PROSPECTUS Dated May 1, 1996 Amendment No. 1 dated May 30, 1996 to
PROSPECTUS SUPPLEMENT Pricing Supplement No. 10 to
Dated May 1, 1996 Registration Statement No. 333-01655
Dated May 16, 1996
Rule 424(b)(3)
$2,500,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
EQUITY LINKED NOTES DUE MAY 30, 2001
The Equity Linked Notes due May 30, 2001 (the "Notes") are Medium-Term Notes,
Series C of Morgan Stanley Group Inc. (the "Company"), as further described
herein and in the Prospectus Supplement under "Description of Notes - Fixed
Rate Notes" and " - Notes Linked to Commodity Prices, Single Securities,
Baskets of Securities or Indices." The Notes are being issued in minimum
denominations of $1,000 and will mature on May 30, 2001 (the "Maturity Date").
There will be no periodic payments of interest on the Notes. The Notes will
not be redeemable by the Company in whole or in part prior to the Maturity
Date.
At maturity, the holder of each Note will receive the par amount of such Note
($1,000) ("Par") plus an amount (the "Supplemental Redemption Amount") based
on the percentage increase, if any, in the Final Average Index Value (as
defined herein) of the S&P MidCap 400 Index (the "S&P MidCap 400 Index"), as
calculated by Standard & Poor's ("S&P"), a Division of the McGraw-Hill
Companies, Inc., over the Initial Index Value (as defined herein), as further
described in this Pricing Supplement. The Supplemental Redemption Amount, if
any, payable with respect to each Note at maturity will equal the product of
(i) the par amount of such Note, (ii) 1.109 and (iii) a fraction, the
numerator of which shall be the Final Average Index Value less the Initial
Index Value and the denominator of which shall be the Initial Index Value.
The Supplemental Redemption Amount cannot be less than zero. The Initial
Index Value has been set to equal 241.96. The Final Average Index Value will
equal the arithmetic average of the closing S&P MidCap 400 Index values on
each of April 27, 2001, May 4, 2001, May 11, 2001, May 18, 2001 and May 25,
2001 (the "Determination Dates"), except in the case of certain Market
Disruption Events (as defined herein). If the Final Average Index Value is
equal to or less than the Initial Index Value, the holder of each Note will be
repaid the par amount of such Note, but will not receive any Supplemental
Redemption Amount.
For information as to the calculation of the Supplemental Redemption Amount,
and certain tax consequences to beneficial owners of the Notes, see
"Supplemental Redemption Amount," "Final Average Index Value," "Determination
Dates" and "United States Federal Taxation" in this Pricing Supplement.
The Company will cause the "Supplemental Redemption Amount" to be determined
by Morgan Stanley & Co. Incorporated (the "Calculation Agent") for Chemical
Bank, as Trustee under the Senior Debt Indenture.
An investment in the Notes entails risks not associated with similar
investments in a conventional debt security, as described under "Risk Factors"
on PS-5 through PS-7 herein.
________________
PRICE 100%
________________
Price to Public Agent's Commissions(1) Proceeds to Company
--------------- ---------------------- -------------------
Per Note. 100% .50% 99.50%
Total.... $2,500,000 $12,500 $2,487,500
_______________
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
Capitalized terms not defined above have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY & CO.
Incorporated
Principal Amount:.............. $2,500,000
Maturity Date:................. May 31, 2001
Interest Rate:................. 0.00%
Specified Currency:............ U.S. Dollars
Issue Price:................... 100%
Settlement Date (Original
Issue Date):................... May 30, 1996
Book Entry Note or Certificated
Note:.......................... Book Entry
Senior Note or Subordinated
Note:.......................... Senior
Minimum Denominations:......... $1,000
Trustee:....................... Chemical Bank
Maturity Redemption Amount:.... At maturity (including as a result of
acceleration or otherwise), the holder of
each Note will receive the par amount of such
Note ($1,000) ("Par") plus the Supplemental
Redemption Amount, if any.
Supplemental Redemption
Amount:........................ The Supplemental Redemption Amount, if any,
payable with respect to each Note at maturity
shall be an amount equal to the product of
(i) the par amount of such Note, (ii) 1.109
and (iii) a fraction, the numerator of which
shall be the Final Average Index Value less
the Initial Index Value and the denominator
of which shall be the Initial Index Value.
