PROSPECTUS SUPPLEMENT
(To Prospectus dated March 29, 1995)
3,000,000 PERQS(SM)
Performance Equity-linked Redemption
Quarterly-pay Securities(SM)
Morgan Stanley Group Inc.
6% PERQS DUE FEBRUARY 16, 1999
________________________________
Issue Price and Amount Payable at Maturity based on the per
American Depositary Share price of
Telecomunicacoes Brasileiras S.A. - Telebras
________________________________
The issue price (the "Issue Price") of each of the 6% Performance
Equity-linked Redemption Quarterly-pay Securities(SM) Due February 16, 1999
("PERQS") of Morgan Stanley Group Inc. (the "Company") being offered hereby
will be $56.00 (the closing price of the American Depositary Shares (the
"Telebras American Depositary Shares") of Telecomunicacoes Brasileiras S.A. -
Telebras ("Telebras") on February 7, 1996, as reported on the New York Stock
Exchange Composite Tape). Each Telebras American Depositary Share represents
1,000 Preferred Shares, without par value, of Telebras ("Preferred Shares").
The PERQS will mature on the earlier of (i) February 16, 1999 (subject to
extension upon the occurrence of certain Non-Trading Days) and (ii) the
Business Day immediately preceding any Delisting Date, but in no event later
than February 23, 1999. The Delisting Date will be the first date on which
the Telebras American Depositary Shares or the American depositary shares or
the shares of capital stock of any Telebras Survivor (as defined herein) are
not listed on any U.S. national securities exchange or traded through the
facilities of a U.S. national securities system or is permanently suspended
from trading on each U.S. securities exchange and U.S. securities system on
which it is then listed.
The amount payable at maturity with respect to each PERQS will equal the
lesser of (i) 142.5% of the Issue Price and (ii) the average Closing Price of
the Telebras American Depositary Shares for the 10 Trading Days ending on the
second Business Day prior to maturity, in each case subject to adjustment as a
result of certain dilution events. See "Description of Securities--Dilution
Adjustments." Interest on each PERQS is payable quarterly on each February 15,
May 15, August 15 and November 15, at the rate of 6% of the Issue Price per
annum (or $3.36 per annum), beginning May 15, 1996. The PERQS are not subject
to redemption by the Company prior to maturity.
_______________________________
SEE "RISK FACTORS" ON PAGES S-4 THROUGH S-7 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
_______________________________
Telebras is neither affiliated with the Company nor involved in this
offering of PERQS. See "Risk Factors--Lack of Affiliation Between
the Company and Telebras."
_______________________________
The PERQS have been approved for listing on the American Stock Exchange, Inc.
(the "AMEX"), subject to official notice of issuance.
The AMEX symbol for the PERQS is "TBM."
_______________________________
"PERQS" and "Performance Equity-linked Redemption Quarterly-pay Securities"
are service marks of the Company.
_______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
PRICE $56 A PERQS
_________________
Underwriting
Discounts and Proceeds to
Price to Public(1) Commissions(2) Company(1)(3)
-------------------- ---------------- ---------------
Per PERQS.... $56.00 $1.495 $54.505
Total(4)..... $168,000,000 $4,485,000 $163,515,000
___________
(1) Plus accrued interest from February 13, 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $96,180.
(4) The Company has granted to the Underwriters an option, exercisable within
30 days of the date of this Prospectus Supplement, to purchase up to an
aggregate of 450,000 additional PERQS 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 Company will be $193,200,000, $5,157,750 and $188,042,250,
respectively. See "Underwriters."
_______________________________
The PERQS 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 PERQS will be made on or about February 13, 1996, at the
office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in New York funds.
_______________________________
MORGAN STANLEY & CO. OPPENHEIMER & CO., INC.
