<PAGE>
Rule 424(b)(2)
Registration No. 33-51067
33-51067-01
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 17, 1993)
$131,250,000
Morgan Stanley Group Inc.
Morgan Stanley Finance plc
9.00% CAPITAL UNITS
---------------
Each Capital Unit (a "Capital Unit") will consist of (i) a 9.00%
Subordinated Debenture (a "Debenture") due February 28, 2015 of Morgan Stanley
Finance plc ("MS plc") in the principal amount of $25, (ii) a full and
unconditional subordinated guarantee (the "Guarantee") by Morgan Stanley Group
Inc. (the "Company") of payments of principal, interest and any Additional
Amounts (as defined in the accompanying Prospectus) on the Debenture and (iii)
a related contract (a "Purchase Contract") issued by the Company and requiring
the purchase by the holder thereof of one depositary share (a "Depositary
Share") representing ownership of a 1/8 interest in a share of the Company's
9.00% Cumulative Preferred Stock, without par value, stated value $200 per
share (the "Cumulative Preferred Stock"), at a purchase price of $25 per
Depositary Share. Prior to the settlement or redemption of the related
Purchase Contracts, the Debentures, the Guarantees and the Purchase Contracts
may be purchased and transferred only as Capital Units.
The Debentures will bear interest at the rate of 9.00% per annum, payable
quarterly on February 28, May 30, August 30 and November 30 of each year
(each, an "Interest Payment Date"), commencing May 30, 1995. The Debentures
will be subordinated to Senior Indebtedness of MS plc and the Guarantees will
be subordinated to Senior Indebtedness of the Company.
Each Purchase Contract will obligate the holder to purchase on August 30,
2014 (or earlier if accelerated as described below) one Depositary Share
representing a 1/8 interest in a share of Cumulative Preferred Stock at a
purchase price of $25 per Depositary Share. The Company may, at its option,
accelerate to any Interest Payment Date that is on or after February 28, 1996
the settlement of all or a portion of the Purchase Contracts; provided that no
partial acceleration may result in fewer than 2,000,000 Purchase Contracts
remaining outstanding after such acceleration. A holder may elect to settle a
Purchase Contract in cash or by having the related Debenture prepaid and the
proceeds of such prepayment used to purchase the related Depositary Share.
Each of the Debentures, the Purchase Contracts and the Cumulative Preferred
Stock may be redeemed on any Interest Payment Date on or after February 28,
2000; provided that MS plc may not redeem a Debenture if the related Purchase
Contract would remain outstanding after such redemption. In addition, no
partial redemption of Purchase Contracts may result in fewer than 2,000,000
Purchase Contracts remaining outstanding after such redemption.
See "Certain Characteristics of the Capital Units" for certain
considerations relevant to an investment in the Capital Units.
Capital Units may be issued as Definitive Capital Units or Book-Entry
Capital Units. Beneficial interests in Book-Entry Capital Units will be shown
on, and transfers thereof will be effected only through, records maintained by
The Depository Trust Company or its nominee (""DTC'') (with respect to
participants' interests) and its participants. Unless a holder requests that
such holder's Capital Units be issued as Definitive Capital Units, such
Capital Units will be issued as Book-Entry Capital Units.
---------------
APPLICATION WILL BE MADE TO LIST THE CAPITAL UNITS AND THE DEPOSITARY SHARES
ISSUABLE
PURSUANT TO THE PURCHASE CONTRACTS ON THE NEW YORK STOCK EXCHANGE.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
---------------
PRICE $25 PER CAPITAL UNIT
---------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) MS PLC(1)(3)
------------ -------------- ------------
<S> <C> <C> <C>
Per Capital Unit............................. $25.0000 $.7875 $24.2125
Total(4)..................................... $131,250,000 $4,134,375 $127,115,625
</TABLE>
- -------
(1) Plus accrued interest, if any, on the Debentures from the date of issue.
(2) The Company and MS plc have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriters".
(3) Before deducting expenses payable by MS plc and the Company estimated to
be $183,750.
(4) The Company and MS plc have granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 660,100
additional Capital Units at the price to public less underwriting
discounts and commissions, for the purpose of covering over-allotments, if
any. If the Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions and proceeds to MS plc will
be $147,752,500, $4,654,203.75 and $143,098,296.25, respectively. See
"Underwriters".
---------------
The Capital Units are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein, and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Capital Units will be made on or about February
21, 1995 at the office of Morgan Stanley & Co. Incorporated, New York, NY,
against payment therefor in New York funds.
---------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
February 10, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary...................................................... S-3
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Stock Dividends................................ S-8
Certain Characteristics of the Capital Units............................ S-8
Description of the Capital Units........................................ S-9
Description of Cumulative Preferred Stock............................... S-18
Description of Depositary Shares........................................ S-20
Certain Tax Considerations.............................................. S-21
Underwriters............................................................ S-26
Legal Matters........................................................... S-28
Erisa Matters for Pension Plans and Insurance Companies................. S-28
General Information..................................................... S-29
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Available Information................................................... 2
Incorporation of Certain Documents by Reference......................... 3
Morgan Stanley Group Inc................................................ 4
Morgan Stanley Finance plc.............................................. 4
Use of Proceeds......................................................... 4
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Stock Dividends................................ 5
Description of Debt Securities of MS plc................................ 5
Limitations on Issuance of Bearer Debt Securities....................... 12
Description of Capital Stock of the Company............................. 13
Description of the Capital Units........................................ 23
Plan of Distribution.................................................... 27
Legal Matters........................................................... 28
Experts................................................................. 28
ERISA Matters........................................................... 28
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CAPITAL UNITS
OR SECURITIES OF THE COMPANY OR MS PLC AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
_______________________
Copies of this Prospectus Supplement and the accompanying Prospectus, having
attached thereto a copy of the document specified in paragraph 15 under "General
Information", have been delivered to the Registrar of Companies in England and
Wales for registration as required by Section 64 of the Companies Act 1985 of
the laws of Great Britain.
<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by the more detailed
information that appears elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Prospective investors should carefully consider the
factors set forth under the caption "Certain Characteristics of the Capital
Units".
THE OFFERING
THE CAPITAL UNITS
General............... Each Capital Unit will consist of (i) a 9.00%
Subordinated Debenture of MS plc due February 28, 2015 in
the principal amount of $25, (ii) a full and
unconditional subordinated Guarantee by the Company of
the payment of principal, interest and any Additional
Amounts on the Debenture and (iii) a related Purchase
Contract issued by the Company and requiring the purchase
by the holder thereof of one Depositary Share
representing ownership of a 1/8 interest in a share of
Cumulative Preferred Stock of the Company at a purchase
price of $25 per Depositary Share. Prior to the
settlement or redemption of the related Purchase
Contracts, the Debentures, the Guarantees and the
Purchase Contracts may be purchased and transferred only
as Capital Units.
Form of Capital
Units................ Capital Units may be issued as Definitive Capital Units
or Book-Entry Capital Units. Definitive Capital Units
will consist of definitive registered Purchase Contracts
attached to definitive registered Debentures (and the
related Guarantees). Book-Entry Capital Units will be
represented by certificateless depositary interests
issued to DTC by Chemical Bank, as book-entry unit
depositary (the "Book-Entry Unit Depositary"), which
will hold as depositary a global registered Purchase
Contract and a global Debenture (and the related
Guarantee).
Unless a holder requests that such holder's Capital Units
be issued as Definitive Capital Units, such Capital Units
will be issued as Book-Entry Capital Units. If requested
by a holder, Definitive Capital Units may be issued in
exchange for Book-Entry Capital Units and vice versa.
See "Description of the Capital Units -- Description of
Book-Entry Capital Units".
The United Kingdom ("U.K.") withholding tax consequences
of holding beneficial interests in Book-Entry Capital
Units differ from the tax consequences of holding
Definitive Capital Units. See "Description of the
Capital Units -- Description of the Debentures --
General", "Description of the Capital Units --
Description of Book-Entry Capital Units -- Issuance of
Definitive Capital Units," and "Certain Tax
Considerations" below and "Description of Debt Securities
of MS plc -- Payment of Additional Amounts with respect
to Debt Securities" in the accompanying Prospectus.
Listing.............. Application will be made to list the Capital Units and
the Depositary Shares issuable pursuant to the Purchase
Contracts on the New York Stock Exchange. If a holder
effects a Cash Settlement (as defined below) of a
S-3
<PAGE>
Purchase Contract, or a Purchase Contract (but not the
related Debenture) is redeemed, the Debenture that will
remain outstanding will not be listed on the New York
Stock Exchange.
Use of Proceeds...... The net proceeds from the sale of the Capital Units
offered hereby will be loaned by MS plc to Morgan Stanley
& Co. International Limited ("MSIL") and subsidiaries of
MSIL and will be used for general corporate purposes of
MSIL and such subsidiaries. Such loans may be
subordinated to the claims of third parties but will not
be subordinated to the claims of affiliates of MS plc.
THE DEBENTURES
General.............. Each Debenture will have a principal amount of $25 and
will be issued by MS plc, an English company that is an
indirect wholly owned subsidiary of the Company.
Payment of Principal. Each Debenture will be due and payable on the earliest of
(i) February 28, 2015, (ii) any Purchase Date (as defined
herein) on which the Debenture is prepaid in connection
with the settlement of the related Purchase Contract and
(iii) any other date on which the Debenture is redeemed.
Interest............. The Debentures will bear interest at the rate of 9.00%
per annum, payable quarterly on February 28, May 30,
August 30 and November 30 of each year, commencing May
30, 1995. United States holders of Book-Entry Capital
Units will generally be entitled to receive Additional
Amounts for any U.K. tax that is required to be withheld
with respect to payments of interest on the Debentures.
MS plc has been advised by U.K. tax counsel that no U.K.
withholding tax is presently applicable to payments of
interest on Debentures that are part of Book-Entry
Capital Units. Holders of Definitive Capital Units will
be subject to withholding with respect to payments of
interest on the Debentures that are part of such
Definitive Capital Units and will generally not be
entitled to receive any Additional Amounts. See "Certain
Tax Considerations".
Redemption........... Subject to the limitations set forth below, on or after
February 28, 2000, MS plc may, at its option, redeem the
Debentures in whole or in part on any Interest Payment
Date at a redemption price equal to the principal amount
of the Debentures to be redeemed plus accrued and unpaid
interest to the redemption date. In addition, the
Company may accelerate the closing of a Purchase Contract
to any Interest Payment Date that is on or after February
28, 1996, in the manner described in this Prospectus
Supplement under "Description of the Capital Units --
Description of the Purchase Contracts -- Acceleration of
Purchase". If the holder settles such Purchase Contract
by payment of its own cash, the related Debenture may be
redeemed on any Interest Payment Date that is no earlier
than six months after the settlement date of such
Purchase Contract. The Debentures may also be redeemed
at MS plc's option at any time, as a whole and not in
part, at a redemption price equal to the principal amount
of the Debentures to be redeemed plus accrued and unpaid
interest to the redemption date, in
S-4
<PAGE>
the event that, as a result of a change in U.K. tax laws
or the official interpretation thereof, (i) withholding
of U.K. taxes is required with respect to interest
payments to United States holders of Debentures that are
part of Book-Entry Capital Units or (ii) the payment of
interest on the Debentures is treated as a "distribution"
for U.K. tax purposes.
Ranking.............. The Debentures will be unsecured, general obligations of
MS plc, subordinated to all Senior Indebtedness of MS plc
(as defined in "Description of Debt Securities of MS plc
-- Subordinated Debt" in the accompanying Prospectus) to
the extent set forth in the Subordinated Debt Indenture.
As of the date of this Prospectus Supplement, MS plc has
no Senior Indebtedness outstanding.
Guarantee............ Payment of principal and interest on the Debentures will
be fully and unconditionally guaranteed by the Company on
a subordinated basis. The guarantee of the Company will
be subordinated to all Senior Indebtedness of the Company
(as defined under "Description of Debt Securities of MS
plc -- Subordinated Debt" in the accompanying Prospectus)
to the extent set forth in the Subordinated Debt
Indenture.
PURCHASE CONTRACTS
General.............. Each Purchase Contract will be issued by the Company and
will obligate the holder to purchase on August 30, 2014
(the "Stated Purchase Date") (or earlier if accelerated
as described below) one Depositary Share representing
ownership of a 1/8 interest in a share of Cumulative
Preferred Stock at a purchase price of $25 per Depositary
Share.