The Supplemental Redemption Amount shall not
be less than zero. The Supplemental
Redemption Amount is described by the
following formula:
Par x 1.109 x (Final Average Index Value - Initial Index Value)
------------------------------------------------
Initial Index Value
The Company shall cause the Calculation Agent
to provide written notice to the Trustee at
its New York office, on which notice the
Trustee may conclusively rely, of the
Supplemental Redemption Amount, on or prior
to 11:00 a.m. on the Business Day preceding
the Maturity Date. See "Discontinuance of
the S&P MidCap 400 Index; Alteration of
Method of Calculation" below.
All percentages resulting from any
calculation with respect to the Notes will be
rounded to the nearest one hundred-thousandth
of a percentage point, with five
one-millionths of a percentage point rounded
upwards (e.g., 9.876545% (or .09876545) would
be rounded to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from
such calculation will be rounded to the
nearest cent with one-half cent being rounded
upwards.
Initial Index Value:........... The Initial Index Value is 241.96.
Final Average Index Value:..... The Final Average Index Value shall be the
arithmetic average of the Index Closing
Values (as defined below) on each of the
Determination Dates, as determined by the
Calculation Agent.
Index Closing Value:........... The Index Closing Value, as of any
Determination Date, will equal the closing
value of the S&P MidCap 400 Index or any
Successor Index (as defined below) at the
regular official weekday close of trading on
such Determination Date. See "Discontinuance
of the S&P MidCap 400 Index; Alteration of
Method of Calculation."
References herein to the S&P MidCap 400 Index
shall be deemed to include any Successor
Index, unless the context requires otherwise.
Trading Day:................... A day on which trading is generally
conducted (i) on the New York Stock
Exchange ("NYSE"), the American Stock
Exchange, Inc. ("AMEX") and the NASDAQ
National Market ("NASDAQ NMS"), (ii) on
the Chicago Mercantile Exchange and (iii)
on the Chicago Board of Options Exchange,
as determined by the Calculation Agent.
Determination Dates:........... The Determination Dates shall be April 27,
2001, May 4, 2001, May 11, 2001, May 18, 2001
and May 25, 2001 or, if any such date is not
a Trading Day, the next succeeding Trading
Day, unless there is a Market Disruption
Event on any such Trading Day. If a Market
Disruption Event occurs on any such Trading
Day, such Determination Date shall be the
immediately succeeding Trading Day during
which no Market Disruption Event shall have
occurred; provided that if a Market
Disruption Event has occurred on each of the
five Trading Days immediately succeeding any
of April 27, 2001, May 4, 2001, May 11, 2001
or May 18, 2001, as the case may be, then (i)
such fifth succeeding Trading Day will be
deemed to be the relevant Determination Date,
notwithstanding the occurrence of a Market
Disruption Event on such day and (ii) with
respect to any such fifth Trading Day on
which a Market Disruption Event occurs, the
Calculation Agent will determine the value of
the S&P MidCap 400 Index on such fifth
Trading Day in accordance with the formula
for and method of calculating the S&P MidCap
400 Index last in effect prior to the
commencement of the Market Disruption Event,
using the closing price (or, if trading in
the relevant securities has been materially
suspended or materially limited, its good
faith estimate of the closing price that
would have prevailed but for such suspension
or limitation) on such Trading Day of each
security most recently comprising the S&P
MidCap 400 Index.
Notwithstanding the foregoing, no
Determination Date shall be later than the
second Business Day prior to the Maturity
Date. If such second Business Day is a
Determination Date but is not a Trading Day
or if there is a Market Disruption Event on
such second Business Day, the Calculation
Agent will determine the value of the S&P
MidCap 400 Index on such second Business Day
in accordance with clause (ii) of the
preceding paragraph. As a result of the
foregoing, it is possible that the Index
Closing Value determined on such second
Business Day will be counted more than once
in determining the Final Average Index Value.
In case an Event of Default with respect to
any Notes shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the Notes
will be determined by the Calculation Agent
and will be equal to the par amount plus the
Supplemental Redemption Amount determined as
though each of the Determination Dates
scheduled to occur on or after such date of
acceleration were the date of acceleration.