Incorporated
February 7, 1996
TABLE OF CONTENTS
Page Page
____
Prospectus Supplement Prospectus
Telecomunicacoes Brasileiras S.A. Available Information..................2
- Telebras....................S-3 Incorporation of Certain Documents
Risk Factors.....................S-4 by Reference..........................2
Price Range of Telebras American The Company............................3
Depositary Shares and Telebras Use of Proceeds........................3
Preferred Shares and Dividend Consolidated Ratios of Earnings to
History of Telebras American Fixed Charges and Earnings to Fixed
Depositary Shares.............S-8 Charges and Preferred Stock Dividends 3
Use of Proceeds and Hedging......S-9 Description of Debt Securities.........4
Morgan Stanley Group Inc........S-10 Description of Debt Warrants..........11
Consolidated Ratio of Earnings Limitations on Issuance of Bearer Debt
to Fixed Charges.............S-10 Securities and Bearer Debt Warrants..13
Description of Securities.......S-11 Description of Capital Stock..........14
Certain U.S. Federal Income Plan of Distribution..................25
Tax Considerations...........S-17 Legal Matters.........................26
ERISA Matters for Pension Plans Experts...............................26
and Insurance Companies......S-19 ERISA Matters for Pension Plans and
Underwriters....................S-19 Insurance Companies..................27
_______________________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PERQS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Telecomunicacoes Brasileiras S.A. - Telebras
According to publicly available documents, Telecomunicacoes Brasileiras
S.A. - Telebras ("Telebras"), a corporation organized under the laws of The
Federal Republic of Brazil ("Brazil"), is engaged, together with its
subsidiaries, in providing local and long distance telephone service in
Brazil. Telebras is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, Telebras
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such reports and other information
may be inspected and copied at certain offices of the Commission and at the
offices of the New York Stock Exchange, Inc. (the "NYSE") at the addresses
listed under "Available Information" in the accompanying Prospectus.
THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE PERQS OFFERED HEREBY AND
DOES NOT RELATE TO THE TELEBRAS AMERICAN DEPOSITARY SHARES, TELEBRAS PREFERRED
SHARES OR OTHER SECURITIES OF TELEBRAS. ALL DISCLOSURES CONTAINED IN THIS
PROSPECTUS SUPPLEMENT REGARDING TELEBRAS ARE DERIVED FROM THE PUBLICLY
AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH. NEITHER THE COMPANY
NOR ANY OF THE UNDERWRITERS HAS PARTICIPATED IN THE PREPARATION OF SUCH
DOCUMENTS OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO THE INFORMATION
PROVIDED THEREIN. NEITHER THE COMPANY NOR ANY OF THE UNDERWRITERS MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER PUBLICLY
AVAILABLE INFORMATION REGARDING TELEBRAS ARE ACCURATE OR COMPLETE.
FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE
DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS
OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH) THAT
WOULD AFFECT THE TRADING PRICE OF TELEBRAS AMERICAN DEPOSITARY SHARES (AND
THEREFORE THE ISSUE PRICE OF THE PERQS) HAVE BEEN PUBLICLY DISCLOSED.
SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO
DISCLOSE MATERIAL FUTURE EVENTS CONCERNING TELEBRAS COULD AFFECT THE AMOUNT
PAYABLE AT MATURITY WITH RESPECT TO THE PERQS AND THEREFORE THE TRADING PRICES
OF THE PERQS.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION TO
ANY PURCHASER OF PERQS AS TO THE PERFORMANCE OF TELEBRAS, TELEBRAS AMERICAN
DEPOSITARY SHARES, TELEBRAS PREFERRED SHARES OR OTHER SECURITIES OF TELEBRAS.
Unless otherwise specified, in this Prospectus Supplement all references to
(i) "reais," the "real" or "R$" are to Brazilian reais (plural) or to the
Brazilian real (singular), the legal currency of Brazil, and (ii) "U.S.
dollars" or "US$" or "$" are to United States dollars.
RISK FACTORS
PERQS are innovative securities. An investment in PERQS entails
significant risks not associated with an investment in a conventional debt
security. In accordance with the American Stock Exchange, Inc. (the "AMEX")
requirements, each Underwriter and any dealer may only sell PERQS to investors
whose accounts have been specifically approved by such Underwriter for trading
equity-linked securities.
As described in more detail below, the trading price of the PERQS may vary
considerably prior to maturity due to, among other things, fluctuations in the
price of Telebras American Depositary Shares and other events that are
difficult to predict and are beyond the Company's control.
Comparison to Other Debt Securities
The terms of the PERQS differ from those of other debt securities in that
the amount payable at maturity is not fixed, but is based on the price of
Telebras American Depositary Shares. There can be no assurance that the
amount payable at maturity will be equal to or greater than the Issue Price.