Payment by Holder.... At the settlement of a Purchase Contract, a holder may
pay for the Depositary Share to be issued under such
Purchase Contract either (i) by paying to the Capital
Unit Agent $25 in cash if the holder gives the Capital
Unit Agent written notice of such payment no less than 10
nor more than 20 days prior to the settlement date of the
Purchase Contract (a "Cash Settlement") or (ii) by
electing to have the related Debenture prepaid on the
settlement date of the Purchase Contract, in which case
the Capital Unit Agent will deliver the proceeds of such
prepayment to the Company to purchase the Depositary
Share (a "Debenture Settlement"). A holder who does not
comply with the provisions for effecting a Cash
Settlement will be deemed to have elected a Debenture
Settlement. If a holder effects a Cash Settlement, the
Debenture that is part of the holder's Capital Unit will
remain outstanding (and may be transferred by a holder)
until it is redeemed or the final maturity thereof.
Acceleration of
Purchase............. The Company may, at its option, accelerate to any
Interest Payment Date (each, an "Accelerated Purchase
Date" and, together with the Stated Purchase Date, a
"Purchase Date") that is on or after February 28, 1996
the closing of the purchase of 2,000,000 or more Purchase
Contracts, subject to cancellation of acceleration and
termination of the Purchase Contracts in the
circumstances described under "Description of the Capital
Units -- Description of the Purchase Contracts --
Cancellation of Acceleration and Termination"; provided
that no partial acceleration may
S-5
<PAGE>
result in fewer than 2,000,000 Purchase Contracts
remaining outstanding after such acceleration.
Redemption........... On or after February 28, 2000, the Company may, at its
option, redeem the Purchase Contracts in whole or in part
on any Interest Payment Date at a redemption price of
$.025 per Purchase Contract; provided that no partial
redemption may result in fewer than 2,000,000 Purchase
Contracts remaining outstanding after such redemption.
MS plc may, at its option, redeem the Debentures
concurrently with any redemption of the related Purchase
Contracts. Any Debentures that remain outstanding after
any redemption of the related Purchase Contracts will not
be listed on the New York Stock Exchange. In addition,
all of the Purchase Contracts will be redeemed in the
event that the Debentures are redeemed as a result of a
Tax Redemption (as defined below).
Cancellation of
Acceleration......... Notice of acceleration of the Purchase Date of a
Purchase Contract will be automatically rescinded and
annulled if at 5:00 P.M. on the date that is five
business days prior to the applicable Purchase Date (i)
the Company's publicly held long-term senior debt
obligations do not have an investment grade rating, (ii)
the yield-to-maturity on the then-current 30-year United
States Treasury bond exceeds 14% or (iii) the Company has
outstanding any shares of stock ranking prior to the
Cumulative Preferred Stock, unless the holders of not
less than 66 2/3% of the Capital Units consented to the
issuance of such stock (each, a "Cancellation
Condition"). See "Description of the Capital Units --
Description of the Purchase Contracts -- Cancellation of
Acceleration and Termination". Any acceleration notice
may also be cancelled if the Company gives written notice
of such cancellation to the Capital Unit Agent and the
holders on or before the 10th day prior to the applicable
Purchase Date. The rescission or cancellation of a
notice of acceleration will not prevent the Company from
giving a notice of acceleration at a later date.
Termination.......... The Purchase Contracts will terminate (i) upon certain
events of bankruptcy of the Company or (ii) if at 5:00
P.M. on the date that is five business days prior to the
Stated Purchase Date there exists a Cancellation
Condition. The obligation of a holder under a Purchase
Contract to purchase a Depositary Share will not be
terminated or otherwise affected by the occurrence and
continuance of an Event of Default with respect to the
Debentures or by the failure of the Company to make
required payments pursuant to the Guarantee. See
"Description of the Capital Units -- Description of the
Purchase Contracts -- Cancellation of Acceleration and
Termination".
CUMULATIVE PREFERRED STOCK AND DEPOSITARY SHARES
Depositary Shares.... Each Depositary Share will represent ownership of a 1/8
interest in a share of Cumulative Preferred Stock, which
will be deposited with The Bank of New York, as Preferred
Stock Depositary, and, through the Preferred Stock
Depositary will entitle the holder, proportionately, to
all rights, preferences
S-6
<PAGE>
and privileges of the Cumulative Preferred Stock
represented thereby (including dividend, voting,
redemption and liquidation rights).
Stated Value and
Liquidation
Preference.......... The Cumulative Preferred Stock will have a stated
value of $200 per share ($25 per Depositary Share) and a
liquidation preference of $200 per share ($25 per
Depositary Share), plus dividends accrued and accumulated
but unpaid.
Dividend Rate........ Dividends on the Cumulative Preferred Stock will be
cumulative from the date of issue and are payable
quarterly on February 28, May 30, August 30 and November
30 of each year, at the rate of 9.00% per annum.
Redemption........... On and after February 28, 2000, the Company may, at its
option, redeem the Cumulative Preferred Stock at a
redemption price of $200 per share (equivalent to $25 per
Depositary Share), plus accrued and accumulated but
unpaid dividends.
Voting............... The Cumulative Preferred Stock will have no voting rights
except as required by law and except that the holders,
voting as a class with other holders of Cumulative
Preferred Stock having the same right, will be entitled
to elect two directors if dividends are in arrears for
six or more quarterly dividend periods (whether or not
consecutive).
Ranking.............. The Cumulative Preferred Stock will rank prior to the
common stock, par value $1.00 per share, of the Company,
and pari passu with the Company's other Preferred Stock
that is outstanding as of the date of this Prospectus
Supplement.
S-7
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the unaudited consolidated ratios of
earnings to fixed charges and earnings to fixed charges and preferred stock
dividends for the Company for the periods indicated. Information for the nine
months ended October 31, 1994 and 1993 was derived from unaudited condensed
consolidated financial statements.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE FISCAL
MONTHS ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, JANUARY 31, DECEMBER 31,
-------------- -------------- ----------------------
1994 1993 1994 1993 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges..... 1.1 1.2 1.2 1.2 1.2 1.1 1.2
Ratio of earnings
to fixed charges
and preferred stock
dividends............ 1.1 1.2 1.2 1.2 1.2 1.1 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges and
the ratio of earnings to fixed charges and preferred stock dividends, earnings
consist of income before income taxes and fixed charges (exclusive of preferred
stock dividends). For the purposes of calculating both ratios, fixed charges
include interest expense, capitalized interest and that portion of rentals
representative of an interest factor. Additionally, for the purposes of
calculating the ratio of earnings to fixed charges and preferred stock
dividends, preferred stock dividends (on a pre-tax basis) are included in the
denominator of the ratio.
CERTAIN CHARACTERISTICS OF THE CAPITAL UNITS
Prospective purchasers should consider, in addition to the other
information contained in this Prospectus Supplement and the accompanying
Prospectus, the following characteristics of the Capital Units.
TERMS OF THE CAPITAL UNITS
Although the purchaser of a Capital Unit will initially hold an interest in
a 20-year subordinated debt instrument of MS plc, purchasers of the Capital
Units must be prepared to make an investment in the Cumulative Preferred Stock
of the Company because, except in the limited circumstances described herein,
the Company may require each holder of a Capital Unit to purchase a Depositary
Share on any Interest Payment Date that is on or after February 28, 1996. The
rights of a holder of the Company's Cumulative Preferred Stock are junior to
those of a holder of a Debenture guaranteed by the Company.
The dividend rate on the Cumulative Preferred Stock will not be adjusted to
reflect subsequent changes in interest rates or the financial condition of the
Company. Accordingly, the market value of a Depositary Share on a Purchase Date
may be more or less than $25, the purchase price of a Depositary Share.
Although the cancellation and termination provisions of the Purchase
Contracts provide some protection against interest rate changes and credit risk,
these provisions take effect only in the event of a significant increase in
long-term interest rates or a significant deterioration in the financial
condition of the Company. They will not protect a holder from less significant
increases in interest rates or declines in the financial condition of the
Company or any resulting decline in the market value of the Depositary Shares.
S-8
<PAGE>
OBLIGATIONS OF THE CAPITAL UNIT AGENT
Each Debenture and Guarantee constituting a part of a Capital Unit will be
issued pursuant to the Subordinated Debt Indenture and each Purchase Contract
constituting a part of a Capital Unit will be issued pursuant to the Capital
Unit Agreement. Although the Subordinated Debt Indenture is qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), the Capital Unit Agreement will not be qualified as an
indenture under the Trust Indenture Act and Chemical Bank, in its capacities as
both Capital Unit Agent and Book-Entry Unit Depositary, will not be required to
qualify as a trustee thereunder. Under the terms of the Capital Unit
Agreement, Chemical Bank, in its capacities as both Capital Unit Agent and Book-
Entry Unit Depositary, will have only limited obligations to the holders of the
Capital Units and has not undertaken any fiduciary duty to the holders of
Capital Units. See "Description of the Capital Units -- Description of Book-
Entry Capital Units -- Obligations of Book-Entry Unit Depositary".
DESCRIPTION OF THE CAPITAL UNITS
The following descriptions of the Capital Unit Agreement, the Capital
Units, the Subordinated Debt Indenture, the Debentures and the Guarantees
(referred to in the accompanying Prospectus as the "Offered Debt Securities")
and the Purchase Contracts supplement, and to the extent inconsistent therewith
replace, the descriptions of the general terms and provisions of such agreement,
such securities and such indenture set forth in the accompanying Prospectus, to
which descriptions reference is hereby made. As used in the following
description and under "Description of Preferred Stock" and "Description of
Depositary Shares" below, the term "Company" means Morgan Stanley Group Inc.
The following summary does not purport to be complete and is qualified in its
entirety by reference to the Capital Unit Agreement and the Subordinated Debt
Indenture, which have been filed with the Commission as exhibits to a Current
Report on Form 8-K incorporated by reference in the accompanying Prospectus.
GENERAL
Each Capital Unit will consist of (i) a 9.00% Subordinated Debenture of MS
plc in a principal amount of $25, (ii) a full and unconditional subordinated
Guarantee by the Company of the payment of principal, interest and any
Additional Amounts (with respect only to Book-Entry Capital Units and Definitive
Capital Units issued in exchange for Book-Entry Capital Units upon the
occurrence of certain events) on the Debenture and (iii) a related Purchase
Contract issued by the Company and requiring the purchase on the Purchase Date
of one Depositary Share representing ownership of a 1/8 interest in a share of
Cumulative Preferred Stock of the Company at a purchase price of $25 per
Depositary Share. Prior to the settlement or redemption of the related Purchase
Contracts, the Debentures, the Guarantees and the Purchase Contracts may be
purchased and transferred only as Capital Units. To the extent a holder
effects a Cash Settlement upon the closing of a Purchase Contract, the holder's
Capital Unit will be cancelled and a Debenture and Guarantee that are not part
of a Capital Unit will be issued to such holder. Such Debenture and Guarantee
may be transferred by the holder thereof until maturity or earlier redemption
but will not be listed on the New York Stock Exchange. See "-- Description of
the Purchase Contracts -- Payment of Purchase Price; Delivery of Depositary
Shares". Certificates representing Definitive Capital Units will be issued in
definitive registered form without coupons.
Prior to the purchase of Depositary Shares pursuant to the Purchase
Contracts, the holders of the Capital Units, as such, will not be preferred
stockholders of the Company or have any of the rights and privileges of a
preferred stockholder.
S-9
<PAGE>
DESCRIPTION OF THE DEBENTURES
General. The Debentures will be limited to $131,250,000 aggregate
principal amount, subject to an increase of up to $16,502,500 aggregate
principal amount in the event the Underwriters' over-allotment option is
exercised in full. The Debentures will bear interest at the rate per annum
specified on the cover page hereof from the date of issuance or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable quarterly on February 28, May 30, August 30 and November 30 in each
year, commencing May 30, 1995, to the Book-Entry Unit Depositary (in the case of
the Book-Entry Capital Units) and to the persons in whose names Definitive
Capital Units are registered at the close of business on the February 13, May
15, August 15 and November 15 (each, a "Record Date") immediately preceding such
Interest Payment Date. If U.K. taxes are deducted or withheld from payments of
principal or interest on a global Debenture that is part of a Book-Entry Capital
Unit, MS plc will pay such Additional Amounts as are necessary so that the net
payments received by U.S. holders of interests in the Book-Entry Capital Units
will equal the net payments such U.S. holders would have received in the absence
of any such deduction or withholding. Holders who request Definitive Capital
Units will not be entitled to receive any such Additional Amounts. See
"Certain Tax Considerations" below and "Description of Debt Securities of MS plc
- -- Payment of Additional Amounts with respect to Debt Securities" in the
accompanying Prospectus.
Each Debenture will mature on February 28, 2015 but may be redeemed earlier
or prepaid on any Purchase Date in connection with a Debenture Settlement of a
related Purchase Contract under the circumstances described under "--
Description of the Purchase Contracts -- Payment of Purchase Price; Delivery of
Depositary Shares". See "-- Redemption of Debentures".