Market Disruption Event:....... "Market Disruption Event" means, with
respect to the S&P MidCap 400 Index:
(i) a suspension, absence or material
limitation of trading of 80 or more of the
securities included in the S&P MidCap 400
Index on the primary market for such
securities for more than two hours of trading
or during the one-half hour period preceding
the close of trading in such market; or the
suspension, absence or material limitation of
trading on the primary market for trading in
futures or options contracts related to the
S&P MidCap 400 Index during the one-half hour
period preceding the close of trading in the
applicable market, in each case as determined
by the Calculation Agent in its sole
discretion; and
(ii) a determination by the Calculation Agent
in its sole discretion that the event
described in clause (i) above materially
interfered with the ability of the Company or
any of its affiliates to unwind all or a
material portion of the hedge with respect to
the Notes.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange or market, (2)
a decision to permanently discontinue trading
in the relevant futures or options contract
will not constitute a Market Disruption
Event, (3) limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable
rule or regulation enacted or promulgated by
the NYSE, any other self-regulatory
organization or the Securities and Exchange
Commission of similar scope as determined by
the Calculation Agent) on trading during
significant market fluctuations shall
constitute a Market Disruption Event, (4) a
suspension of trading in a futures or options
contract on the S&P MidCap 400 Index by the
primary securities market related to such
contract by reason of (x) a price change
exceeding limits set by such exchange or
market, (y) an imbalance of orders relating
to such contracts or (z) a disparity in bid
and ask quotes relating to such contracts
will constitute a suspension or material
limitation of trading in futures or options
contracts related to the S&P MidCap 400 Index
and (5) an "absence of trading" on the
primary market on which futures or options
contracts related to the S&P MidCap 400 Index
are traded will not include any time when
such market is itself closed for trading
under ordinary circumstances.
Calculation Agent:............. Morgan Stanley & Co. Incorporated ("MS &
Co.")
All determinations made by the Calculation
Agent shall be at the sole discretion of the
Calculation Agent and shall, in the absence
of manifest error, be conclusive for all
purposes and binding on the Company and
holders of the Notes.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must
make in determining the Final Average
Index Value or whether a Market Disruption
Event has occurred. See "Discontinuance
of the S&P MidCap 400 Index; Alteration
of Method of Calculation" below and
"Market Disruption Event" above. MS & Co.
is obligated to carry out its duties and
functions as Calculation Agent in good
faith and using its reasonable judgment.
Risk Factors:.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional security,
including the following.
If the Final Average Index Value of the S&P
MidCap 400 Index does not exceed the Initial
Index Value, the holders of the Notes will
receive only the par amount of each Note at
maturity. Because the Final Average Index
Value will be based upon an average of
closing values of the S&P MidCap 400 Index on
specified days (the Determination Dates)
during five successive weeks, a significant
increase in the S&P MidCap 400 Index as
measured on the Determination Date in the
final week, or in any earlier week, may be
substantially or entirely offset by the
values of the S&P MidCap 400 Index on the
Determination Dates in the other weeks.
The Notes do not bear any periodic payment of
interest. Because the Supplemental
Redemption Amount may be equal to zero, the
effective yield to maturity may be less than
that which would be payable on a conventional
fixed-rate debt security having the same
maturity date as the Notes and issued by the
Company on the Original Issue Date.
The return of only the par amount of a Note
at maturity will not compensate the holder
for any opportunity cost implied by inflation
and other factors relating to the time value
of money. The percentage appreciation of the
S&P MidCap 400 Index based on the Final
Average Index Value over the Initial Index
Value does not reflect the payment of
dividends on the stocks underlying the S&P
MidCap 400 Index. Therefore, in addition to
the considerations regarding averaging
discussed above, the yield to maturity based
on the Final Average Index Value relative to
the Initial Index Value will not be the same
yield as would be produced if such underlying
stocks were purchased and held for a similar
period.
The Notes will not be listed on any exchange.
