424B2 1 PROSPECTUS SUPPLEMENT RULE NO. 424(b)(2) REGISTRATION NO. 33-57833 PROSPECTUS SUPPLEMENT (To Prospectus dated March 29, 1995) $4,829,469,782 Morgan Stanley Group Inc. GLOBAL MEDIUM-TERM NOTES, SERIES C ---------------- Due More Than Nine Months from Date of Issue ---------------- 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 in the United States at an aggregate initial public offering price of up to U.S.$4,829,469,782, 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 and Warrants to purchase 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. 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. 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 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 be redeemed by the Company or 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. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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. ----------------
PRICE TO AGENT'S PROCEEDS TO PUBLIC (1) COMMISSIONS (2) COMPANY (2)(3) -------------- ------------------------ ------------------------------- Per Note................ 100.000% .125% - .750% 99.875% - 99.250% Total(4)................ $4,829,469,782 $6,036,837 - $36,221,023 $4,823,432,945 - $4,793,248,759
-------- (1) Unless otherwise specified in the applicable pricing supplement, Notes will be sold at 100% of their principal amount. If the Company issues any Notes 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 or other purchasers. (3) Before deducting expenses payable by the Company estimated at $2,290,000. (4) Or the equivalent thereof in other currencies, including composite currencies. ---------------- 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 for resale to one or more investors and other purchasers at a fixed offering price or at varying prices related to prevailing market prices at the time of resale or otherwise, to be determined by the Agent and specified in the applicable Pricing Supplement. 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. ---------------- MORGAN STANLEY & CO. Incorporated March 29, 1995 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. ___________________ IMPORTANT CURRENCY EXCHANGE INFORMATION Purchasers are required to pay for the Notes in the Specified Currency, and payments of principal, premium, if any, and interest on such Notes will be made in the Specified Currency, 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, 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, the conversion of the Specified Currency into U.S. dollars will be handled by Morgan Stanley, in its capacity as Exchange Rate Agent. 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. ___________________ 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. 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 ECU, in which the principal, premium, if any, and interest 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 S-2 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. At October 31, 1994, the Company had approximately $4.3 billion aggregate principal amount of medium-term notes outstanding under the Senior Debt Indenture and approximately $100 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. Neither Indenture limits the amount of additional indebtedness the Company may incur. 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 October 31, 1994, the aggregate principal amount of Senior Indebtedness outstanding was approximately $14.2 billion and approximately $100 million in subordinated indebtedness was outstanding. 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 U.S. $1,000 or any amount in excess thereof which is an integral multiple of U.S. $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 U.S. $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 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 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 S-3 formula, ranking, maturity, currency or composite currency and 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 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 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. Any payment made under such circumstances in U.S. dollars where the required payment is in a Specified Currency other than U.S. dollars will not constitute an Event of Default. If payment in respect of a Note is required to be made in ECUs and ECUs are unavailable due to the imposition of exchange controls or other circumstances beyond the Company's control or are no longer used as either the unit of account of the European Community or as the currency of the European Union, then all payments in respect of such Note shall be made in U.S. dollars until ECUs are again available or so used. The amount of S-4 each payment in U.S. dollars shall be computed on the basis of the equivalent of the ECU in U.S. dollars, determined as described below, as of the second Business Day prior to the date on which such payment is due. The equivalent of the ECU in U.S. dollars as of any date shall be determined by the Company or its agent on the following basis. The component currencies of the ECU for this purpose (the "Components") shall be the currency amounts that were components of the ECU as of the last date on which the ECU was used as the unit of account of the European Community. The equivalent of the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Components. The U.S. dollar equivalent of each of the Components shall be determined by the Company or such agent on the basis of the most recently available Market Exchange Rates for such Components. All determinations referred to above made by the Company or its agent shall be at its sole discretion and shall, in the absence of manifest error, be conclusive for all purposes and binding on holders of Notes. 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 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 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 or unless alternative arrangements are made, payments of principal, premium, if any, and interest on Notes in a Specified Currency other than U.S. dollars will be made by wire transfer of immediately available funds to an account maintained by the payee with a bank located outside the United States if the holder of such Notes provides the Paying Agent with the appropriate wire transfer instructions not later than 15 calendar days prior to the applicable payment date. If such wire transfer instructions are not so provided, payments of interest on such Notes (other than interest payable at maturity or on any redemption or repayment date) will be made by check payable in such Specified Currency mailed to the address of the person entitled thereto as such address shall appear in the Note register. 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 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 S-5 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. 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, 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 the date of issue or from 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 (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 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 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) 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 S-6 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 which 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. 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) the interest rate in effect for the fifteen days immediately prior to maturity, redemption or repayment will be that in effect on the fifteenth 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 next 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. 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 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. S-7 Unless otherwise specified in the applicable Pricing Supplement, interest payments for Floating Rate Notes (except Floating Rate Notes on which interest is reset daily or weekly) shall be the amount of interest accrued from the date of issue or from 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. In the case of a Floating Rate Note on which interest is reset daily or weekly, interest payments shall be the amount of interest accrued from the date of issue or from the last date to which interest has been paid, as the case may be, to and including the Record Date immediately preceding such Interest Payment Date, except that at maturity or earlier redemption or repayment, the interest payable will include interest accrued to, but excluding, the maturity, redemption or repayment date, as the case may be. 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. 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. 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: 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. S-8 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 the denomination of $5,000,000 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 of the highest credit standing in the market for negotiable certificates of deposit; 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 Commercial Paper Rate Notes for which such Commercial Paper Rate is being determined shall be the Initial Interest Rate). S-9 "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 Reset 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 London interbank market in the Index Currency for the period of the Index Maturity, commencing on the second London Business 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, 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 S-10 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 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, 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 U.S. $1 million (or the equivalent in the Index Currency) 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 will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR in respect of that 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 and in a principal amount of not less than $1 million (or the equivalent in the Index Currency) 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. 