The Debentures will rank pari passu with all other subordinated
indebtedness of MS plc and, together with such other subordinated indebtedness,
will be subordinated in right of payment to Senior Indebtedness of MS plc. See
"Description of Debt Securities of MS plc -- Subordinated Debt" in the
accompanying Prospectus. As of the date of this Prospectus Supplement, MS plc
has approximately $352.2 million of outstanding subordinated indebtedness and no
outstanding Senior Indebtedness. Neither the Capital Unit Agreement nor the
Subordinated Debt Indenture prohibits or limits the incurrence by MS plc of
Senior Indebtedness or other indebtedness.
The obligation of a holder under a Purchase Contract to purchase a
Depositary Share will not be terminated or otherwise affected by the occurrence
and continuance of an Event of Default with respect to the Debentures or the
failure by the Company to pay any amount with respect to the Debentures pursuant
to the Guarantee.
The Subordinated Debt Indenture permits the defeasance of the Debentures
upon the satisfaction of the conditions described under "Description of Debt
Securities of MS plc -- Discharge, Defeasance and Covenant Defeasance" in the
accompanying Prospectus. The Debentures are subject to such defeasance
provisions.
Redemption of Debentures. Subject to the limitations set forth below, the
Debentures will be redeemable, in whole or in part, at the option of MS plc,
upon not less than 30 nor more than 60 days' notice, on any Interest Payment
Date on or after February 28, 2000, at a redemption price equal to the principal
amount of Debentures to be redeemed plus accrued and unpaid interest to the
date fixed for redemption. In addition, the Company may accelerate the closing
of a Purchase Contract requiring, at the holder's option, a Debenture Settlement
or a Cash Settlement on any Interest Payment Date on or after February 28, 1996
in the manner provided in "-- Description of the Purchase Contracts -- Payment
of Purchase Price; Delivery of Depositary Shares" and "-- Description of the
Purchase Contracts -- Acceleration of Purchase". If the holder properly effects
a Cash Settlement, the related Debenture may be redeemed at MS plc's option on
any Interest Payment Date that is no earlier than six months after the Purchase
Date of such Purchase Contract. Any Debenture that remains outstanding after a
Cash Settlement may be transferred by the holder thereof but will not be listed
on the New York Stock Exchange. If fewer than all the Debentures are redeemed
on a particular Interest Payment Date, Debentures will be redeemed on a pro rata
basis (with adjustments to prevent fractions).
S-10
<PAGE>
The Debentures may also be redeemed at any time, as a whole but not in
part, at the option of MS plc, upon not less than 30 nor more than 60 days'
notice, at a redemption price equal to the principal amount of Debentures to be
redeemed, together with accrued and unpaid interest to the redemption date, if,
at any time after the issuance of the Debentures, MS plc shall determine that,
as a result of any change in or amendment to the laws or regulations or rulings
promulgated thereunder of the U.K. or of any political subdivision or taxing
authority thereof or therein or any change in the official application or
interpretation of such laws, regulations or rulings, or any change in the
official application or interpretation of, or any execution of or amendment to,
any treaty or treaties affecting taxation to which the U.K. or such political
subdivision or taxing authority is a party, which change or amendment becomes
effective on or after the date of this Prospectus Supplement, (a) in making
payments in respect of principal or interest on Debentures that are part of
Book-Entry Capital Units it would become obligated to pay Additional Amounts
with respect thereto as a result of any withholding taxes or similar charges
imposed by or for the account of the U.K. or any political subdivision or taxing
authority thereof or therein or (b) the payment of interest on the Debentures
would be treated as a "distribution" within the meaning of section 209 of the
Income and Corporation Taxes Act 1988 of the U.K. (or any statutory modification
or re-enactment thereof for the time being) (any such redemption is referred to
herein as a "Tax Redemption").
Notwithstanding the foregoing, MS plc may not redeem any Debenture unless
the related Purchase Contract has been redeemed on or prior to the redemption
date for such Debenture or, if the closing of the related Purchase Contract has
been accelerated as described under "-- Description of the Purchase Contracts --
Acceleration of Purchase", unless such Purchase Contract has been settled and
the holder thereof had effected a Cash Settlement no less than six months prior
to the date of redemption of such Debenture.
Upon mailing of a redemption notice, interest on the Debentures called for
redemption will cease to accrue from and after the date fixed for redemption
(unless MS plc defaults in providing funds for the payment of the redemption
price), and such Debentures (and any related Purchase Contracts) will no longer
be deemed to be outstanding. On the date fixed for redemption, all rights and
obligations of the holders of such Debentures (except the right to receive the
redemption price, without interest) (and any related Purchase Contracts) will
cease and the principal amount of the Debentures called for redemption will
automatically be reduced to zero. MS plc's obligation to provide funds for such
redemption will be deemed fulfilled if, on or before 12:00 noon, New York City
time, on the date fixed for redemption, MS plc deposits with a paying agent (a
"Paying Agent") funds necessary for such redemption, in trust with irrevocable
instructions and authorization that such funds be applied to the redemption of
the Debentures called for redemption upon surrender of any certificates
therefor.
The Guarantee. The Debentures will be fully and unconditionally guaranteed
on a subordinated basis pursuant to a guarantee of the Company as to the payment
of principal, interest and any Additional Amounts (with respect only to Book-
Entry Capital Units and Definitive Capital Units issued in exchange for Book-
Entry Capital Units upon the occurrence of certain events described under
"Description of Book-Entry Capital Units -- Issuance of Definitive Capital
Units") when and as the same shall become due and payable, whether at maturity
or otherwise, pursuant to the terms of the Debentures. Under the terms of the
Guarantee, holders of the Debentures will not be required to exercise their
remedies against MS plc prior to proceeding directly against the Company. In
addition, the Company will not be entitled to offset its obligations under the
Guarantee against the holders' obligations under the Purchase Contracts or the
provisions of the Capital Unit Agreement relating thereto. See "Description of
Debt Securities of MS plc -- Guarantee of Debt Securities by the Company" in the
accompanying Prospectus.
Subordination of the Guarantee. The Guarantee 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 Senior Indebtedness of the Company. See "Description of Debt
Securities of MS plc -- Subordinated Debt" and "-- Guarantee of Debt Securities
by the Company" in the accompanying Prospectus. At October 31, 1994, the
aggregate principal amount of Senior Indebtedness of the Company outstanding was
approximately $14.2 billion and no subordinated indebtedness of the Company was
outstanding, although the Company from time to time issues subordinated
guarantees, including subordinated guarantees issued in respect of capital
units which aggregated approximately $352.2 million at the date of this
Prospectus Supplement. The Company expects from time to time to incur
additional indebtedness constituting Senior Indebtedness of the
S-11
<PAGE>
Company, and neither the Capital Unit Agreement nor the Subordinated Debt
Indenture prohibits or limits the incurrence by the Company of Senior
Indebtedness or other indebtedness.
DESCRIPTION OF THE PURCHASE CONTRACTS
General. Each Purchase Contract will obligate the holder of the related
Capital Unit to purchase, and the Company to sell, on August 30, 2014, one
Depositary Share evidencing ownership of a 1/8 interest in a share of Cumulative
Preferred Stock at a purchase price of $25 per Depositary Share (the "Purchase
Price"); provided that the Company may, at its option, at any time or from time
to time on not less than 30 nor more than 60 days' notice, accelerate the
obligation of the holders of at least 2,000,000 or more Purchase Contracts to
purchase, and the Company to sell, on the next succeeding Interest Payment Date
(commencing with February 28, 1996), one Depositary Share per Purchase Contract
subject to such accelerated closing; provided further that no such acceleration
with respect to less than all outstanding Purchase Contracts shall result in
fewer than 2,000,000 Purchase Contracts remaining outstanding after such
accelerated purchase. If fewer than all Purchase Contracts are to be subject to
closing on a particular Accelerated Purchase Date, the selection of the Purchase
Contracts to be subject to such closing will be made on a pro rata basis (with
adjustments to prevent fractions). If the closing of a Purchase Contract has
been accelerated, unless the holder has elected and properly effected a Cash
Settlement, such holder will be deemed to have elected a Debenture Settlement,
in which case the related Debenture will be prepaid on the Purchase Date of the
related Purchase Contract and such prepayment of the principal amount of the
Debenture will be made to the Capital Unit Agent to be applied by the Capital
Unit Agent to purchase a Depositary Share. See "-- Payment of Purchase Price;
Delivery of Depositary Shares". Certain rights and obligations of the Company
and the holders of the Capital Units under the Purchase Contracts are subject to
cancellation or termination under certain circumstances. See "-- Cancellation
of Acceleration and Termination".
Payment of Purchase Price; Delivery of Depositary Shares. Under the terms
of the Capital Unit Agreement, on any Purchase Date under a particular Purchase
Contract, a holder may pay for the Depositary Share to be issued under such
Purchase Contract by a Debenture Settlement or by a Cash Settlement. A holder
must provide the Capital Unit Agent with written notice of its election to
effect a Cash Settlement not less than 10 nor more than 20 days prior to such
Purchase Date. A holder who does not provide such notice and actually delivers
such cash payment pursuant to the Cash Settlement will be deemed to have elected
a Debenture Settlement, in which case the Capital Unit Agent will purchase such
holder's Depositary Share with the cash received by the Capital Unit Agent upon
the prepayment of the principal amount of the related Debenture. If a holder
properly effects a Cash Settlement, the holder's Capital Unit will be cancelled
and a Debenture and Guarantee that are not part of a Capital Unit will be issued
and will remain outstanding until the redemption or final maturity of such
Debenture. See "-- Description of the Debentures -- Redemption of Debentures".
To be effective, any payment of the Purchase Price by a holder of a Capital
Unit (other than payment by a Debenture Settlement) must be made to the Capital
Unit Agent prior to 12:00 noon, New York City time, on the business day
immediately preceding the applicable Purchase Date by bank wire transfer in
immediately available funds or by certified check in New York Clearing House
Funds payable to or upon the order of the Company and must be made with respect
to all, but not fewer than all, of the Purchase Contracts included in the
Capital Units held by such holder with respect to which the Purchase Date is
occurring.
Upon receiving an effective payment of the Purchase Price (including
payment by a Debenture Settlement) and upon surrender of the related Debenture
(in the case of a Debenture Settlement), the Company will be obligated to issue
and deliver the Cumulative Preferred Stock to the Preferred Stock Depositary,
and Depositary Shares will be distributed by the Preferred Stock Depositary to
the holders or their designees. In the case of Definitive Capital Units, any
interest on the Debentures received by the Capital Unit Agent upon settlement of
the related Purchase Contract will be distributed to the holders of such
Definitive Capital Units entitled thereto upon presentation and surrender of the
certificates evidencing such Definitive Capital Units. In the case of Book-
Entry Capital Units, any interest on the Debentures received by the Capital Unit
Agent will be distributed to DTC.
S-12
<PAGE>
Redemption of Purchase Contracts. On or after February 28, 2000, the
Company may, at its option, redeem the Purchase Contracts, in whole or in part,
upon not less than 30 nor more than 60 days' notice on any Interest Payment Date
at a redemption price of $.025 per Purchase Contract, provided that no partial
redemption may result in fewer than 2,000,000 Purchase Contracts remaining
outstanding after such redemption. In addition, all of the Purchase Contracts
will be redeemed in the event that the Debentures are redeemed as a result of a
Tax Redemption. The procedures for redemption of the Purchase Contracts will be
substantially similar to the provisions described in the fourth paragraph under
"-- Description of the Debentures -- Redemption of Debentures".
Acceleration of Purchase. The Company may, at its option, accelerate to
any Interest Payment Date that is on or after February 28, 1996 the closing of
the purchase of 2,000,000 or more Purchase Contracts upon not less than 30 and
not more than 60 days' notice, subject to cancellation and termination in the
circumstances described below, provided that no partial acceleration may result
in fewer than 2,000,000 Purchase Contracts remaining outstanding after such
acceleration. If the closing of a Purchase Contract has been accelerated and
the holder has properly effected a Cash Settlement, the related Debenture may be
redeemed at MS plc's option on any Interest Payment Date that is no earlier than
six months after the Purchase Date of such Purchase Contract. See "--
Description of the Debentures -- Redemption of Debentures". If the holder does
not elect and properly effect a Cash Settlement, such holder will be deemed to
have elected a Debenture Settlement, in which case the related Debenture will be
prepaid on the settlement date of the related Purchase Contract and such
prepayment of the principal amount of the Debenture will be made to the Capital
Unit Agent to be applied by the Capital Unit Agent to purchase a Depositary
Share. See "-- Payment of Purchase Price; Delivery of Depositary Shares". Any
acceleration notice may be cancelled if the Company gives written notice of such
cancellation to the Capital Unit Agent and the holders on or before the 10th day
prior to the applicable Purchase Date.
