into
account. Gain or loss recognized on the sale or exchange (before retirement) of
an Exchangeable Note will be capital gain or loss (except to the extent of any
accrued market discount) and will generally be long-term capital gain or loss if
at the time of the sale or exchange the Exchangeable Note has been held for more
than one year.
Under current law, there is uncertainty as to whether gain recognized
upon a retirement (including a retirement pursuant to an optional or mandatory
exchange for property) of an Exchangeable Note would be capital gain or, to the
extent attributable to the optional or mandatory exchange feature, ordinary
interest income. Any loss recognized upon a retirement will be a capital loss.
The applicable Pricing Supplement will disclose whether or not the Company
intends to treat gain upon a retirement to the extent attributable to the
optional or mandatory exchange feature as interest income and to report such
amounts accordingly. Prospective investors should consult with their tax
advisors regarding the character of gain recognized upon retirement.
A United States Holder will have a tax basis in any property (other
than cash) received upon the retirement of an Exchangeable Note equal to the
fair market value of such property, determined at the time of such retirement.
Any gain or loss realized by a United States Holder on a sale or exchange of
such property will generally be capital gain or loss and will generally be
long-term capital gain or loss if the sale or exchange occurs more than one year
after the retirement of the Exchangeable Note.
United States Holders that have acquired debt instruments that are
similar to Exchangeable Notes and have accounted for such debt instruments in a
consistent manner (including under proposed, but subsequently withdrawn,
Treasury regulations) may be deemed to have established a method of tax
accounting. In such instance, the United
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States Holder would be required to apply such method of tax accounting to the
Exchangeable Notes, unless consent of the Commissioner of the Service is
obtained to change such method. The Service or a court would not be required to
accept such method as correct and the United States Holder could be liable for
penalties if such method is found to be incorrect.
The Code and the applicable regulations do not discuss the tax
consequences of an issuance of Notes that provide for one or more contingent
payments. On December 15, 1994, Treasury regulations were proposed addressing
the treatment of contingent debt instruments. These proposed regulations are
proposed to be effective for debt instruments issued on or after the date that
is 60 days after the date final regulations are promulgated. Under the proposed
regulations, the so-called "noncontingent bond method" would apply in
determining the amount of interest income with respect to an Exchangeable Note.
Under the noncontingent bond method, a projected payment schedule is determined
for a debt instrument, and interest accrues on the debt instrument based on this
schedule. The projected payment schedule would consist of all noncontingent
payments (including payments that otherwise would be considered qualified stated
interest) and a projected amount for each contingent payment. Appropriate
adjustments are made to take into account differences between the actual amount
of a contingent payment and the projected amount. Under the proposed
regulations, any gain recognized by a United States Holder on the sale, exchange
or retirement of an Exchangeable Note would be treated as interest income. Any
loss recognized on the sale, exchange or retirement would be treated as an
ordinary loss to the extent of prior interest inclusions.
There can be no assurance that the ultimate tax treatment of the
Exchangeable 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 Exchangeable Notes.
PERLS, Reverse PERLS and Multicurrency PERLS
The following discussion relates to PERLS, Reverse PERLS and
Multicurrency PERLS that bear current coupons consistent with or greater than
comparable dollar denominated debt obligations. In other cases, holders should
refer to the discussion relating to taxation in the applicable Pricing
Supplement.
Although no authority exists that addresses instruments having
characteristics similar to such instruments and the conclusions herein are
therefore not entirely free from doubt, Shearman & Sterling advises that such
PERLS, Reverse PERLS and Multicurrency PERLS should constitute debt obligations
for United States federal income tax purposes and that no portion of the issue
price should be allocated to the foreign currency feature. The Company intends
to treat PERLS, Reverse PERLS and Multicurrency PERLS as indebtedness of the
Company and such characterization is binding on all United States Holders,
except for holders who disclose a different position on their United States
federal income tax return. In any case, the Company's treatment is not binding
upon the Service or the courts, and there can be no assurance that it will be
accepted.
The regulations under the OID rules state that a debt instrument will
not be treated as a contingent debt instrument merely because some or all of the
payments are denominated in or determined by reference to the value of one or
more foreign currencies. It should be noted, however, that the foreign currency
regulations do not yet address the treatment of instruments like PERLS, Reverse
PERLS or Multicurrency PERLS and the proposed regulations do not address the
treatment of such instruments except insofar as they meet the definitions of
dual currency debt instruments and multicurrency debt instruments. It is
possible that such regulations (or other authority), when issued, could result
in tax consequences that differ from those described herein, and that such
authority could apply with retroactive effect. See discussion under "Foreign
Currency Notes" for a summary of other federal income tax principles that may
apply to United States Holders of PERLS, Reverse PERLS and Multicurrency PERLS.
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Notes Linked to Commodity Prices, Single Securities, Baskets of
Securities or Indices
The United States federal income tax consequences to a United States
Holder of the ownership and disposition of Notes that have principal or interest
determined by reference to commodity prices, securities of entities unaffiliated
with the Company, baskets of such securities or indices will vary depending upon
the exact terms of the Notes and related factors. Notes containing any of such
features may be subject to rules that differ from the general rules discussed
above. Holders intending to purchase such Notes should refer to the discussion
relating to taxation in the applicable Pricing Supplement.