There can be no assurance as to whether there
will be a secondary market in the Notes or if
there were to be such a secondary market,
whether such market would be liquid or
illiquid. It is expected that the secondary
market for the Notes will be affected by the
creditworthiness of the Company and by a
number of factors, including, but not limited
to, the volatility of the S&P MidCap 400
Index, dividend rates on the stocks
underlying the S&P MidCap 400 Index, the time
remaining to the Determination Dates and to
the maturity of the Notes and market interest
rates. In addition, the Final Average Index
Value depends on a number of interrelated
factors, including economic, financial and
political events, over which the Company has
no control. The value of the Notes prior to
maturity is expected to depend primarily on
market interest rates and the extent of the
appreciation, if any, of the Final Average
Index Value over the Initial Index Value.
If, however, the Notes are sold prior to
maturity at a time when the S&P MidCap 400
Index exceeds the Initial Index Value, the
sale price may be at a discount from the
amount expected to be payable to the holder
if such excess were to prevail on each of the
Determination Dates because of the possible
fluctuation of the S&P MidCap 400 Index
between the time of such sale and the
Determination Dates. The price at which a
holder will be able to sell the Notes prior
to maturity may be at a discount, which could
be substantial, from the par amount thereof,
if, at such time, the S&P MidCap 400 Index or
the Final Average Index Value, if determined,
is below, equal to or not sufficiently above
the Initial Index Value.
The historical S&P MidCap 400 Index values
should not be taken as an indication of
the future performance of the S&P MidCap
400 Index during the term of the Notes.
While the trading prices of the stocks
underlying the S&P MidCap 400 Index will
determine the value of the S&P MidCap 400
Index, it is impossible to predict whether
the value of the S&P MidCap 400 Index will
rise or fall. Trading prices of the
stocks underlying the S&P MidCap 400 Index
will be influenced by both the complex and
interrelated political, economic,
financial and other factors that can
affect the capital markets generally and
the equity trading markets on which the
underlying stocks are traded, and by
various circumstances that can influence
the values of the underlying stocks in a
specific market segment or a particular
underlying stock.
The policies of S&P concerning additions,
deletions and substitutions of the stocks
underlying the S&P MidCap 400 Index and the
manner in which S&P takes account of certain
changes affecting such underlying stocks may
affect the value of the S&P MidCap 400 Index.
The policies of S&P with respect to the
calculation of the S&P MidCap 400 Index could
also affect the value of the S&P MidCap 400
Index. S&P may discontinue or suspend
calculation or dissemination of the S&P
MidCap 400 Index. Any such actions could
affect the value of the Notes. See "S&P
MidCap 400 Index" and "Discontinuance of the
S&P MidCap 400 Index; Alteration of Method of
Calculation" below.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must
make in determining the Final Average
Index Value or whether a Market Disruption
Event has occurred. See "Discontinuance
of the S&P MidCap 400 Index; Alteration
of Method of Calculation" below and
"Market Disruption Event" above. MS &
Co., as a registered broker-dealer, is
required to maintain policies and
procedures regarding the handling and use
of confidential proprietary information,
and such policies and procedures will be
in effect throughout the term of the Notes
to restrict the use of information
relating to the calculation of the Final
Average Index Value that the Calculation
Agent may be required to make prior to its
dissemination. MS & Co. is obligated to
carry out its duties and functions as
Calculation Agent in good faith and using
its reasonable judgment.
If a bankruptcy proceeding is commenced in
respect of the Company, the claim of a holder
of a Note may, under Section 502(b)(2) of
Title 11 of the United States Code, be
limited to the par amount of such Note.
It is suggested that prospective investors
who consider purchasing the Notes should
reach an investment decision only after
carefully considering the suitability of the
Notes in light of their particular
circumstances.
Investors should also consider the tax
consequences of investing in the Notes. See
"United States Federal Taxation" below.