Cancellation of Acceleration and Termination. The Company will not be
entitled to accelerate the obligations of the holders of the Capital Units under
the Purchase Contracts to any Accelerated Purchase Date, and notice of any such
acceleration will be automatically rescinded and annulled, if, at 5:00 P.M. New
York City time on the date that is five business days prior to such Accelerated
Purchase Date, (i) the Company has outstanding publicly held long-term senior
unsecured debt obligations ("Long-Term Senior Debt") that are not rated with an
investment grade rating by either Moody's Investors Service, Inc. (together with
any successor, "Moody's") or Standard & Poor's Corporation (together with any
successor, "S&P"); (ii) the market yield-to-maturity of the then-current 30-year
U.S. Treasury bond exceeds 14%; or (iii) the Company has outstanding any shares
of any class of stock of the Company ranking prior to the Cumulative Preferred
Stock as to dividends or upon liquidation, unless the holders of not less than
66 2/3% of the Capital Units outstanding at the time of the issuance of such
shares consented to such issuance (each, a "Cancellation Condition"). The
rescission of any notice of acceleration as set forth above will not prevent the
Company from giving notice of an Accelerated Purchase Date with respect to any
Purchase Contracts at a later date.
The term "investment grade" means a rating of Baa3 or above (or the
equivalent) by Moody's, BBB- or above (or the equivalent) by S&P or an
equivalent rating by one or more successor or substitute rating organizations
and a "rating" will include any "implied" rating. If from time to time the
Company has outstanding Long-Term Senior Debt that is not publicly rated by
Moody's or S&P, or both, or the Capital Units are not publicly rated by Moody's
or S&P, or both, the Company may select one or more nationally recognized
statistical rating organizations to be substituted for Moody's or S&P, or both,
as the case may be. The Company's Long-Term Senior Debt is currently rated A+
by S&P and A1 by Moody's.
In addition, each Purchase Contract will automatically terminate (i) upon
certain events of bankruptcy with respect to the Company or (ii) if at 5:00 P.M.
New York City time on the date that is five business days prior to the Stated
Purchase Date there exists a Cancellation Condition.
The obligation of a holder under a Purchase Contract to purchase a
Depositary Share will not be terminated or otherwise affected by the occurrence
and continuance of an Event of Default with respect to the Debentures or the
failure by the Company to pay any amount with respect to the Debentures pursuant
to the Guarantee.
S-13
<PAGE>
Merger, Consolidation and Sales of Assets. Under the terms of the Capital
Unit Agreement, in the case of any consolidation or merger of the Company with
or into any other entity or the sale, transfer or lease of all or substantially
all of the assets of the Company, unless its obligations with respect to the
Purchase Contracts have been terminated (see "-- Cancellation of Acceleration
and Termination"), each holder of the Capital Units then outstanding will have
the right and the obligation under the related Purchase Contracts to purchase on
the Purchase Date the number of shares, property or other assets which a holder
of the number of shares of Cumulative Preferred Stock to which such Purchase
Contracts related would have been entitled to receive as a result of such
consolidation, merger, sale, transfer or lease.
DESCRIPTION OF BOOK-ENTRY CAPITAL UNITS
General. All Debentures underlying Book-Entry Capital Units will be
represented by a global Debenture without coupons (the "Global Debenture"), will
be issued in a denomination equal to the aggregate principal amount of
outstanding Debentures to be represented thereby and will be held by Chemical
Bank, as Book-Entry Unit Depositary. All Purchase Contracts underlying Book-
Entry Capital Units will be represented by a registered global Purchase Contract
(the "Global Purchase Contract") which will be registered in the name of
Chemical Bank, as Book-Entry Unit Depositary, and will be issued in a
denomination equal to the number of outstanding Purchase Contracts to be
represented thereby. Such Global Debenture and Global Purchase Contract will be
deposited with the Book-Entry Unit Depositary pursuant to the terms of the
Capital Unit Agreement dated as of February 21, 1995 among MS plc, the Company,
Chemical Bank and the holders from time to time of Capital Units. The Book-
Entry Unit Depositary will issue a certificateless depositary interest (which
represents a 100% interest in the underlying Global Debenture and Global
Purchase Contract) to DTC. Unless and until Book-Entry Capital Units are
exchanged in whole or in part for Definitive Capital Units, the depositary
interest held by DTC may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of DTC or a nominee of such successor.
Pursuant to the Capital Unit Agreement, MS plc will appoint the Book-Entry
Unit Depositary as its agent for purposes of maintaining a register recording
the right to receive payments of principal of and interest on the Global
Debenture that is part of the Book-Entry Capital Units. Interests in such
Global Debenture cannot be transferred unless such transfer is recorded on the
register maintained by the Book-Entry Unit Depositary.
Ownership of beneficial interests in Book-Entry Capital Units will be
limited to persons that have accounts with DTC ("participants") or persons that
may hold interests through participants. Procedures with respect to the
ownership of Book-Entry Capital Units are set forth below.
So long as the Book-Entry Unit Depositary, or its nominee, is the holder of
the Global Debenture and the Global Purchase Contract underlying Book-Entry
Capital Units, the Book-Entry Unit Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Debenture for all purposes
under the Subordinated Debt Indenture and of such Global Purchase Contract for
all purposes under the Capital Unit Agreement. Except as set forth below under
"-- Issuance of Definitive Capital Units", participants or persons that may hold
interests through participants will not be entitled to have Book-Entry Capital
Units registered in their names, will not receive or be entitled to receive
physical delivery of Book-Entry Capital Units in definitive form and will not
be considered the owners or holders thereof under the Subordinated Debt
Indenture or Capital Unit Agreement. Accordingly, each person owning an
interest in a Book-Entry Capital Unit must rely on the procedures of the Book-
Entry Unit Depositary and DTC and, if such person is not a participant in DTC,
on the procedures of the participant through which such person owns its
interest, to exercise any rights and obligations of a holder under the
Subordinated Debt Indenture or Capital Unit Agreement. See "-- Action by
Holders of Book-Entry Capital Units".
Payments on Global Debenture and Global Purchase Contract. Payment of any
amounts in respect of Global Debentures and payment of any redemption amounts
for Global Purchase Contracts will be made to the Book-Entry Unit Depositary, as
the holder thereof and as collecting agent for DTC. The Book-Entry Unit
S-14
<PAGE>
Depositary will distribute all such payments to DTC, which will distribute such
payment to its participants. All such payments will be distributed without
deduction or withholding for any taxes or other governmental charges, or if any
such deduction or withholding is required to be made under the provisions of any
applicable law or regulation, then, except as described in the accompanying
Prospectus under "Description of Debt Securities of MS plc -- Payments of
Additional Amounts with respect to Debt Securities", the Company or MS plc (in
respect of the Global Debenture) will pay or cause to be paid such additional
amounts as may be necessary in order that the net amounts received by holders of
beneficial interests in the Global Debenture or the Global Purchase Contract
after such deduction or withholding, will equal the net amounts that such
holders would have otherwise received in respect of the Global Debenture or
Global Purchase Contract, as the case may be, absent such deduction or
withholding. DTC, upon receipt of any such payment, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Capital Units, as shown on the records of
DTC. The Company and MS plc expect that payments by participants to owners of
interests in Book-Entry Capital Units held through such participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
participants. None of the Company, MS plc, the Trustee or any other agent of
the Company, MS plc or the Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of a
participant's interest in Book-Entry Capital Units or for maintaining,
supervising or reviewing any records relating to a participant's interest in
Book-Entry Capital Units.
DTC has advised the Company and MS plc as follows: DTC is a limited-
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participants and to facilitate the clearance and settlement of
transactions among its participants in such securities through electronic book-
entry changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTC participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to DTC book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Ownership of Book-Entry Capital Units will be limited to DTC participants
or persons that may hold interests through participants. Upon the issuance by
the Book-Entry Unit Depositary of the certificateless depositary interest to
DTC, DTC will credit, on its book-entry registration and transfer system, the
participants' accounts with the respective interests beneficially owned by such
participants. The accounts to be credited shall be designated by the
Underwriters. Ownership of interests in Book-Entry Capital Units will be shown
on, and the transfer of such interests will be effected only through, records
maintained by DTC (with respect to interests of participants) and on the
records of participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge Book-
Entry Capital Units.
The Company and MS plc understand that under existing industry practices,
if either of them requests any action of holders of Book-Entry Capital Units or
if an owner of a Book-Entry Capital Unit desires to give or take any action that
a holder is entitled to give or take under the Subordinated Debt Indenture or
Capital Unit Agreement, including the election to make a Cash Settlement on any
Purchase Date, DTC would authorize the participants holding the relevant Book-
Entry Capital Units to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
Redemption. In the event the Global Debenture or Global Purchase Contract
(or portion thereof) is redeemed, the Book-Entry Unit Depositary will redeem,
from the amount received by it in respect of the redemption of the Global
Debenture or Global Purchase Contract, as the case may be, an equal amount of
the depositary interest issued to DTC. The redemption price payable in
connection with the redemption of Book-Entry Capital Units will
S-15
<PAGE>
be equal to the amount received by the Book-Entry Unit Depositary in connection
with the redemption of the Global Debenture or Global Purchase Contract (or
portion thereof), as the case may be, less any amounts required to be withheld
in respect of taxes.
Transfers. All transfers of interests in Book-Entry Capital Units will be
recorded in accordance with the book-entry system maintained by DTC, pursuant to
customary procedures established by DTC and its participants. See "-- General".
Investors may transfer or exchange interests in Book-Entry Capital Units for
Definitive Capital Units as set forth under "-- Issuance of Definitive Capital
Units" below and investors may transfer or exchange interests in Definitive
Capital Units for interests in Book-Entry Capital Units by depositing their
Definitive Capital Units with the Capital Unit Agent and requesting the Capital
Unit Agent to effect such transfer or exchange. The amount of the depositary
interest held by DTC will be increased and decreased to reflect such transfers
or exchanges. The Book-Entry Unit Depositary will make the appropriate
adjustments to the Global Debenture and Global Purchase Contract underlying the
Book-Entry Capital Units to reflect any such transfers or exchanges.
Acceleration. Holders of Book-Entry Capital Units may elect to effect a
Cash Settlement on a Purchase Date in lieu of surrendering such holders'
interest in the Global Debenture in accordance with procedures set forth under
"-- Action by Holders of Book-Entry Capital Units" below. If such holders
effect such a Cash Settlement, or if all or any portion of the Global Purchase
Contract is redeemed, a second global Debenture (including a Guarantee) without
coupons will be issued by MS plc to the Book-Entry Unit Depositary representing
the aggregate principal amount of Debentures that will remain outstanding
without a related Purchase Contract. The Book-Entry Unit Depositary will then
issue a corresponding certificateless depositary interest in such second global
Debenture (and Guarantee) to DTC. The second global Debenture (and
corresponding certificateless depositary interest in such Debenture issued to
DTC) will be issued in an amount equal to the aggregate principal amount of
Debentures that were not repaid in connection with the acceleration or
redemption of the related Purchase Contracts and the aggregate principal amount
of the initial Global Debenture underlying Book-Entry Capital Units will be
reduced by a corresponding amount. MS plc will appoint the Book-Entry Unit
Depositary as its agent for purposes of maintaining a register recording the
right to principal of and interest on the second global Debenture. Interests in
such second global Debenture cannot be transferred unless such transfer is
recorded on the register maintained by the Book-Entry Unit Depositary. DTC will
also operate a book-entry system with respect to the depositary interest issued
to it in respect of the second global Debenture. Depositary Shares issuable to
holders of Book-Entry Capital Units will be issued to or upon the order of DTC
(or its nominee) on behalf of such holders.
Holders of Definitive Capital Units must tender their Definitive Capital
Units to the Capital Unit Agent in order to receive the Depositary Shares
representing the Preferred Stock issuable upon the settlement of the related
Purchase Contract (whether such settlement is a Cash Settlement or a Debenture
Settlement). See "Description of the Capital Units -- Certain Provisions of the
Capital Unit Agreement -- Payment, Settlement, Transfer and Exchange of
Definitive Capital Units" in the accompanying Prospectus. When Definitive
Capital Units are received by the Capital Unit Agent, the Purchase Contract
portion of each such Definitive Capital Unit will be cancelled and a certificate
for the Depositary Shares representing an interest in the Cumulative Preferred
Stock will be issued to the holder. If the holder has elected and properly
effected a Cash Settlement, a certificate evidencing a Debenture and Guarantee
will also be issued to the holder. Transfers between interests in the second
global Debenture and definitive registered Debentures which are no longer part
of a Definitive Capital Unit will be effected in the same manner as described in
"-- Transfers" above.