If the price of Telebras American Depositary Shares at maturity is less than
the Issue Price, the amount payable at maturity will also be less, in which
case an investment in PERQS may result in a loss.
Delisting of Telebras American Depositary Shares
If not previously repaid, the PERQS will mature on the Business Day
immediately preceding the first date (the "Delisting Date") on which the
Telebras American Depositary Shares or the American depositary shares or the
shares of capital stock of any Telebras Survivor, as the case may be, are not
listed on any U.S. national securities exchange or traded through the
facilities of a U.S. national securities system subject to last sale reporting
or is permanently suspended from trading (within the meaning of the Exchange
Act and the rules and regulations thereunder) on each U.S. securities exchange
and U.S. securities system on which it is then listed. See "Description of
Securities -- Delisting of Telebras American Depositary Shares" in this
Prospectus Supplement. If a Delisting Date occurs, investors would realize a
net total return on the PERQS which may be materially lower than anticipated.
Moreover, it is possible that if a Delisting Date were to occur, it might
occur at a time when the price of Telebras American Depositary Shares or the
American depositary shares or capital stock of any Telebras Survivor, as the
case may be, is materially lower than the Issue Price. In such case, the
amount payable at maturity of the PERQS would be less, resulting in a loss on
an investment in the PERQS. No assurance may be given that a Delisting Date
will not occur.
Relationship of PERQS and Telebras American Depositary Shares
The market price of PERQS at any time is expected to be affected primarily
by changes in the price of Telebras American Depositary Shares. As indicated
in "Price Range of Telebras American Depositary Shares and Telebras Preferred
Shares and Dividend History of Telebras American Depositary Shares" in this
Prospectus Supplement, the price of Telebras American Depositary Shares has
been volatile during certain recent periods.
It is impossible to predict whether the price of Telebras American
Depositary Shares will rise or fall. Trading prices of Telebras American
Depositary Shares will be influenced by Telebras' financial results and
prospects and by complex and interrelated political, economic, financial and
other factors in Brazil and elsewhere, including factors affecting capital
markets generally, the stock exchanges on which Telebras American Depositary
Shares and Preferred Shares are traded and the market segment of which
Telebras is a part. See "Telecomunicacoes Brasileiras S.A. - Telebras" in
this Prospectus Supplement.
Dilution of Telebras Preferred Shares
The amount payable at maturity with respect to the PERQS is subject to
adjustment for certain events arising from stock splits and combinations,
stock dividends, extraordinary cash dividends and certain other events that
affect Telebras' capital structure and is also subject to adjustment for
certain changes in the number of Preferred Shares represented by each Telebras
American Depositary Share. See "Description of Securities -- Dilution
Adjustments" in this Prospectus Supplement. The amount payable at maturity of
the PERQS is not adjusted for other events, such as offerings of Telebras
American Depositary Shares or Preferred Shares for cash, that may adversely
affect the price of Telebras American Depositary Shares and, because of the
relationship of such amount to the price of Telebras American Depositary
Shares, may adversely affect the trading price of PERQS. There can be no
assurance that Telebras will not make offerings of Telebras American
Depositary Shares or Preferred Shares or other equity securities in the future
or as to the amount of such offerings, if any.
Lack of Affiliation Between the Company and Telebras
The Company is not affiliated with Telebras and, although the Company has
no knowledge that any of the events described in the preceding subsection are
currently being contemplated by Telebras and as of the date of this Prospectus
Supplement does not have any material non-public information concerning
Telebras, such events are beyond the Company's ability to control and are
difficult to predict.
Telebras is not involved in the offering of the PERQS and has no
obligations with respect to the PERQS, including any obligation to take the
interests of the Company or of holders of PERQS into consideration for any
reason. Telebras will not receive any of the proceeds of the offering of the
PERQS made hereby and is not responsible for, and has not participated in, the
determination of the timing of, prices for or quantities of the PERQS offered
hereby or the determination or calculation of the amount to be paid to holders
of PERQS at maturity. Telebras is not involved with the administration,
marketing or trading of the PERQS and has no obligations with respect to the
amount to be paid to holders of PERQS at maturity.
Possible Illiquidity of the Secondary Market
It is not possible to predict how the PERQS will trade in the secondary
market or whether such market will be liquid or illiquid.