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 S-11 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 NYMF 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 NYMF Page on such Interest Determination Date, or, if fewer than four such rates appear on the Reuters Screen NYMF 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. "Reuters Screen NYMF Page" means the display designated as Page "NYMF" on the Reuters Monitor Money Rates Service (or such other page as may replace the NYMF Page on that service for the purpose of displaying prime rates or base lending rates of major United States banks). If in any month or two consecutive months the Prime Rate is not published in H.15(519) and the banks or trust companies selected as aforesaid are not quoting as mentioned in the preceding paragraph, the "Prime Rate" 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 the Prime Rate is being determined shall be the Initial Interest Rate). If this failure continues over three or more consecutive months, the Prime Rate for each succeeding Interest Determination Date until the maturity or redemption of such Prime Rate Notes or, if earlier, until this failure ceases, shall be LIBOR determined as if such Prime Rate Notes were LIBOR Notes with respect to which LIBOR Telerate had been specified in the applicable Pricing Supplement, and the Spread, if any, shall be the number of basis points specified in the applicable Pricing Supplement as the "Alternate Rate Event Spread." 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 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 S-12 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 Telerate Page 7055 for "Daily Treasury Constant Maturities and Money Markets/Federal Reserve Board Release H.15 Monday's Approx. 3:45 P.M. EDT," for the applicable Interest Determination Date (or such other page as may replace that page on such service for the purpose of displaying rates or prices comparable to the CMT Rate, as determined by the Calculation Agent). If such rate is not available by 3:00 P.M., New York City time, on the applicable Calculation Date, then the CMT Rate for such Interest Determination Date shall be the bond equivalent yield to maturity of the arithmetic mean (as calculated by the Calculation Agent) of the secondary market bid rates, as of 3:00 P.M., New York City time, on the applicable Interest Determination Date, reported by three leading primary United States government securities dealers in The City of New York selected by the Calculation Agent (after consultation with the Company), for the most recently issued direct noncallable fixed rate Treasury Bills with an original maturity approximately equal to the applicable Index Maturity; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in this sentence, the "CMT Rate" for such Interest Determination 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). 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. S-13 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. 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. 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 S-14 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 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; 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 S-15 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 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 S-16 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 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, EQUITY INDICES OR OTHER FACTORS 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, equity indices or other factors 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 S-17 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, commodity or index, including the volatility of the applicable currency, 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, 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, commodity or index may be increased. The historical experience of the relevant currencies, commodities or indices should not be taken as an indication of future performance of such currencies, 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 S-18 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 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 and, except under the circumstances described in the Prospectus under "Description of Debt Securities-Registered Global Securities," Book-Entry Notes 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 The Pricing Supplement will indicate either that the Notes cannot be redeemed prior to maturity or 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 S-19 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 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. S-20 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. Governments have imposed from time to time, and may in the future impose, exchange controls which 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. 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. 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. In the event an action based on Notes denominated in a Specified Currency other than U.S. dollars were commenced in a court in the United States, it is likely that such court would grant judgment relating to the Notes only in U.S. dollars. If an action based on Notes denominated in a Specified Currency other than U.S. dollars were commenced in a New York court, however, such court would render or enter a judgment or decree 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 or decree. 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 a hedge against currency risks, persons who have hedged the interest rate risks of ownership of a Note, 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. S-21 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. 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. The following summary is based upon certain Treasury regulations issued on January 27, 1994 (the "OID Regulations"). The OID Regulations are effective for Notes issued on or after April 3, 1994. Under the OID Regulations, a Note which 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. Under the OID Regulations, 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 S-22 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 on 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 "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. Under the OID Regulations, 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. Under the OID regulations, a United States Holder will be required to treat any stated principal payment on a Note as capital gain S-23 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. Under the OID Regulations, 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 advisor. The election cannot be revoked without the approval of the Internal Revenue Service. 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 (including a nonrecognition transaction described in Code Section 1276(c)). 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 the 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. S-24 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. 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 cash basis 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. 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 following summary is based upon certain Treasury regulations issued pursuant to section 988 of the Code on March 16, 1992 (the "Section 988 Regulations"). The rules discussed below will generally not apply to a United States Holder that enters into a "qualified hedging transaction" on or after September 21, 1989. 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 Section 988 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. S-25 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 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 S-26 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. 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 Section 988 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 percent during the thirty-six 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 "multi-currency 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 S-27 the currency of the stated redemption price at maturity and an installment obligation denominated in the currency of the qualified stated interest. A multi-currency debt instrument will be treated similarly and separated into component hypothetical debt instruments in each currency. The OID and Section 988 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 multi-currency debt instrument. PERLS, Reverse PERLS and Multicurrency PERLS The following discussion relates to PERLS, Reverse PERLS and Multicurrency PERLS which 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 U.S. federal income tax purposes and that no portion of the issue price should be allocated to the foreign exchange feature. The OID Regulations 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 Section 988 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 multi-currency 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. Notes Linked to Commodity Prices, Equity Indices or Other Factors 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, equity indices or other factors 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. S-28 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 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. 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. S-29 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 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. In this regard, certain partners of Davis Polk & Wardwell, acting through a separate partnership, acquired less than 1% of the common stock of a company of which the Company and a fund managed by the Company own a controlling interest. 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. S-30