Backup Withholding
The 31% "backup" withholding and information reporting requirements
apply to certain payments of principal, premium, if any, and interest on an
obligation, and to proceeds of the sale or redemption of an obligation before
maturity, to certain noncorporate United States Holders. The Company, its agent,
a broker, the relevant Trustee or any paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if the United States Holder fails to furnish
his taxpayer identification number (social security number or employer
identification number), to certify that such holder is not subject to backup
withholding, or to otherwise comply with the applicable requirements of the
backup withholding rules. Certain holders (including, among others, corporations
and persons who are not United States persons) are not subject to the backup
withholding and reporting requirements.
Any amounts withheld under the backup withholding rules from a payment
to a United States Holder would be allowed as a refund or a credit against such
holder's United States federal income tax provided that the required information
is furnished to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company
exclusively through the Agent, who has agreed to use reasonable efforts to
solicit offers to purchase Notes. The Company will have the sole right to accept
offers to purchase Notes and may reject any offer to purchase Notes in whole or
in part. The Agent will have the right to reject any offer to purchase Notes
solicited by it in whole or in part. Payment of the purchase price of the Notes
will be required to be made in immediately available funds. Unless otherwise
specified in the applicable Pricing Supplement, the Company will pay the Agent,
in connection with sales of Notes resulting from a solicitation made or an offer
to purchase received by the Agent, a commission ranging from .125% to .750% of
the principal amount of Notes to be sold, depending upon the maturity of the
Notes; provided, however, that commissions with respect to Notes having a
maturity of 30 years or greater will be negotiated.
The Company may also sell Notes to the Agent as principal for its own
account at discounts to be agreed upon at the time of sale. Such Notes may be
resold to investors and other purchasers at a fixed offering price or at
prevailing market prices, or prices related thereto at the time of such resale
or otherwise, as determined by the Agent and specified in the applicable Pricing
Supplement. The Agent may offer the Notes it has purchased as principal to other
dealers. The Agent may sell the Notes to any dealer at a discount and, unless
otherwise specified in the applicable Pricing Supplement, such discount allowed
to any dealer will not be in excess of the discount to be received by the Agent
from the Company. After the initial public offering of Notes that are to be
resold by the
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Agent to investors and other purchasers on a fixed public offering price basis,
the public offering price, concession and discount may be changed.
The Agent may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933 (the "Securities Act"). The Company and the Agent
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agent for certain
expenses.
Unless otherwise provided in the applicable Pricing Supplement, the
Company does not intend to apply for the listing of the Notes on a national
securities exchange, but has been advised by the Agent that the Agent intends to
make a market in the Notes, as permitted by applicable laws and regulations. The
Agent is not obligated to do so, however, and the Agent may discontinue making a
market at any time without notice. No assurance can be given as to the liquidity
of any trading market for the Notes.
The Agent is a wholly owned subsidiary of the Company. Each offering of
Notes will be conducted in compliance with the requirements of Schedule E of the
By-laws of the NASD regarding an NASD member firm's distributing the securities
of an affiliate. Following the initial distribution of any Notes, the Agent may
offer and sell such Notes in the course of its business as a broker-dealer. The
Agent may act as principal or agent in such transactions. This Prospectus
Supplement may be used by the Agent in connection with such transactions. Such
sales, if any, will be made at varying prices related to prevailing market
prices at the time of sale or otherwise. The Agent is not obligated to make a
market in any Notes and may discontinue any market-making activities at any time
without notice.
The Agent and any dealers utilized in the sale of Notes will not
confirm sales to accounts over which they exercise discretionary authority.
Concurrently with the offering of Notes through the Agent as described
herein, the Company may issue other Debt Securities pursuant to the Indentures
referred to herein. Such Debt Securities may include medium-term notes ("Global
Medium-Term Notes, Series D," and "Global Medium-Term Notes, Series E,"
collectively referred to as "Euro Medium-Term Notes") that may have terms
substantially similar to the terms of the Notes offered hereby and that may be
offered, concurrently with the offering of the Notes, on a continuing basis
outside the United States by the Company pursuant to a distribution agreement
(the "Euro Distribution Agreement") with Morgan Stanley & Co. International
Limited and certain other affiliates of the Company, as agents for the Company,
the terms of which are substantially similar to the terms of the distribution
agreement (the "U.S. Distribution Agreement") with the Agent, except for certain
selling restrictions specified in the Euro Distribution Agreement. Any Euro
Medium-Term Notes sold pursuant to such Euro Distribution Agreement, and any
Debt Securities or Debt Warrants issued by the Company pursuant to the
Indentures, will reduce the aggregate offering price of Notes that may be
offered by this Prospectus Supplement, any Pricing Supplement hereto and the
Prospectus.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by
Jonathan M. Clark, Esq., General Counsel and Secretary of the Company and a
Managing Director of Morgan Stanley, or other counsel who is satisfactory to the
Agent and is an officer of the Company. Mr. Clark and such other counsel
beneficially own, or have rights to acquire under an employee benefit plan of
the Company, an aggregate of less than 1% of the common stock of the Company.
Certain legal matters relating to the Notes will be passed upon for the Agent by
Davis Polk & Wardwell. Davis Polk & Wardwell has in the past represented and
continues to represent the Company on a regular basis and in a variety of
matters, including in connection with its merchant banking and leveraged capital
activities. Shearman & Sterling, which is opining on the accuracy of the summary
of certain tax matters described under the caption "United States Federal
Taxation," represents the Company on a regular basis and in a variety of
matters, including in connection with its merchant banking and leveraged capital
activities.
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