Issuance of Definitive Capital Units. Holders of Book-Entry Capital Units
will be entitled to receive Definitive Capital Units in registered form if DTC
is at any time unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under the Exchange Act, and a successor to DTC
registered as a clearing agency under the Exchange Act is not appointed by the
Company and MS plc within 90 days. In addition, Definitive Capital Units will
be issued in exchange for all Book-Entry Capital Units (i) if the Book-Entry
Unit Depositary is at any time unwilling or unable to continue as Book-Entry
Unit Depositary and a successor Book-Entry Unit Depositary is not appointed by
the Company and MS plc within 90 days, (ii) upon the occurrence of an Event of
Default with respect to the Debentures or (iii) if the Company and MS plc at any
time and in their sole discretion determine not to have any of the Capital Units
represented by Book-Entry Capital Units. Any Definitive Capital
S-16
<PAGE>
Units issued in exchange for Book-Entry Capital Units will be registered in such
name or names as the Book-Entry Unit Depositary shall instruct the Trustee and
Capital Unit Agent, respectively, based on the instructions of DTC. It is
expected that such instructions will be based upon directions received by DTC
from participants with respect to ownership of Book-Entry Capital Units.
In addition to the foregoing, holders who purchase Capital Units as part of
their initial offering pursuant to this Prospectus Supplement and holders of
Book-Entry Capital Units will be entitled to request and receive Definitive
Capital Units. In the case of a person holding Book-Entry Capital Units,
Definitive Capital Units will be issued to and registered in the name of, or as
directed by, such person only upon the request in writing by the Book-Entry Unit
Depositary (based upon the instructions of DTC).
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE ISSUANCE
TO A HOLDER OF DEFINITIVE CAPITAL UNITS, SUCH HOLDER WILL BECOME SUBJECT TO U.K.
INCOME TAX (CURRENTLY 25%) TO BE WITHHELD ON ANY PAYMENTS OF INTEREST ON THE
DEBENTURES CONSTITUTING PART OF THE DEFINITIVE CAPITAL UNITS AS SET FORTH UNDER
"CERTAIN TAX CONSEQUENCES". IF SUCH DEFINITIVE CAPITAL UNITS ARE ISSUED
PURSUANT TO THE REQUEST OF A HOLDER, NEITHER MS PLC NOR THE COMPANY WILL BE
OBLIGATED TO PAY ANY ADDITIONAL AMOUNTS WITH RESPECT TO THE DEBENTURES.
However, U.S. holders of Definitive Capital Units may be entitled to receive a
refund of withheld amounts from the U.K. Inland Revenue in certain
circumstances. See "Certain Tax Considerations". In addition, if a holder
receives Definitive Capital Units other than pursuant to its request, such
holder will be entitled to receive Additional Amounts with respect to the
Debentures that are part of such Definitive Capital Units. See "Description of
Debt Securities of MS plc -- Payment of Additional Amounts with respect to Debt
Securities" in the accompanying Prospectus.
Action by Holders of Book-Entry Capital Units. As soon as practicable
after receipt by the Book-Entry Unit Depositary of notice of any solicitation of
consents or request for a waiver or other action by the holders of Book-Entry
Capital Units, the Book-Entry Unit Depositary will mail to DTC a notice
containing (a) such information as is contained in such notice, (b) a statement
that at the close of business on a specified record date DTC will be entitled to
instruct the Book-Entry Unit Depositary as to the consent, waiver or other
action, if any, pertaining to the Book-Entry Capital Units, and (c) a statement
as to the manner in which such instructions may be given. Upon the written
request of DTC, the Book-Entry Unit Depositary shall endeavor insofar as
practicable to take such action regarding the requested consent, waiver or other
action in respect of the Book-Entry Capital Units in accordance with any
instructions set forth in such request. DTC is expected to follow the
procedures described under "-- General" above with respect to soliciting
instructions from its participants. The Book-Entry Unit Depositary will not
exercise any discretion in the granting of consents or waivers or the taking of
any other action relating to the Capital Unit Agreement or the Subordinated Debt
Indenture.
Reports. The Book-Entry Unit Depositary will immediately send to DTC a
copy of any notices, reports and other communications received relating to MS
plc, the Company or Book-Entry Capital Units.
Action by Book-Entry Unit Depositary. Upon the occurrence of a default
with respect to the Book-Entry Capital Units, or in connection with any other
right of the holder of the Global Debenture under the Subordinated Debt
Indenture or the Global Purchase Contract under the Capital Unit Agreement, if
requested in writing by DTC, the Book-Entry Unit Depositary will take any such
action as shall be requested in such notice; provided that the Book-Entry Unit
Depositary has been offered reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request by the holders of Book-Entry Capital Units.
Charges of Book-Entry Unit Depositary. The Company and MS plc have agreed
to pay all charges of the Book-Entry Unit Depositary under the Capital Unit
Agreement. The Company and MS plc also have agreed to indemnify the Book-Entry
Unit Depositary against certain liabilities incurred by it under the Capital
Unit Agreement.
Amendment and Termination. In addition to the matters described under
"Description of the Capital Units -- Certain Provisions of the Capital Unit
Agreement -- Modification" in the accompanying Prospectus, the Capital
S-17
<PAGE>
Unit Agreement may be amended by agreement among the Company, MS plc, the
Capital Unit Agent and the Book-Entry Unit Depositary. The consent of DTC shall
not be required in connection with any amendment to the Capital Unit Agreement
(i) to cure any inconsistency or ambiguity in the Capital Unit Agreement, (ii)
to add to the covenants and agreements of the Book-Entry Unit Depositary, the
Capital Unit Agent or the Company and MS plc, as applicable, (iii) to effectuate
the assignment of the Book-Entry Unit Depositary's rights and duties to a
qualified successor, (iv) to comply with the Securities Act, the Exchange Act or
the U.S. Investment Company Act of 1940, as amended, or (v) to modify, alter,
amend or supplement the Capital Unit Agreement in any other manner that is not
adverse to DTC or the holders of Book-Entry Capital Units. Except as set forth
above, no amendment that adversely affects DTC may be made to the Capital Unit
Agreement or the Book-Entry Capital Units without the consent of DTC.
The Book-Entry Unit Depositary will at any time at the direction of the
Company or MS plc, as applicable, terminate the Book-Entry Capital Unit
provisions of the Capital Unit Agreement by mailing a notice of such termination
to the Company, MS plc, the Trustee and the Capital Unit Agent and requesting
that the Trustee and the Capital Unit Agent, as applicable, issue Definitive
Capital Units, in replacement of Book-Entry Capital Units to the persons and in
the amounts as specified by DTC. Upon the issuance of such Definitive Capital
Units, the Book-Entry Capital Unit provisions of the Capital Unit Agreement will
terminate. The Book-Entry Capital Unit provisions of the Capital Unit Agreement
may also be terminated upon the resignation of the Book-Entry Unit Depositary if
no successor has been appointed within 90 days as set forth under "--
Resignation or Removal of Book-Entry Unit Depositary" below.
Resignation or Removal of Book-Entry Unit Depositary. The Book-Entry Unit
Depositary may at any time resign as Book-Entry Unit Depositary by written
notice delivered to each of the Company, MS plc, the Trustee and the Capital
Unit Agent, such resignation to take effect upon the appointment by the Company
and MS plc of a successor book-entry unit depositary and its acceptance of such
appointment. If at the end of 90 days after delivery of such notice, no
successor depositary has been appointed or has accepted such appointment, the
Book-Entry Unit Depositary may terminate the Book-Entry Capital Unit provisions
of the Capital Unit Agreement.
Obligations of Book-Entry Unit Depositary. The Book-Entry Unit Depositary
will assume no obligation or liability under the Capital Unit Agreement other
than to use good faith and reasonable care in the performance of its duties
under the Capital Unit Agreement.
DESCRIPTION OF DEFINITIVE CAPITAL UNITS
For a further description of Definitive Capital Units and the related
provisions of the Capital Unit Agreement, see "Description of the Capital Units"
in the accompanying Prospectus.
INFORMATION CONCERNING THE CAPITAL UNIT AGENT, THE BOOK-ENTRY UNIT DEPOSITARY
AND THE TRUSTEE
Chemical Bank is the Capital Unit Agent and Book-Entry Unit Depositary
under the Capital Unit Agreement and the Trustee under the Subordinated Debt
Indenture. Chemical Bank is one of a number of banks with which the Company and
its subsidiaries maintain ordinary banking relationships and with which the
Company and its subsidiaries maintain credit facilities.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following description of the Cumulative Preferred Stock offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Offered Cumulative Preferred Stock
set forth in the Prospectus, to which description reference is hereby made. The
Company and MS plc currently have outstanding Capital Units that may result in
up to 611,238 shares of the Company's 7.82%
S-18
<PAGE>
Cumulative Preferred Stock, with a stated value of $200.00 per share (the "7.82%
Preferred Stock"), being issued at any time, and up to 1,150,000 shares of the
Company's 7.80% Cumulative Preferred Stock, with a stated value of $200.00 per
share (the "7.80% Preferred Stock"), being issued at any time after February 28,
1995. If issued, the liquidation preference with respect to each of the 7.82%
Preferred Stock and the 7.80% Preferred Stock would be $200.00 per share and
each of the 7.82% Preferred Stock and the 7.80% Preferred Stock would be
redeemable at the option of the Company on and after November 30, 1998 and
February 28, 1999, respectively. Unless the context otherwise requires, as used
in this Prospectus Supplement and the accompanying Prospectus, the term
"Existing Cumulative Preferred Stock" includes shares of 7.82% Preferred Stock
and 7.80% Preferred Stock that may be issued by the Company. The following
summary of the particular terms and provisions of the Cumulative Preferred Stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Restated Certificate of Incorporation and the Certificate of
Designation of Preferences and Rights of the Cumulative Preferred Stock (the
"Certificate of Designation").
Pursuant to action of the Board of Directors of the Company or a committee
thereof (the "Committee"), the shares of Cumulative Preferred Stock represented
by the Depositary Shares (including the shares of Cumulative Preferred Stock
represented by the Depositary Shares that relate to Capital Units that are
subject to the Underwriters' over-allotment option) constitute a single series
of Cumulative Preferred Stock. The Cumulative Preferred Stock is not
convertible into shares of any other class or series of stock of the Company.
Shares of Cumulative Preferred Stock have no preemptive rights. Any shares of
Cumulative Preferred Stock that are surrendered for redemption will be returned
to the status of authorized and unissued Preferred Stock.
The Bank of New York is the registrar, transfer agent and dividend
disbursing agent for the shares of Cumulative Preferred Stock.
Rank. As of the date hereof, the Cumulative Preferred Stock ranks as to
payment of dividends and amounts payable on liquidation prior to the Common
Stock and on a parity with the ESOP Preferred Stock and each series of the
Existing Cumulative Preferred Stock.
Dividends. Holders of shares of Cumulative Preferred Stock are entitled to
receive, when and as declared by the Board of Directors or the Committee out of
funds legally available therefor, cash dividends payable quarterly at the rate
of 9.00% per annum. Dividends on the Cumulative Preferred Stock, calculated as
a percentage of the stated value, will be payable quarterly on February 28, May
30, August 30 and November 30, commencing on the first such date occurring after
the Cumulative Preferred Stock is issued pursuant to the Purchase Contracts.
Dividends on the Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such Cumulative Preferred Stock. Dividends will be payable
to holders of record as they appear on the stock books of the Company on such
record dates, not more than 60 nor less than 10 days preceding the payment
dates, as shall be fixed by the Board of Directors or the Committee.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, the holders of shares of Cumulative Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution is made to holders of (i)
any other shares of Preferred Stock ranking junior to the Cumulative Preferred
Stock as to rights upon liquidation, dissolution or winding up that may be
issued in the future or (ii) Common Stock, liquidating distributions in the
amount of $200.00 per share (equivalent to $25.00 per Depositary Share), plus
accrued and accumulated but unpaid dividends to the date of final distribution,
but the holders of the shares of Cumulative Preferred Stock will not be entitled
to receive the liquidation price of such shares until the liquidation preference
of any other shares of the Company's capital stock ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation, dissolution or winding
up shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full.
Optional Redemption. The Cumulative Preferred Stock is not subject to any
mandatory redemption or sinking fund provision. The Cumulative Preferred Stock
is not redeemable prior to February 28, 2000. On or after such date, the
Cumulative Preferred Stock will be redeemable at the option of the Company, in
whole or in part, upon not less than 30 days' notice at the redemption price
equal to $200.00 per share (equivalent to $25.00 per
S-19
<PAGE>
Depositary Share), plus accrued and accumulated but unpaid dividends to but
excluding the date fixed for redemption. If full cumulative dividends on the
Cumulative Preferred Stock have not been paid, the Cumulative Preferred Stock
may not be redeemed in part and the Company may not purchase or acquire any
share of Cumulative Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of Cumulative
Preferred Stock are to be redeemed, the Company will select those to be redeemed
by lot or a substantially equivalent method.