At issuance, the PERQS will be listed on the AMEX. However, there can be
no assurance that the PERQS will not later be delisted or that trading in the
PERQS on the AMEX will not be suspended. In the event of a delisting or
suspension of trading on the AMEX, the Company will use its best efforts to
list the PERQS on another national securities exchange. The PERQS will not be
redeemable as a result of any such delisting or suspension of trading. If the
PERQS are not listed or traded on any U.S. national securities exchange or
through the facilities of a U.S. national securities system, or if trading of
the PERQS is suspended, pricing information for the PERQS may be more
difficult to obtain, and the liquidity and market prices of the PERQS may be
adversely affected.
Currency Exchange Rates
Fluctuations in the exchange rate between the Brazilian real and the U.S.
dollar will affect the U.S. dollar equivalent of the Brazilian real price of
Preferred Shares on the Bolsa de Valores de Sao Paulo (the "Sao Paulo Stock
Exchange"), the principal trading market for the Preferred Shares, and on the
Bolsa de Valores do Rio de Janeiro (the "Rio Stock Exchange") and the other
Brazilian stock exchanges and, as a result, will likely affect the market
price of the Telebras American Depositary Shares, which may consequently
affect the amount payable at maturity of the PERQS.
On August 1, 1993, the cruzeiro real replaced the cruzeiro as the unit of
Brazilian currency, with each cruzeiro real being equal to 1,000 cruzeiros.
Beginning in December 1993, the Brazilian federal government (the "Brazilian
Federal Government") began implementation of the Real Plan, which was intended
to reduce inflation. On July 1, 1994, the real replaced the cruzeiro real as
the unit of Brazilian currency, with each real being equal to 2,750 cruzeiros
reals and initially having an exchange rate of R$1.00 to US$1.00.
According to Brazilian law, the issuance of reais is controlled by
quantitative limits backed by a corresponding amount of U.S. dollars in
reserves, but the Brazilian Federal Government subsequently expanded those
quantitative limits and allowed the real to float, with parity between the
real and the U.S. dollar (R$1.00 to US$1.00) as a ceiling. In March 1995, the
Central Bank announced that it would intervene in the market and buy or sell
U.S. dollars, and established a band within which the real/U.S. dollar
exchange rate could fluctuate. The Banco Central do Brasil (the "Brazilian
Central Bank") initially set the band with a floor of R$0.86 per US$1.00 and a
ceiling of R$0.90 per US$1.00 and provided that after May 2, 1995, the band
would fluctuate between R$0.88 and R$0.98 per US$1.00. Shortly thereafter,
the Brazilian Central Bank reset the band between R$0.88 and R$0.93 per
US$1.00. On June 22, 1995, the Central Bank reset the band between $0.91 and
R$0.99 per US$1.00, and subsequently reset the band on January 30, 1996 to
between R$0.97 and R$1.06 per US$1.00. There can be no assurance that this
intervention policy will not be altered in the future. On February 6, 1996,
the commercial buying rate for the purchase of U.S. dollars (the "Commercial
Market Rate") as reported by the Brazilian Central Bank was R$0.9780 per
US$1.00.
The following table sets forth information on Commercial Market Rates, for
the periods indicated, expressed in reais per U.S. dollar. Amounts expressed
in reais have been translated from the predecessor currencies in effect during
the relevant period at the rates of exchange at the time the successor
currency took effect.
Period Period-end High Low
______ __________ ________ ________
1990 0.000062 0.000062 0.000004
1991 0.000389 0.000389 0.000062
1992 0.004505 0.004505 0.000389
1993 0.118584 0.118584 0.004505
1994 0.846000 1.000000 0.118584
1995 0.972500 0.972600 0.834000
1996(1) 0.978000 0.980000 0.972000
(1) Through February 6, 1996
Source: Brazilian Central Bank.
The noon buying rate in New York City for cable transfers in reais as
certified by the Federal Reserve Bank of New York has not been consistently
reported for Brazilian currency during the periods for which data are
presented in this Prospectus Supplement. No representation is made that the
real or U.S. dollar amounts shown in this Prospectus Supplement could have
been or could be converted into U.S. dollars or reais, as the case may be, at
any particular rate or at any rate.