S&P MidCap 400 Index:.......... The S&P MidCap 400 Index is published by S&P
and is intended to provide a benchmark for
performance measurement of the medium
capitalization segment of the U.S. equity
markets. It tracks the stock price movement
of 400 companies with mid-sized market
capitalizations, primarily ranging from $300
million to $5.2 billion. The calculation of
the value of the S&P MidCap 400 Index
(discussed below in further detail) is based
on the relative value of the aggregate Market
Value (as defined below) of the common stocks
of 400 companies (the "Component Stocks") as
of a particular time as compared to the
aggregate average Market Value of the common
stocks of 400 similar companies during the
base period of December 31, 1990. The
"Market Value" of any Component Stock is the
product of the market price per share and the
number of the then outstanding shares of such
Component Stock. S&P chooses companies for
inclusion in the S&P MidCap 400 Index with an
aim of achieving a distribution by broad
industry groupings that approximates the
distribution of these groupings in the common
stock population of the medium capitalization
segment of the U.S. equity market. S&P may
from time to time, in its sole discretion,
add companies to, or delete companies from,
the S&P MidCap 400 Index to achieve the
objectives stated above. Relevant criteria
employed by S&P include the viability of the
particular company, the extent to which that
company represents the industry group to
which it is assigned, the extent to which the
company's common stock is widely-held and the
Market Value and trading activity of the
common stock of that company.
The S&P MidCap 400 Index is calculated using
a base-weighted aggregate methodology: the
level of the Index reflects the total Market
Value of all 400 Component Stocks relative to
the S&P MidCap 400 Index's base period of
December 31, 1990 (the "Base Period"). An
indexed number is used to represent the
results of this calculation in order to make
the value easier to work with and track over
time.
The actual total Market Value of the
Component Stocks during the Base Period has
been set equal to an indexed value of 100.
This is often indicated by the notation
December 31, 1990=100. In practice, the
daily calculation of the S&P MidCap 400 Index
is computed by dividing the total Market
Value of the Component Stocks by a number
called the Index Divisor. By itself, the
Index Divisor is an arbitrary number.
However, in the context of the calculation of
the S&P MidCap 400 Index, it is the only link
to the original base period value of the
Index. The Index Divisor keeps the Index
comparable over time and is the manipulation
point for all adjustments to the S&P MidCap
400 Index ("Index Maintenance"). Index
Maintenance includes monitoring and
completing the adjustments for company
additions and deletions, share changes, stock
splits, stock dividends, and stock price
adjustments due to company restructurings or
spinoffs.
To prevent the value of the Index from
changing due to corporate actions, all
corporate actions which affect the total
Market Value of the Index require an Index
Divisor adjustment. By adjusting the Index
Divisor for the change in total Market Value,
the value of the S&P MidCap 400 Index remains
constant. This helps maintain the value of
the Index as an accurate barometer of stock
market performance and ensures that the
movement of the Index does not reflect the
corporate actions of individual companies in
the Index. All Index Divisor adjustments are
made after the close of trading and after the
calculation of the closing value of the S&P
MidCap 400 Index. Some corporate actions,
such as stock splits and stock dividends,
require simple changes in the common shares
outstanding and the stock prices of the
companies in the Index and do not require
Index Divisor adjustments.
The table below summarizes the types of S&P
MidCap 400 Index maintenance adjustments and
indicates whether or not an Index Divisor
adjustment is required.
<TABLE>
<S> <C> <C>
Divisor
Type of Corproate Adjustment Factor Adjustment
Action Required
- ------------------------------------ ----------------------------------------------- ----------
Stock split Shares Outstanding multiplied by 2; No
(i.e. 2x1) Stock Price divided by 2
Share issuance Shares Outstanding plus newly issued Shares Yes
(i.e. Change > 5%)
Share repurchase Shares Outstanding minus Repurchased Shares Yes
(i.e. Change > 5%)
Special cash dividends Share Price minus Special Dividend Yes
Company change Add new company Market Value minus old Yes
company Market Value
Rights offering Price of parent company minus Yes
Price of Rights
---------------------
Right Ratio
Spin-Offs Price of parent company minus Yes
Price of Spin-Off Co.
------------------------------
Share Exchange Ratio
</TABLE>
Stock splits and stock dividends do not
affect the Index Divisor of the S&P MidCap
400 Index, because following a split or
dividend both the stock price and number of
shares outstanding are adjusted by S&P so
that there is no change in the Market Value
of the Component Stock. All stock split and
dividend adjustments are made after the close
of trading on the day before the ex-date.