Voting Rights. Holders of Cumulative Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. Whenever dividends on Cumulative Preferred Stock or any other
class or series of stock ranking on a parity with the Cumulative Preferred Stock
with respect to the payment of dividends shall be in arrears for dividend
periods, whether or not consecutive, containing in the aggregate a number of
days equivalent to six calendar quarters, the holders of shares of Cumulative
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two of the authorized number of
directors of the Company at the next annual meeting of stockholders and at each
subsequent meeting until all dividends accumulated on Cumulative Preferred Stock
have been fully paid or set apart for payment. The term of office of all
directors elected by the holders of Preferred Stock shall terminate immediately
upon the termination of the right of the holders of Preferred Stock to vote for
directors. Holders of shares of Cumulative Preferred Stock will have one vote
for each share held.
DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share represents 1/8 of a share of Cumulative Preferred
Stock deposited with the Preferred Stock Depositary pursuant to the Deposit
Agreement, dated as of February 21, 1995 (the "Deposit Agreement"), among the
Company, The Bank of New York, as depositary (the "Preferred Stock Depositary"),
and the holders from time to time of depositary receipts issued thereunder.
Subject to the terms of the Deposit Agreement, each holder of a Depositary Share
is entitled, through the Preferred Stock Depositary, in proportion to the 1/8 of
a share of Cumulative Preferred Stock represented by such Depositary Share, to
all the rights, preferences and privileges of the Cumulative Preferred Stock
represented thereby (including dividend, voting and liquidation rights)
contained in the Certificate of Designation summarized under "Description of
Capital Stock of the Company -- Offered Preferred Stock" in the accompanying
Prospectus. The Company does not expect that there will be any public trading
market for the Cumulative Preferred Stock except as represented by the
Depositary Shares. The Depositary Shares will be evidenced by depositary
receipts ("Depositary Receipts") issued pursuant to the Deposit Agreement.
The following description of the particular terms and provisions of the
Depositary Shares supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Depositary
Shares set forth in the accompanying Prospectus, to which description reference
is hereby made. The following summary of the Depositary Shares, the Depositary
Receipts and the Deposit Agreement does not purport to be complete and is
qualified in its entirety by reference to the Deposit Agreement (which contains
the form of Depositary Receipt).
Issuance of Depositary Receipts. Immediately following the issuance of the
Cumulative Preferred Stock by the Company, the Company will deposit the
Cumulative Preferred Stock with the Preferred Stock Depositary, which will then
issue and deliver the Depositary Receipts to the holders of Capital Units who
have satisfied their obligations under the related Purchase Contracts.
Depositary Receipts will be issued evidencing only whole Depositary Shares.
Dividends and Other Distribution. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect of
the Cumulative Preferred Stock to the record holders of Depositary Shares in
proportion to the number of the Depositary Shares owned by such holders. The
amount distributed will
S-20
<PAGE>
be reduced by any amounts required to be withheld by the Company or the
Preferred Stock Depositary on account of taxes or other governmental charges.
Withdrawal of Stock. Upon surrender of the Depositary Receipts at the
corporate trust office of the Preferred Stock Depositary and upon payment of the
taxes, charges and fees provided for in the Deposit Agreement and subject to the
terms thereof, the holder of the Depositary Shares evidenced thereby is entitled
to delivery at such office, to or upon his or her order, of the number of whole
shares of Cumulative Preferred Stock and any money or other property, if any,
represented by such Depositary Shares. Holders of Depositary Shares will be
entitled to receive whole shares of Cumulative Preferred Stock on the basis set
forth herein, but holders of such whole shares of Cumulative Preferred Stock
will not thereafter be entitled to deposit such shares of Cumulative Preferred
Stock with the Preferred Stock Depositary or to receive Depositary Shares
therefor.
Voting. Because each Depositary Share represents ownership of 1/8 of a
share of Cumulative Preferred Stock, holders of Depositary Shares will be
entitled to 1/8 of a vote per Depositary Share under the limited circumstances
in which the holders of Cumulative Preferred Stock are entitled to vote.
Redemption. The Depositary Shares will be redeemed, upon not less than 30
days' notice, using the cash proceeds received by the Preferred Stock Depositary
resulting from any redemption of shares of Cumulative Preferred Stock held by
the Preferred Stock Depositary. The redemption price will be equal to $25.00
per Depositary Share plus accrued and accumulated but unpaid dividends on the
Cumulative Preferred Stock. See "Description of Cumulative Preferred Stock --
Optional Redemption". If the Company redeems shares of Cumulative Preferred
Stock held by the Preferred Stock Depositary, the Preferred Stock Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing the shares of Cumulative Preferred Stock so redeemed. If fewer
than all the Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected by lot or substantially equivalent method determined
by the Preferred Stock Depositary.
Holders of Depositary Receipts will pay transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
CERTAIN TAX CONSIDERATIONS
The following summary of certain U.S. and U.K. tax consequences is set
forth with respect to U.S. federal tax matters in reliance upon the advice of
Shearman & Sterling, New York, New York and with respect to U.K. tax matters in
reliance upon the advice of Linklaters & Paines, London, England. The summary
describes certain U.S. federal and U.K. tax consequences of the ownership of
Capital Units and Depositary Shares as of the date of this Prospectus
Supplement. Except where noted, it deals only with Capital Units or Depositary
Shares beneficially owned as capital assets by purchasers that are citizens or
residents of the United States, U.S. corporations or persons otherwise subject
to U.S. federal income taxation on a net basis with respect to Capital Units and
Depositary Shares (a "U.S. Holder"). It does not deal with special situations,
such as those of dealers in securities or life insurance companies or persons
owning, directly or indirectly, 10% or more of the voting stock of the Company.
The summary does not address the U.K. tax consequences to a holder that is
resident (or, in the case of an individual, who is ordinarily resident) for U.K.
tax purposes in the United Kingdom, who is domiciled under U.K. law in the
United Kingdom, or that carries on business in the United Kingdom through a
branch or agency.
The statements below regarding U.S. tax consequences are based upon the
provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
and regulations, rulings and judicial decisions thereunder as of the date of
this Prospectus Supplement. The statements regarding U.K. tax laws set forth
below are based on those laws as in force on the date of this Prospectus
Supplement. Such authorities may be repealed, revoked or modified, in which
case tax consequences different from those discussed below could result.
S-21
<PAGE>
Persons considering the purchase, ownership or disposition of Capital Units
or Depositary Shares should consult their own tax advisors concerning the U.S.
federal and U.K. tax consequences in light of their particular situations as
well as any consequences arising under the laws of any other taxing
jurisdiction.
GENERAL
Owners of the Depositary Shares will be treated for U.S. federal income tax
purposes as owners of the Cumulative Preferred Stock represented by such
Depositary Shares.
The discussion below assumes that the issue price of a Capital Unit (i.e.,
the initial offering price to the public at which a substantial amount of
Capital Units are sold) will equal the amount payable at maturity of a
Debenture.
For U.S. federal income tax purposes, in general, the issue price of each
Capital Unit would be allocated between the Debenture and the Purchase Contract
included in the Capital Unit. MS plc and the holders have agreed in the Capital
Unit Agreement that the issue price of the Debenture, and therefore the tax
basis of the Debenture for an original holder, would equal the amount payable
at maturity of the Debenture. Thus, an original holder should not allocate any
portion of the issue price of a Capital Unit to the Purchase Contract.
For U.S. federal and U.K. tax purposes, the Debentures will be treated as
debt.
PAYMENTS ON THE DEBENTURES
For U.S. federal income tax purposes, a U.S. Holder will include interest
payable on the Debentures in income when received or accrued, in accordance with
the holder's method of accounting. Such interest will generally be treated as
foreign source passive income for foreign tax credit purposes.
A U.S. Holder of an interest in a Global Debenture will not be subject to
U.K. withholding taxes on payments of interest on such Global Debenture;
provided that (i) the Capital Units, as anticipated, are and continue to be
quoted on a recognized stock exchange, and (ii) payments are made through a
paying agent which is not in the U.K.
A U.S. Holder of an interest in a global Debenture that is not part of a
Capital Unit will be subject to U.K. withholding taxes on payments of interest
on such Debenture at a rate of 25% unless (i) the global Debenture is and
continues to be quoted on a recognized stock exchange and (ii) payments are made
through a paying agent which is not in the U.K. It is not currently
anticipated that any such global Debenture would be quoted on a recognized stock
exchange. Such a U.S. Holder will be entitled to receive Additional Amounts for
any U.K. tax that is required to be withheld with respect to any such Debenture.
See "Description of Debt Securities of MS plc -- Payment of Additional Amounts
with respect to Debt Securities" in the accompanying Prospectus. For U.S.
federal income tax purposes, any Additional Amounts will be includible in income
by a holder as interest at the time such amounts are paid by MS plc, whether or
not the holder is entitled to a refund of such tax or such refund is sought.
Recipients of Additional Amounts who are U.S. Holders should generally be
entitled to claim a refund of any such U.K. withholding tax pursuant to the
United States/United Kingdom Double Taxation Convention (the "Income Tax
Treaty"). However, it is possible that a U.S. Holder may have difficulty in
establishing his claim to a refund, in which case such claim may be denied by
U.K. Inland Revenue. In the case of a holder entitled to claim a refund of any
U.K. tax withheld, no U.S. foreign tax credit or deduction may be claimed for
the amount of U.K. tax eligible for a refund, whether or not such refund is
sought, to the extent that it is reasonably certain that such U.K. tax will be
refunded. If a U.S. Holder receives a refund of U.K. tax for which a deduction
or foreign tax credit was previously claimed, the holder will generally (i) in
the case of a deduction, include the refund in gross income, or (ii) in the case
of a foreign tax credit, be required to notify the Internal Revenue Service of
the receipt of the refund, according to the requirements of Section 1.905-4T of
the Treasury regulations or successor provision, and
S-22
<PAGE>
the Internal Revenue Service will redetermine the holder's U.S. federal income
tax liability for the taxable year in which the credit was originally claimed.
Interest payable on the Debentures (including a Global Debenture or an
interest in a global Debenture that is not part of a Capital Unit) will
constitute U.K. source income for U.K. tax purposes and as such, remains subject
to U.K. tax by direct assessment even if the interest is exempt from U.K.
withholding tax. However, exemption from U.K. tax may be available in
appropriate cases under the Income Tax Treaty. In any event, under long-
standing U.K. Inland Revenue practice (published as Extra Statutory Concession
B13), no action is normally taken to pursue any such income tax liability where
the beneficial owner of the interest is regarded as not resident in the United
Kingdom for the whole of the relevant tax year and is neither chargeable under
Section 78 Taxes Management Act 1970 (the "Taxes Management Act") in the name of
a U.K. trustee mentioned in Section 72 of the Taxes Management Act, nor has a
U.K. branch or agent which has the management or control of the interest, except
insofar as the tax can be recovered on a setoff on a claim for relief in respect
of taxed income from U.K. sources. If proposals contained in the current
Finance Bill are enacted as currently drafted, this practice will receive
statutory force effective from the 1996-1997 tax year.
Payments of interest on a Debenture to a U.S. Holder of a Definitive
Capital Unit will be subject to U.K. withholding tax at a rate of 25%. However,
a U.S. Holder would generally be entitled to receive a refund of such tax in
full from the U.K. Inland Revenue pursuant to the Income Tax Treaty. The
appropriate form (Form FD13) must be sent in duplicate to the Internal Revenue
Service Center Director with which such U.S. Holder's last federal income tax
return was filed. Forms are available in the United States from the Chief,
International Operations Division, Internal Revenue Service, 950 L'Enfant Plaza
South, S.W., Washington, D.C. 20024, or in the United Kingdom from the Inspector
of Foreign Dividends, 72, Maid Marian Way, Nottingham, NG1 6AS, England.
Alternatively, a U.S. Holder of a Definitive Capital Unit may apply to the U.K.
Inland Revenue for an advance ruling that payments on the Debentures can be made
free of U.K. withholding tax. Claims for repayment must be made within six
years of the end of the U.K. year of assessment (generally April 5 in each year)
to which the income related and must be accompanied by the original statement
provided by MS plc (or any nominee holding the Debentures on the U.S. Holder's
behalf) showing the amount of income tax deducted and when the interest payment
was made. As a claim is not considered made until the U.K. authorities receive
the appropriate form from the Internal Revenue Service, forms should be sent to
the Internal Revenue Service well before the end of the applicable limitation
period. Payments of Additional Amounts will not be paid by MS plc with respect
to a definitive registered Debenture issued to a holder upon such holder's
request. See "Description of Debt Securities of MS plc -- Payment of Additional
Amounts with respect to Debt Securities" in the accompanying Prospectus.