The information presented in this Prospectus Supplement relating to the
exchange rate of the U.S. dollar as compared to the Brazilian real is
furnished as a matter of information only. The Brazilian real has been
subject to large devaluations in the past and may be subject to significant
fluctuations in the future. The fluctuations in the Brazilian
currency/U.S. dollar exchange rate that have occurred in the past are not
necessarily indicative of fluctuations in that rate that may occur over the
term of the PERQS.
The spot exchange rates between the Brazilian real and U.S. dollar are at
any moment a result of the supply of and demand for the currencies being
compared, and changes in the exchange rates result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in Brazil and the United States, including economic and
political developments in other countries. Of particular importance are rates
of inflation, interest rate levels, the balance of payments and the extent of
governmental surpluses or deficits in Brazil and the United States, all of
which are in turn sensitive to the monetary, fiscal and trade policies pursued
by the governments of Brazil, the United States and other countries important
to international trade and finance.
Exchange Controls
According to publicly available documents referred to under
"Telecomunicacoes Brasileiras S.A. - Telebras," the right to convert dividend
payments and proceeds from the sale of shares into foreign currency and to
remit such amounts outside Brazil is subject to restrictions under foreign
investment legislation. Regulations of the Brazilian National Monetary
Council provide for the issuance of depositary receipts in foreign markets in
respect of shares of Brazilian issuers. The Telebras American Depositary
Shares have been approved under such regulations by the Brazilian Central Bank
and the Comissao de Valores Mobiliarios (the Brazilian securities commission).
Accordingly, the proceeds from the sale of Telebras American Depositary Shares
by holders outside Brazil are free of Brazilian foreign investment controls.
A certificate of capital registration has been issued in the name of the
depositary for the Telebras American Depositary Shares (the "Depositary") with
respect to the Telebras American Depositary Shares and is maintained by Banco
Itau S.A. (the "Custodian") on behalf of the Depositary. Pursuant to the
certificate, the Custodian and the Depositary are able to convert dividends
and other distributions with respect to the Preferred Shares represented by
Telebras American Depositary Shares into foreign currency and remit the
proceeds outside Brazil.
Under current Brazilian legislation, the Brazilian Federal Government may
impose temporary restrictions on remittances of foreign capital abroad in the
event of a serious imbalance or an anticipated serious imbalance of Brazil's
balance of payments. For approximately nine months in 1989 and early 1990,
the Brazilian Federal Government froze all dividend and capital repatriations
held by the Brazilian Central Bank that were owed to foreign equity investors,
in order to conserve Brazil's foreign currency reserves. These amounts were
subsequently released in accordance with Brazilian Federal Government
directives. There can be no assurance that the Brazilian Federal Government
will not impose similar or other restrictions on foreign repatriations in the
future.
The price of Telebras American Depositary Shares could be adversely
affected by delays in, or refusal to grant any required government approval
for conversions of Brazilian currency payments and remittances abroad of the
Preferred Shares underlying the Telebras American Depositary Shares.
Other Considerations
It is suggested that prospective investors who consider purchasing PERQS
should reach an investment decision only after carefully considering with
their advisors the suitability of an investment in PERQS in light of their
particular circumstances. Investors should also consider the tax consequences
of investing in PERQS. See "Certain U.S. Federal Income Tax Considerations"
in this Prospectus Supplement.
PRICE RANGE OF TELEBRAS AMERICAN DEPOSITARY SHARES AND TELEBRAS PREFERRED
SHARES AND DIVIDEND HISTORY OF TELEBRAS AMERICAN DEPOSITARY SHARES
The principal trading market for the Preferred Shares is the Sao Paulo
Stock Exchange. The Preferred Shares are also traded on the Rio Stock
Exchange and the seven other Brazilian stock exchanges. Telebras American
Depositary Shares, issued by The Bank of New York, as Depositary, each
representing 1,000 Preferred Shares, have traded on the NYSE since November 1,
1995 and previously were traded in the U.S. over-the-counter market, where
dealers' prices for the Telebras American Depositary Shares were quoted in the
"pink sheets" published by the National Quotations Bureau, Inc.
The table below sets forth the high and low closing sales prices for the
Preferred Shares on the Sao Paulo Stock Exchange for the periods indicated.
Such high and low closing sales prices are stated in reais but reflect the
Brazilian-currency at its historical value rather than constant reais of
February 6, 1996 purchasing power. The table also sets forth such sales
prices translated into U.S. dollars at the Commercial Market Rate for each of
the respective dates of such quotations. See "Risk Factors--Currency Exchange
Rates" for information with respect to exchange rates applicable during the
periods set forth below.