Each of the corporate events exemplified in
the table requiring an adjustment to the
Index Divisor has the effect of altering the
Market Value of the Component Stock and
consequently of altering the aggregate
Market Value of the Component Stocks (the
"Post-Event Aggregate Market Value"). In
order that the level of the Index (the
"Pre-Event Index Value") not be affected
by the altered Market Value (whether
increase or decrease) of the affected
Component Stock, a new Index Divisor ("New
Divisor") is derived as follows:
Post-Event Aggregate Market Value = Pre-Event Index Value
---------------------------------
New Divisor
New Divisor = Post-Event Aggregate Market Value
---------------------------------
Pre-Event Index Value
A large part of the S&P MidCap 400 Index
maintenance process involves tracking the
changes in the number of shares
outstanding of each of the S&P MidCap 400
Index companies. Four times a year, on a
Friday shortly prior to the end of each
calendar quarter, the share totals of
companies in the Index are updated as
required by any changes in the number of
shares outstanding. After the totals are
updated, the Index Divisor is adjusted to
compensate for the net change in the total
Market Value of the Index. In addition,
any changes over 5% in the current common
shares outstanding for the S&P MidCap 400
Index companies are carefully reviewed on
a weekly basis, and when appropriate, an
immediate adjustment is made to the Index
Divisor.
Hypothetical Supplemental
Redemption Amount:............. The following table illustrates, for a range
of hypothetical Final Average Index Values,
the Supplemental Redemption Amount for each
$1,000 par amount of Notes.
Hypothetical Hypothetical
Final Average Supplemental Redemption
Index Value Amount
- --------------------------------- -------------------------
150.00 $ 0
175.00 $ 0
200.00 $ 0
225.00 $ 0
241.96 $ 0
250.00 $ 36.85
275.00 $ 151.44
300.00 $ 266.02
325.00 $ 380.61
350.00 $ 495.19
The above figures are for purposes of
illustration only. The actual Supplemental
Redemption Amount, if any, will depend
entirely on the actual Final Average Index
Value. See "Final Average Index Value" and
"Supplemental Redemption Amount" above.
Discontinuance of the S&P MidCap
400 Index; Alteration of Method
of Calculation:................ If S&P discontinues publication of the S&P
MidCap 400 Index and S&P or another entity
publishes a successor or substitute index
that the Calculation Agent determines, in its
sole discretion, to be comparable to the
discontinued S&P MidCap 400 Index (such index
being referred to herein as a "Successor
Index"), then the relevant Index Value shall
be determined by reference to the value of
such Successor Index at the close of trading
on the NYSE, the AMEX, NASDAQ NMS or the
relevant exchange or market for the Successor
Index on the applicable Determination Dates.
Upon any selection by the Calculation Agent
of a Successor Index, the Calculation Agent
shall cause written notice thereof to be
furnished to the Trustee, to the Company and
to the holders of the Notes within three
Trading Days of such selection.
If S&P discontinues publication of the S&P
MidCap 400 Index prior to, and such
discontinuance is continuing on, any of the
Determination Dates and the Calculation Agent
determines that no Successor Index is
available at such time, then on each
Determination Date until the earlier to occur
of (i) the Determination Date scheduled to
occur on May 25, 2001 and (ii) a
determination by the Calculation Agent that a
Successor Index is available, the Calculation
Agent shall determine the Index Closing Value
that would be used in computing the
Supplemental Redemption Amount on each
Determination Date. The Index Closing Value
shall be computed by the Calculation Agent in
accordance with the formula for and method of
calculating the S&P MidCap 400 Index last in
effect prior to such discontinuance, using
the closing price (or, if trading in the
relevant securities has been materially
suspended or materially limited, its good
faith estimate of the closing price that
would have prevailed but for such
suspension or limitation) on such
Determination Date of each security most
recently comprising the S&P MidCap 400
Index. The Calculation Agent shall cause
notice of each such Index Closing Value to
be provided to the holders of the Notes on
each succeeding Determination Date until
and including May 25, 2001 (unless a
Successor Index is prior thereto
determined to be available).
Notwithstanding these alternative
arrangements, discontinuance of the
publication of the S&P MidCap 400 Index
may adversely affect the value of the
Notes.