SALE OR DISPOSITION OF CAPITAL UNITS
For U.S. federal income tax purposes, gain or loss generally will be
recognized by a U.S. Holder on a sale or other disposition of a Capital Unit
prior to maturity of the Debentures measured by the difference between the sum
of any cash and the fair market value of the property received in the sale or
other disposition (reduced, in the case of a cash basis taxpayer, by any amount
attributable to accrued interest, which will be taxable as such) and the
holder's tax basis in the Capital Units. Any gain or loss recognized by an
original holder generally will be capital gain or loss and will be long-term
capital gain or loss if at the time of such sale or other disposition the
Capital Units have been held by the holder for more than one year. Any such
gain will not be treated as foreign source income.
A U.S. Holder will not be subject to U.K. tax (including withholding tax)
on the sale or disposition of a Capital Unit (or an interest in a global
Debenture that is not part of a Capital Unit). Similarly, a U.S. Holder will
not be subject to U.K. tax where an interest in a Global Debenture is exchanged
for a definitive registered Debenture represented by a Definitive Capital Unit.
S-23
<PAGE>
REDEMPTION OR MATURITY OF DEBENTURES
For U.S. federal income tax purposes, a U.S. Holder who acquires Capital
Units in their initial offering will not realize gain or loss with respect to
the Debentures upon their redemption (including pursuant to a prepayment in
connection with the settlement of a Purchase Contract) or upon payment at
maturity.
A U.S. Holder will not be subject to U.K. tax (including withholding tax)
on the redemption (including pursuant to a prepayment in connection with the
settlement of a Purchase Contract) of an interest in a global Debenture. For
the U.K. withholding tax consequences in connection with accrued interest
received on redemption, see "Payments on the Debentures" above.
MARKET DISCOUNT/BOND PREMIUM CONSEQUENCES FOR SECONDARY HOLDERS OF CAPITAL UNITS
The U.K. tax consequences with respect to a Capital Unit for a U.S. Holder
who acquires Capital Units after their initial offering will be the same as
those for a U.S. Holder who acquires Capital Units in their initial offering.
Except as described below, the U.S. federal income tax consequences with
respect to a Capital Unit for a U.S. Holder who acquires Capital Units after
their initial offering generally will be the same as those for a U.S. Holder who
acquires Capital Units in their initial offering.
The purchase price of each Capital Unit must be allocated between the
Debenture and the Purchase Contract included in the Capital Unit in accordance
with their respective fair market values at the time of purchase.
If the fair market value (and, therefore, the tax basis) of a Debenture at
the time of purchase is less than the amount payable at maturity of the
Debenture, the difference generally will be considered "market discount".
Market discount is disregarded as "de minimis" if it is less than 0.25% of the
amount payable at maturity of the Debenture multiplied by the number of complete
years remaining to maturity of the Debenture. If a U.S. Holder realizes a gain
upon disposition of a Debenture (including as part of a disposition of a Capital
Unit), the lesser of (i) the excess of the amount received on the disposition
over the holder's tax basis in the Debenture or (ii) the portion of the market
discount that accrued while the Debenture was held by the holder and that was
not previously included in income generally will be treated as ordinary interest
income. If a U.S. Holder disposes of a Debenture (including as part of a
disposition of a Capital Unit) in any transaction other than a sale, exchange or
involuntary conversion (e.g., as a gift), the holder generally will be treated
as having realized an amount equal to the fair market value of the Debenture and
will be required to recognize as ordinary income any gain on disposition to the
extent of the accrued market discount. Market discount will be considered to
accrue ratably during the period from the date of acquisition to the maturity
date of the Debenture, unless the holder elects to accrue it on the basis of a
constant interest rate.
A U.S. Holder will generally 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 a Debenture purchased at a market discount until
the maturity of the Debenture or its earlier disposition (including a
nonrecognition transaction described in Section 1276(c) of the Internal Revenue
Code).
A U.S. Holder may elect to include market discount in income currently as
it accrues (on either a ratable or constant interest rate basis), in which case
the rules described above regarding the treatment as ordinary income of gain
upon the disposition of the Debenture and regarding the deferral of interest
deductions will not apply. An election to include market discount currently
will apply to other debt instruments acquired at a discount by the holder. A
U.S. Holder should consult a tax advisor before making the election.
If the fair market value (and, therefore, the tax basis) of a Debenture at
the time of purchase is greater than the amount payable at maturity of the
Debenture, the excess will be "bond premium". A holder may either
S-24
<PAGE>
recognize the bond premium as a capital loss upon payment of the Debenture at
maturity or make an election to amortize it over the term of the Debenture. If
the election is made, the bond premium will generally reduce the interest income
on a Debenture on a constant yield basis over the remaining term of the
Debenture and will reduce the basis of the Debenture by the amortized amount.
An election to amortize bond premium will apply to other debt instruments
acquired at a premium by the holder. A U.S. Holder should consult a tax advisor
before making the election.
TAX BASIS OF DEPOSITARY SHARES
For U.S. federal income tax purposes, a U.S. Holder who acquires Capital
Units in their initial offering will take a tax basis in the Depositary Shares
in an amount equal to the purchase price for the Depositary Shares (which should
be the same as the purchase price for the holder's Capital Units). A U.S.
Holder who acquires Capital Units after their initial offering will take a tax
basis in the Depositary Shares in an amount equal to the purchase price for the
Depositary Shares plus the amount, if any, allocated to the Purchase Contract of
such holder. A U.S. Holder's holding period for Depositary Shares will commence
on the day after the date the Depositary Shares are acquired.
DISTRIBUTIONS ON DEPOSITARY SHARES
Distributions made with respect to the Depositary Shares will constitute
dividends for U.S. federal income tax purposes to the extent paid out of the
current or accumulated earnings and profits of the Company, as determined for
U.S. federal income tax purposes. Dividends paid by the Company will be
eligible for the dividends received deduction allowed to corporations under the
Code, subject to applicable limitations.
SALE OR DISPOSITION OF DEPOSITARY SHARES
A U.S. Holder who sells or otherwise disposes of Depositary Shares
generally will recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount realized and
the holder's tax basis in the Depositary Shares. Similarly, a U.S. Holder will
generally recognize capital gain or loss for U.S. federal income tax purposes
upon a redemption of Depositary Shares by the Company (assuming that holder does
not own, and is not deemed to own, any Common Stock of the Company), in an
amount equal to the difference between (i) the total redemption price and (ii)
the tax basis of the Depositary Share redeemed. Such capital gain or loss will
be long-term capital gain or loss if the holder has held the stock for more than
one year at the time of disposition.
TRANSFER TAXES
No U.K. stamp duty or stamp duty reserve tax ("SDRT") will be payable on
the acquisition or transfer of, or agreement to transfer, Definitive Capital
Units, Book-Entry Capital Units, or interests in a global Debenture that is not
part of a Capital Unit; provided that any instrument of transfer is not executed
in the U.K. and remains at all subsequent times outside the U.K. Legislation
has been enacted which would repeal stamp duty and SDRT for transactions in
securities generally; however, the effective date for such repeal has not been
set.
S-25
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company and MS plc have agreed to sell to them,
severally, the respective number of Capital Units set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME CAPITAL UNITS
---- -------------
<S> <C>
Morgan Stanley & Co. Incorporated.................... 587,000
Bear, Stearns & Co. Inc.............................. 585,500
Dean Witter Reynolds Inc............................. 585,500
Donaldson, Lufkin & Jenrette Securities Corporation.. 585,500
PaineWebber Incorporated............................. 585,500
Prudential Securities Incorporated................... 585,500
Smith Barney Inc..................................... 585,500
Advest, Inc.......................................... 25,000
William Blair & Co................................... 25,000
J.C. Bradford & Co................................... 25,000
Alex. Brown & Sons Incorporated...................... 50,000
CS First Boston Corporation.......................... 50,000
Cowen & Co........................................... 25,000
Craigie Incorporated................................. 25,000
Crowell, Weedon & Co................................. 25,000
Dain Bosworth Incorporated........................... 25,000
Dillon, Read & Co. Inc............................... 50,000
Doft & Co., Inc...................................... 25,000
A.G. Edwards & Sons, Inc............................. 50,000
Goldman,Sachs & Co................................... 50,000
Fahnestock & Co. Inc................................. 25,000
First Albany Corporation............................. 25,000
First of Michigan Corporation........................ 25,000
Furman Selz Incorporation............................ 25,000
Gruntal & Co., Incorporated.......................... 25,000
Interstate/Johnson Lane Corporation.................. 25,000
Janney Montgomery Scott Inc.......................... 25,000
Kemper Securities, Inc............................... 25,000
Legg Mason Wood Walker, Incorporated................. 25,000
Lehman Brothers Inc.................................. 50,000
McDonald & Company Securities, Inc................... 25,000
Morgan Keegan & Company, Inc......................... 25,000
The Ohio Company..................................... 25,000
Oppenheimer & Co., Inc............................... 50,000
Piper Jaffray Inc.................................... 25,000
Rauscher Pierce Refsnes, Inc......................... 25,000
Raymond James & Associates, Inc...................... 25,000
The Robinson-Humphrey Company Inc.................... 25,000
Salomon Brothers Inc................................. 50,000
Sutro & Co. Incorporated............................. 25,000
Trilon Securities International...................... 25,000
Tucker Anthony Incorporated.......................... 25,000
Wertheim Schroder & Co. Incorporated................. 50,000
Wheat, First Securities, Inc......................... 25,000
---------
Total............................................... 5,250,000
=========
</TABLE>
S-26
<PAGE>
The Underwriting Agreement provides that the obligations of the
several Underwriters to pay for and accept delivery of the Capital Units are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are committed to take and pay for all the
Capital Units (other than those subject to the over-allotment option described
below) if any are taken.
The Underwriters initially propose to offer part of the Capital Units
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $.50 per Capital Unit. Any Underwriter may allow, and such dealers
may reallow, a concession, not in excess of $.25 per Capital Unit, to certain
other dealers. After the initial offering of the Capital Units, the offering
price and other selling terms may from time to time be varied by the
Underwriters.
The Company and MS plc have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
The Underwriters and any dealers utilized in the sale of Capital Units
will not confirm sales to accounts over which they exercise discretionary
authority.
MS plc and the Company have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus Supplement, to purchase
up to 660,100 additional Capital Units at the public offering price set forth on
the cover page hereof, less underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, incurred in the sale of Capital Units offered hereby.
Morgan Stanley & Co. Incorporated ("MS & Co."), is a wholly owned
subsidiary of the Company. The offering of Capital Units will comply with the
requirements of Schedule E of the By-laws of the National Association of
Securities Dealers, Inc. ("NASD") regarding an NASD member firm's underwriting
securities of an affiliate.
In the Underwriting Agreement each Underwriter has represented and
agreed that (i) it has not offered or sold and will not offer or sell any
Capital Units in the U.K. or elsewhere by means of any document other than (A) a
document complying with the provisions of Schedule III of the Companies Act 1985
of the laws of Great Britain (the "Companies Act") and (B) to persons whose
ordinary business it is to buy or sell shares or debentures whether as principal
or agent (other than in circumstances which do not constitute an offer to the
public within the meaning of the Companies Act); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 of the
laws of the United Kingdom with respect to anything done by it in relation to
the Capital Units in, from or otherwise involving the United Kingdom; and (iii)
it has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the Capital Units to a
person who is of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1988, or is a person to whom
the document may otherwise lawfully be issued or passed on.
Following the initial distribution of the Capital Units, MS & Co. may
offer and sell Capital Units in the course of its business as a broker-dealer.
MS & Co. may act as principal or agent in such transactions. This Prospectus
Supplement and the Prospectus may be used by MS & Co. 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. MS & Co. is not obligated to
make a market in the Capital Units and may discontinue any market-making
activities at any time without notice.
Following the initial distribution of the Capital Units, application
will be made to list the Capital Units and the Depositary Shares issuable
pursuant to the Purchase Contracts on the New York Stock Exchange.
S-27
<PAGE>
LEGAL MATTERS
The validity of the Debentures, the Guarantees, the Preferred Stock
and the Purchase Contracts will be passed upon for the Company by Jonathan M.