Closing sales prices
_______________________________________
Nominal reais U.S. Dollars
per 1,000 per 1,000
Preferred Shares Preferred Shares
________________ _______________
High Low High Low
______ _____ ______ _____
1993:
First quarter(1) . . . . 29.97 21.53 27.15 19.50
Second quarter . . . . . 42.16 25.98 39.05 24.06
Third quarter. . . . . . 47.30 30.79 44.90 29.23
Fourth quarter . . . . . 45.11 32.89 46.19 33.68
1994:
First quarter. . . . . . 31.80 28.50 49.84 44.67
Second quarter . . . . . 38.00 36.10 19.90 18.38
Third quarter . . . . . 52.40 46.40 57.90 51.27
Fourth quarter . . . . . 53.00 37.00 61.39 42.85
1995:
First quarter. . . . . . 33.80 23.00 36.34 24.73
Second quarter . . . . . 36.00 30.75 37.20 31.19
Third quarter(2) . . . . 46.20 30.35 48.58 33.03
Fourth quarter . . . . . 47.60 36.15 49.28 37.54
1996:
First quarter (through
February 6, 1996). . . 55.20 48.25 56.44 49.64
_________
(1) Source: Data through June 30, 1995 from publicly available documents
referred to under "Telecomunicacoes Brasileiras S.A. -- Telebras."
(2)Source: Date from July 1, 1995 from Bloomberg Financial Markets.
The table below sets forth, for the periods indicated, the high and low
closing sales prices for the Telebras American Depositary Shares in the U.S.
over-the-counter market as reported on the OTC Bulletin Board during the
period from July 1, 1994 through October 31, 1995 and on the New York Stock
Exchange Composite Tape from November 1, 1995 through February 7, 1996. Such
high and low closing sales prices are stated in U.S. dollars.
<TABLE>
<CAPTION>
OTC Bulletin Board New York Stock Exchange
------------------------------------ ------------------------------------
U.S. Dollars per Telebras American U.S. Dollars per Telebras American
Depositary Share Depositary Share
------------------------------------ -----------------------------------
High Low High Low
-------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1994:
Third Quarter........... 62.000 38.375 -- --
Fourth Quarter.......... 62.500 41.625 -- --
1995:
First Quarter........... 42.500 20.125 -- --
Second Quarter.......... 40.250 26.049 -- --
Third Quarter........... 49.000 33.125 -- --
Fourth Quarter (through
October 31, 1995)....... 47.584 40.000 -- --
Fourth Quarter (from
November 1, 1995)....... -- -- 48.625 37.750
1996:
First Quarter (through
February 7, 1996)....... -- -- 56.250 50.875
</TABLE>
____________
(1) Source: Data through October 31, 1995 from OTC Bulletin Board.
(2) Source: Data from November 1, 1995 from Bloomberg Financial Markets.
On February 7, 1996, the closing price of the Telebras Preferred Shares as
reported on the Sao Paulo Stock Exchange was R$54.40 and the closing price of
the Telebras American Depositary Shares as reported on the NYSE Composite Tape
was $56.00.
The information presented in this Prospectus Supplement relating to sales
prices on the Sao Paulo Stock Exchange for Preferred Shares and sales prices
in the U.S. over-the-counter market and on the NYSE for Telebras American
Depositary Shares is furnished as a matter of information only. Fluctuations
in or levels of sales prices that have occurred in the past are not
necessarily indicative of fluctuations in or levels of the sales prices of
Telebras American Depositary Shares or Preferred Shares that may occur over
the term of the PERQS.
Each Telebras American Depositary Share represents 1,000 Preferred Shares.
For the years 1993, 1994 and 1995, holders of Telebras American Depositary
Shares received cash dividends of $1.064, $0.3082 and $0.3239, respectively,
per Telebras American Depositary Share. The Company makes no representation
as to the amount of dividends, if any, that Telebras will pay in the future or
the currency exchange rate that will be available in the future. In any event,
holders of PERQS will not be entitled to receive any dividends that may be
payable on Preferred Shares or Telebras American Depositary Shares.