If at any time the method of calculating the
S&P MidCap 400 Index or a Successor Index, or
the value thereof, is changed in a material
respect, or if the S&P MidCap 400 Index or a
Successor Index is in any other way
modified so that such index does not, in
the opinion of the Calculation Agent,
fairly represent the value of the S&P
MidCap 400 Index or such Successor Index
had such changes or modifications not been
made, then, from and after such time, the
Calculation Agent shall, at the close of
business in New York City on each
Determination Date, make such calculations
and adjustments as, in the good faith
judgment of the Calculation Agent, may be
necessary in order to arrive at a value of
a stock index comparable to the S&P MidCap
400 Index or such Successor Index, as the
case may be, as if such changes or
modifications had not been made, and
calculate the Index Value with reference
to the S&P MidCap 400 Index or such
Successor Index, as adjusted.
Accordingly, if the method of calculating
the S&P MidCap 400 Index or a Successor
Index is modified so that the value of
such index is a fraction of what it would
have been if it had not been modified
(e.g., due to a split in the index), then
the Calculation Agent shall adjust such
index in order to arrive at a value of the
S&P MidCap 400 Index or such Successor
Index as if it had not been modified
(e.g., as if such split had not occurred).
Public Information:............ All disclosure contained in this Pricing
Supplement regarding the S&P MidCap 400
Index, including, without limitation, its
make-up, method of calculation and changes in
its components, are derived from publicly
available information prepared by S&P.
Neither the Company nor the Agent take any
responsibility for the accuracy or
completeness of such information.
Historical Information:........ The following table sets forth the high and
low daily closing values, as well as
end-of-quarter closing values, of the S&P
MidCap 400 Index for each quarter in the
period from January 1, 1991 through May 16,
1996. The historical values of the S&P
MidCap 400 Index should not be taken as an
indication of future performance, and no
assurance can be given that the S&P MidCap
400 Index will increase sufficiently to
cause the holders of the Notes to receive any
Supplemental Redemption Amount.
Daily Index Closing Values
--------------------------
High Low Period End
---- --- ----------
1991
1st Quarter -- -- 122.17
2nd Quarter -- -- 120.57
3rd Quarter 131.98 121.26 131.30
4th Quarter 146.59 128.09 146.59
1992
1st Quarter 154.74 144.89 145.11
2nd Quarter 145.83 136.02 139.86
3rd Quarter 148.04 140.02 144.48
4th Quarter 160.55 140.50 160.55
1993
1st Quarter 166.76 155.71 165.01
2nd Quarter 168.01 156.62 168.01
3rd Quarter 175.74 164.10 175.60
4th Quarter 179.37 169.03 179.37
1994
1st Quarter 184.79 171.72 171.72
2nd Quarter 175.19 162.44 164.61
3rd Quarter 178.70 165.21 174.85
4th Quarter 176.91 162.66 169.44
1995
1st Quarter 183.12 168.04 182.37
2nd Quarter 200.16 180.56 197.37
3rd Quarter 218.45 197.92 215.70
4th Quarter 219.80 206.82 217.84
1996
1st Quarter.......... 252.53 207.94 230.30
2nd Quarter
(through May 16,
1996).. 241.38 224.86 241.38
Use of Proceeds and Hedging:... The net proceeds to be received by the
Company from the sale of the Notes will be
used for general corporate purposes and, in
part, by the Company or one or more of its
affiliates in connection with hedging the
Company's obligations under the Notes,
including hedging market risks associated
with the Supplemental Redemption Amount.
Such hedging may involve the purchase or sale
of exchange traded or over the counter
options on the S&P MidCap 400 Index or
individual stocks included in the S&P MidCap
400 Index, futures contracts on the S&P
MidCap 400 Index and options on such futures
contracts. Although the Company has no
reason to believe that its hedging activity
will have a material impact on the price of
such options, futures contracts, and options
on futures contracts, there can be no
assurance that the Company will not affect
such prices as a result of its hedging
activities. The Company, through its
subsidiaries, is likely to modify its hedge
position throughout the life of the Notes by
purchasing and selling such options, futures
contracts and options on futures contracts.
See also "Use of Proceeds" in the
accompanying Prospectus.