Clark, General Counsel and Secretary of the Company and a Managing Director of
MS & Co., or other counsel who is satisfactory to MS & Co. and 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
Debentures governed by the laws of England will be passed upon for MS plc by
Linklaters & Paines. Certain tax matters described under the caption "Certain
Tax Considerations" will be passed upon for the Company by Shearman & Sterling
and for MS plc by Linklaters & Paines. Certain legal matters relating to the
Debentures, the Guarantees, the Preferred Stock and the Purchase Contracts will
be passed upon for the Underwriters by Davis Polk & Wardwell. Shearman &
Sterling and Davis Polk & Wardwell have in the past represented and continue 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, Shearman & Sterling owns less than 1% of the common stock of a
company in which the Company owns an interest and 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.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
The Company and certain affiliates of the Company, including MS & Co.
and MSIL, may each be considered a "party in interest" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a
"disqualified person" within the meaning of the Code with respect to many
employee benefit plans. Prohibited transactions within the meaning of ERISA or
the Code may arise, for example, if the Debentures or Guarantees are acquired by
or with the assets of a pension or other employee benefit plan with respect to
which MS & Co. or any of its affiliates is a service provider, unless such
Debentures or Guarantees are acquired pursuant to an exemption for transactions
effected on behalf of such plan by a "qualified professional asset manager" or
pursuant to any other available exemption. The assets of a pension or other
employee benefit plan may include assets held in the general account of an
insurance company that are deemed to be "plan assets" under ERISA. ANY
INSURANCE COMPANY OR PENSION OR EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE
DEBENTURES OR GUARANTEES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
S-28
<PAGE>
GENERAL INFORMATION
The information below is included pursuant to the Companies Act 1985 of
Great Britain:
1. Ernst & Young has given and not withdrawn its written consent to the
issue of this Prospectus Supplement with the inclusion herein of its report, and
references thereto and to its name in the form and context in which it appears.
2. Copies of the following documents may be inspected during usual
business hours at the offices of Linklaters & Paines, 59-67 Gresham Street,
London EC2V 7JA for 14 days from the date of this Prospectus Supplement:
(i) Memorandum and Articles of Association of MS plc; and
(ii) the Subordinated Debt Indenture, the Capital Unit Agreement
and the Underwriting Agreement.
3. MS plc was incorporated in England and Wales on June 10, 1993 as a
public limited company under the Companies Act 1985 of Great Britain with the
name Hackplimco (No. Eight) Public Limited Company with an authorized share
capital of 100,000 ordinary shares of (Pounds)1 each of which 50,000 shares have
been issued for cash of which two shares are fully paid and the remaining
49,998 shares are paid up as to (Pounds)0.25 each. On October 6, 1993, MS plc
changed its name to Morgan Stanley plc. On October 15, 1993, MS plc changed its
name to Morgan Stanley Finance plc.
4. On October 11, 1993 MS plc was granted a certificate entitling a
public company to trade and borrow. MS plc commenced business on October 13,
1993.
5. There are no founders or management or deferred shares of MS plc and
no Director of MS plc, is required by its Articles of Association to hold any
qualification shares in MS plc; no shares or debentures of MS plc are under
option or are agreed conditionally or unconditionally to be put under option;
and no shares or debentures of MS plc have been or are proposed to be issued for
consideration other than cash.
6. Total commissions and selling concessions (exclusive of any value
added tax) payable, or as the case may be, allowable by MS plc, for the Capital
Units are $.7875 per $25 of the Capital Units. No other amounts have been paid
or are payable as commission for subscribing or agreeing to subscribe, or
procuring or agreeing to procure subscriptions, for any shares in or debentures
of MS plc.
7. The amount of the preliminary expenses of the establishment of MS plc
was approximately U.S.$150.00. Such expenses were paid by MS plc. The expenses
of MS plc in connection with the offering hereby of the Capital Units are
estimated to be U.S.$183,750 (exclusive of commissions and any value added tax)
and are payable by MS plc.
8. No amount or benefit has been paid or given or is now proposed to be
paid or given to any person who is or may be a promoter of MS plc.
9. The ordinary remuneration of the Directors of MS plc for their
services as such as specified in the Articles of Association is such as MS plc
may by ordinary resolution determine.
10. The Regulations contained in Table A of The Companies (Tables A to F)
Regulations 1985 (the "Regulations") apply to MS plc by virtue of Article 1 of
its Articles of Association to the extent that they are not inconsistent with
the provisions of the Articles.
S-29
<PAGE>
Regulation 83 provides that the Directors of MS plc may be paid all
travelling, hotel, and other expenses properly incurred by them in connection
with their attendance at meetings of Directors or committees of Directors or
general meetings or separate meeting of the holders of any class of shares or of
debentures of MS plc or otherwise in connection with the discharge of their
duties.
11. Regulation 87 regulates the ability of Directors of MS plc to grant
pensions or other benefits to Directors and ex-Directors of MS plc and persons
connected with them. It provides that the Directors may provide such benefits,
whether by the payment of gratuities or pensions or by insurance or otherwise,
for any Director who has held but no longer holds any executive office or
employment with MS plc or a predecessor in business of MS plc or of any such
subsidiary, and for any member of his family (including a spouse and a former
spouse) or any person who is or was dependent on him, and may (either before or
after he ceases to hold such office or employment) contribute to any fund and
pay premiums for the purchase or provision of any such benefit.
12. The current Directors were not interested in the promotion of MS plc.
13. Within the two years immediately preceding the date of this Prospectus
Supplement, MS plc has not entered into any contracts otherwise than in the
ordinary course of its business which are or may be material.
14. The subscription list for the Capital Units will be open at 9:00 a.m.
(New York City time) on February 13, 1995.
15. The document attached to this Prospectus Supplement delivered to the
Registrar of Companies in England and Wales for registration was a copy of the
consent of Ernst & Young referred to in paragraph 1 above.
The report of Ernst & Young is set forth below:
10 February 1995
The Directors
Morgan Stanley Finance plc
25 Cabot Square
Canary Wharf
London E14 4QA
Dear Sirs:
ISSUE OF PROSPECTUS SUPPLEMENT IN CONNECTION WITH CAPITAL UNITS OF MORGAN
STANLEY FINANCE PLC
1. INTRODUCTION
We report in connection with the issue of Capital Units of Morgan Stanley
Finance plc ("the Company") referred to in the prospectus supplement dated
10 February 1995.
We have examined the audited financial statements of the Company for the
period from incorporation to 30 November 1993. Audited financial
statements have not been prepared in respect of the Company for any period
subsequent to 30 November 1993. Our work has been carried out in
accordance with the Auditing Guideline "Prospectuses and the reporting
accountant".
S-30
<PAGE>
The financial information set out below is based on the audited financial
statements of the Company. No adjustments have been made as we consider
none to be necessary.
In our opinion, the financial information gives, for the purpose of the
prospectus supplement, a true and fair view of the profit of the Company
for the period ended 30 November 1993 and of the state of affairs of the
Company at the end of the period.
2. ACCOUNTING POLICIES
The principal accounting policies which have been consistently applied in
arriving at the financial information set out in this report are:
Accounting convention
The financial information has been prepared under the historical cost
convention and in accordance with applicable United Kingdom accounting
standards.
Presentation of financial information in US dollars
The financial information has been presented in US dollars which is the
currency of the primary economic environment in which the Company operates.
Foreign currencies
All monetary assets and liabilities denominated in currencies other than US
dollars are translated into US dollars at the rates ruling at the balance
sheet date. Transactions in currencies other than US dollars are recorded
at the rate ruling at the date of the transaction. Translation differences
are dealt with through the profit and loss account.
Deferred taxation
Deferred taxation is provided on all timing differences which are expected
to reverse in the future and is calculated at the rate at which it is
estimated that tax will be payable.
Cash flow statement
A cash flow statement has not been prepared since the cash flows of the
Company are included within the consolidated cash flow statement of the
Morgan Stanley UK Holdings PLC group.
Long term borrowings
Issue costs incurred in raising long term financing are deducted from the
gross proceeds of the borrowing and amortised in the profit and loss
account over the term of the borrowing. The liability to repay such
borrowings is shown in the balance sheet as the net proceeds of the
borrowing plus the amortised issue costs to date.
3. PROFIT AND LOSS ACCOUNT
The profit and loss account of the Company for the period ended 30 November
1993 is set out below:
S-31
<PAGE>
<TABLE>
<CAPTION>
Period from
the date of
incorporation to
30 November
1993
Notes $
<S> <C> <C>
Interest receivable 51,590
Interest payable (51,590)
--------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION (i) -
Tax on profit on ordinary activities (ii) -
========
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION -
========
</TABLE>
There are no recognised gains or losses other than the profit attributable
to shareholders of the Company of $nil in the period from the date of
incorporation to 30 November 1993.
4. BALANCE SHEET
The balance sheet of the Company at 30 November 1993 is set out below:
<TABLE>
<CAPTION>
30 November
1993
Notes $
<S> <C> <C>
CURRENT ASSETS
Debtors (iii) 115,137,690
CREDITORS: amounts falling due within
one year (iv) (51,590)
-------------
NET CURRENT ASSETS 115,086,100
CREDITORS: amounts falling due after
more than one year (v) (115,009,375)
-------------
76,725
=============
CAPITAL AND RESERVES
Called up share capital (vi) 76,725
Profit and loss account -
-------------
76,725
=============
</TABLE>
S-32
<PAGE>
5. NOTES TO THE FINANCIAL INFORMATION
(i) Profit on ordinary activities before taxation
None of the Directors received any remuneration or fees in respect of their
services to the Company during the period. No staff were employed directly
by the Company during the period. Audit fees are borne by another group
undertaking.
(ii) Tax on profit on ordinary activities
The Company had no liability to taxation in respect of the period.
(iii) Debtors
30 November
1993
$
Amounts due from group undertakings 115,137,690
===========
(iv) Creditors: Amounts falling due within one year
30 November
1993
$
51,590
===========
Accruals
(v) Creditors: amounts falling due after more than one year
30 November
1993
$
Wholly repayable after five years:
Subordinated debentures
Gross proceeds on issue 118,750,000
Issue costs (3,740,625)
------------
Net proceeds on issue. Balance at 30 November 1993 115,009,375
============
4,750,000 capital units were issued during the period to fund the
continuing activities of the international operations of Morgan Stanley
Group Inc.
Each capital unit consists of a Subordinated Debenture with a principal
amount of $25 due on 30 November 2013 and paying a coupon of 7.82%. The
debentures are secured by a subordinated guarantee from Morgan Stanley
Group Inc.
Each capital unit also includes a purchase contract which requires the
holder on 30 May 2013 to purchase a depository share representing an
interest in the Cumulative Preferred Stock of Morgan Stanley Group Inc.
Morgan Stanley Group Inc. has the option to accelerate the settlement of
purchase contracts to a date on or after 30 November 1994. The Company
also has the option to redeem the Debentures, while Morgan
S-33
<PAGE>
Stanley Group Inc. has the option to redeem the Purchase Contracts and the
Cumulative Preferred Stock, on or after 30 November 1998.
(vi) Called up share capital
30 November
1993
Ordinary shares of (Pounds)1 each:
Authorised
(Pounds) 100,000
================
$
Allotted, called up and fully paid 3
Allotted, called up and partly paid 76,722
----------------
76,725
================
On 8 October 1993, 50,000 ordinary shares of (Pounds)1 each were issued at
par, of which two were fully paid and the remaining 49,998 shares are paid
up to (Pounds)0.25 each. The shares were issued to fund the continuing
activity of the Company.
(vii) Reconciliation of shareholders' funds and movements on reserves
<TABLE>
<CAPTION>
Profit and loss
Share capital account Total
$ $ $
<S> <C> <C> <C>
Shares issued 76,725 -- 76,725
Profit for the period -- -- --
------- ------- -------
At 30 November 1998 76,725 -- 76,725
======= ======= =======
</TABLE>
(viii) Post balance sheet events
A further 9,339,900 capital units have been issued since 30 November 1993
for proceeds of $233,497,500 less costs of $5,027,730, to fund, through
subordinated debt, the activities of Morgan Stanley & Co. International
Limited.
Each capital unit consists of a Subordinated Debenture with a principal
amount of $25. The debentures are secured by a subordinated guarantee from
Morgan Stanley Group Inc.
S-34
<PAGE>
The details of the Subordinated Debentures issued since 30 November 1993
are as follows:
<TABLE>
<CAPTION>
Units Amount $ Due date Coupon rate
<S> <C> <C> <C> <C>
Issue 1 139,900 3,497,500 30 November 2013 7.82%
Issue 2 9,200,000 230,000,000 28 February 2014 7.8%
</TABLE>
Each capital unit also includes a purchase contract which requires the
holder on 30 May 2013 (in the case of issue 1) and 30 August 2013 in the
case of issue 2) to purchase a depository share representing an interest in
the Cumulative Preferred Stock of Morgan Stanley Group Inc.
Morgan Stanley Group Inc. has the option to accelerate the settlement of
purchase contracts to a date on or after 30 November 1994 (in the case of
issue 1) and on or after 28 February 1995 (in the case of issue 2). The
Company also has the option to redeem the Debentures while Morgan Stanley
Group Inc. has the option to redeem the Purchase Contracts and the
Cumulative Preferred Stock, on or after 30 November 1998 (in the case of
issue 1) on or after 28 February 1999 (in the case of issue 2).
In the period since 30 November 1993 no dividends have been declared or
paid.
Yours faithfully
Ernst & Young
Chartered Accountants
London
S-35