USE OF PROCEEDS AND HEDGING
In connection with hedging the Company's obligations under the PERQS, an
amount equal to approximately half of the proceeds to be received by the
Company from the sale of the PERQS (excluding any PERQS held for sale by
Morgan Stanley & Co. Incorporated ("MS & Co.")) is being used by the Company
or one or more of its affiliates shortly prior to, at or shortly following the
initial offering of the PERQS (i) to acquire Telebras American Depositary
Shares or other securities of Telebras, (ii) to take positions in listed or
over-the-counter options contracts on Telebras American Depositary Shares or
any other securities of Telebras or in other instruments based on securities
of Telebras or (iii) to take positions in any other instruments that it may
wish to use in connection with hedging the Company's obligations under the
PERQS. The balance of such proceeds will be used for general corporate
purposes. See "Use of Proceeds" in the accompanying Prospectus. From time to
time after the initial offering and prior to the maturity of the PERQS,
depending on market conditions (including the market prices of Telebras
American Depositary Shares or other securities of Telebras and the number of
PERQS, if any, then held for resale by MS & Co.), the Company or one or more
of its affiliates will increase or decrease their initial hedging positions.
In addition, the Company or one or more of its affiliates may purchase or
otherwise acquire a long or short position in PERQS from time to time and may,
in their sole discretion, hold or resell such PERQS. If the Company or one or
more of its affiliates have a long hedge position in any of (a) Telebras
American Depositary Shares, (b) other securities of Telebras, (c) listed or
over-the-counter options contracts in Telebras American Depositary Shares or
other securities of Telebras, (d) other instruments based on securities of
Telebras or (e) other instruments that it may wish to use in connection with
such hedging, the Company or one or more of its affiliates may liquidate a
portion of their holdings at or about the time of the maturity of the PERQS.
Depending on future market conditions, among other things, the aggregate
amount and the composition of such positions are likely to vary over time.
The hedging activity discussed above may affect the Issue Price, the trading
price or the amount payable upon maturity of the PERQS. However, the Company
does not expect that these hedging activities had or will have such effects.
MORGAN STANLEY GROUP INC.
Morgan Stanley Group Inc. is a holding company that, through its
subsidiaries, provides a wide range of financial services on a global basis.
Its businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring, real estate, project finance and other
corporate finance advisory activities; merchant banking and other principal
investment activities; brokerage and research services; asset management; the
trading of foreign exchange and commodities as well as derivatives on a broad
range of asset categories, rates and indices; and global custody, securities
clearance services and securities lending. These services are provided to a
large and diversified group of clients and customers, including corporations,
governments, financial institutions and individual investors. The Company,
which was formed in 1935, conducts business from its head office in New York
City, international branches or representative offices in Beijing, Bombay,
Frankfurt, Geneva, Hong Kong, Johannesburg, London, Luxembourg, Madrid,
Melbourne, Milan, Montreal, Moscow, Osaka, Paris, Seoul, Shanghai, Singapore,
Sydney, Taipei, Tokyo, Toronto and Zurich, and United States regional offices
in Chicago, Los Angeles and San Francisco.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratio of earnings to fixed
charges for the Company for the periods indicated. Information for the seven
months ended August 31, 1995 and the six months ended August 31, 1995 and July
31, 1994 was derived from unaudited condensed consolidated financial
statements.
<TABLE>
<CAPTION>
Six
Months
Seven Months Ended Six Fiscal
Ended August 31, Months Ended Year Ended Year Ended
August 31, 1995 1995 July 31, 1994 January 31, December 31,
---------------- ----------- -------------- ------------------------- ------------------
1995 1994 1993 1991 1990
----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of
earnings to
fixed charges.. 1.1 1.2 1.1 1.1 1.2 1.2 1.2 1.1
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges (exclusive of
preferred stock dividends). Fixed charges, for the purpose of calculating the
ratio of earnings to fixed charges, consist solely of interest expense,
capitalized interest and that portion of rentals representative of an interest
factor.
DESCRIPTION OF SECURITIES
The following description of the terms of the PERQS offered hereby
(referred to in the Prospectus as the "Offered Debt Securities") supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the
Prospectus, to which description reference is hereby made. In particular, as
used under this caption, the term "Company" means Morgan Stanley Group Inc.