License Agreement:............. S&P and MS&Co. have entered into a
non-exclusive license agreement providing for
the license to MS&Co., and any of its
affiliated or subsidiary companies, in
exchange for a fee, of the right to use the
S&P MidCap 400 Index, which is owned and
published by S&P, in connection with certain
securities, including the Notes.
The license agreement between S&P and MS&Co.
provides that the following language must be
set forth in this Pricing Supplement:
The Notes are not sponsored, endorsed, sold
or promoted by S&P. S&P makes no
representation or warranty, express or
implied, to the holders of the Notes or any
member of the public regarding the
advisability of investing in securities
generally or in the Notes particularly or the
ability of the S&P MidCap 400 Index to track
general stock market performance. S&P's only
relationship to the Company is the licensing
of certain trademarks and trade names of S&P
and of the S&P MidCap 400 Index, which is
determined, composed and calculated by S&P
without regard to the Company or the Notes.
S&P has no obligation to take the needs of
the Company or the holders of the Notes into
consideration in determining, composing or
calculating the S&P MidCap 400 Index. S&P is
not responsible for and has not participated
in the determination of the timing of, prices
at, or quantities of the Notes to be issued
or in the determination or calculation of the
equation by which the Notes are to be
converted into cash. S&P has no obligation
or liability in connection with the
administration, marketing or trading of the
Notes.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P MIDCAP 400
INDEX OR ANY DATA INCLUDED THEREIN AND S&P
SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P
MAKES NOT WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE NOTES, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P MIDCAP
400 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P MIDCAP 400 INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
"Standard & Poor's[Registered]",
"S&P[Registered]", "S&P 400[Registered]",
"Standard & Poor's MidCap 400 Index," and
"S&P MidCap 400 Index" are trademarks of
McGraw-Hill, Inc. and have been licensed for
use by MS & Co.
United States Federal Taxation: The following discussion is based on the
opinion of Davis Polk & Wardwell, special tax
counsel to the Company. This discussion
supplements the "United States Federal
Taxation" section in the accompanying
Prospectus Supplement and should be read in
conjunction therewith. Any limitations on
disclosure and any defined terms contained
therein are equally applicable to the summary
below. In addition, this discussion
addresses only initial holders purchasing at
the Issue Price of the Notes and that do not
hold the Notes as part of a hedging
transaction or "straddle."
The Notes will be treated as debt for United
States federal income tax purposes. Although
proposed Treasury regulations addressing the
treatment of contingent debt instruments were
issued on December 15, 1994, such
regulations, which generally would require
current accrual of contingent amounts and
would affect the character of gain on the
sale, exchange or retirement of a Note, by
their terms apply only to debt instruments
issued on or after the 60th day after the
regulations are finalized.
Under general United States federal income
tax principles, upon maturity of the Notes a
United States Holder will recognize gain or
loss equal to the difference between the
amount realized by the Holder at maturity
(i.e. the sum of the par amount and the
Supplemental Redemption Amount received) and
such Holder's tax basis in the Notes. Any
loss recognized at maturity will be treated
as capital loss. It is unclear under
existing law whether gain recognized at
maturity will be treated as ordinary or
capital in character. Subject to further
guidance from the Internal Revenue Service,
however, the Company intends to treat such
gain as interest income and to report such
amounts accordingly. Prospective investors
should consult with their tax advisors
regarding the character of gain recognized at
maturity.
United States Holders that have acquired debt
instruments similar to the Notes and have
accounted for such debt instruments under
proposed, but subsequently withdrawn,
Treasury regulation Section 1.1275-4(g) may
be deemed to have established a method of
accounting that must be followed with respect
to the Notes, unless consent of the
Commissioner of the Internal Revenue Service
is obtained to change such method. Absent
such consent, such a Holder may be required
to account for the Notes in the manner
prescribed in proposed, but subsequently
withdrawn, Treasury regulation Section
1.1275-4(g). The Internal Revenue Service,
however, would not be required to accept such
method as correct.
Any gain or loss recognized on the sale or
exchange of a Note prior to maturity will be
treated as capital in character.
There can be no assurance that the ultimate
tax treatment of the Note would not differ
significantly from the description herein.
Prospective investors are urged to consult
their tax advisors as to the possible
consequences of holding the Notes.
See also "United States Federal Taxation" in
the accompanying Prospectus Supplement.