The following summary of the PERQS is qualified in its entirety by reference
to the Senior Debt Indenture referred to in the accompanying Prospectus.
General
The aggregate number of PERQS to be issued will be 3,000,000, subject to
the over-allotment option granted by the Company to the Underwriters (see
"Underwriters" herein). The PERQS will constitute part of the senior debt of
the Company, will be issued under the Senior Debt Indenture described in the
accompanying Prospectus and will rank pari passu with all other unsecured and
unsubordinated debt of the Company. The PERQS will mature on the earlier of
(i) February 16, 1999 (subject to extension as described below under
"Extension of Maturity for Non-Trading Days") and (ii) the Business Day
immediately preceding any Delisting Date, but in no event later than February
23, 1999. At maturity, the holder of a PERQS will be entitled to receive the
lesser of (A) 142.5% of the Issue Price and (B) the average Closing Price per
share of Telebras American Depositary Shares for the 10 Trading Days ending on
the second Business Day prior to maturity, in each case subject to adjustment
as a result of certain dilution events (see "Dilution Adjustments" below).
The maximum aggregate amount payable at maturity of the PERQS is therefore
$239,400,000 ($275,310,000, if the Underwriter's over-allotment option is
exercised in full). The Company may, however, "reopen" the issue of PERQS and
issue additional PERQS at a later time or issue additional Debt Securities or
other securities with terms similar to those of the PERQS, and any such
issuances may affect the trading value of the PERQS.
The "Delisting Date" will be the first date on which the Telebras American
Depositary Shares or the American depositary shares or the shares of capital
stock of any Telebras Survivor, as the case may be, are not listed on any U.S.
national securities exchange or U.S. national securities system subject to
last sale reporting or is permanently suspended from trading (within the
meaning of the Exchange Act and the rules and regulations thereunder) on each
U.S. securities exchange and U.S. securities system on which it is then
listed. The "Closing Price" of any security on any date means the closing
sale price or last reported sale price of such security on the NYSE on such
date or, if such security is not listed for trading on the NYSE on any such
date, on such other U.S. national securities exchange or U.S. national
securities system that is the primary market for the trading of such security.
A "Trading Day" for any security means a Business Day on which the security
the Closing Price of which is being determined (A) is not suspended from
trading on any U.S. national securities exchange or U.S. national securities
system at the close of business on such Business Day and (B) has traded at
least once on such Business Day on the U.S. national securities exchange or
U.S. national securities system that is the primary market for the trading of
such security. "Business Day" means any day that is not a Saturday, a Sunday
or a day on which the NYSE, the AMEX or banking institutions or trust
companies in The City of New York are authorized or obligated by law or
executive order to close.
Extension of Maturity for Non-Trading Days
In the event that any of the 10 Business Days ending on the second Business
Day prior to February 16, 1999 is not a Trading Day (a "Non-Trading Day"), the
PERQS will not mature on February 16, 1999, but the maturity of the PERQS will
be extended one Trading Day for each Non-Trading Day; provided, however, that
the PERQS will mature in any event not later than on February 23, 1999. The
PERQS will continue to accrue interest until the principal amount of the PERQS
is paid at maturity, which, in the event that the maturity of the PERQS is
extended as a result of one or more Non-Trading Days, will be payable to the
holders of PERQS on the date of such extended maturity. In the case of a
PERQS evidenced by a Certificate (as defined below), the Company shall
promptly notify the holder of such Certificate, by first-class mail, of such
extension of maturity. In the case of Book-Entry PERQS (as defined below),
notice of such extension of maturity shall promptly be sent by first-class
mail to the Depositary (as defined below). In each case, the Company also
will contemporaneously publish notice of such extension of maturity in a
United States newspaper with a national circulation (currently expected to be
The Wall Street Journal).
Delisting of Telebras American Depositary Shares
If not previously repaid, the PERQS will mature on the Business Day
immediately preceding any Delisting Date. The amount to which the holder of a
PERQS will be entitled if a Delisting Date occurs shall be calculated as
described under " -- General," above. See also "Risk Factors -- Delisting of
Telebras American Depositary Shares" above. In the case of a PERQS evidenced
by a Certificate, the Company shall promptly notify the holder of such
Certificate, by first-class mail, of such Delisting Date. In the case of
Book-Entry PERQS, notice of any Delisting Date shall promptly be sent by
first-class mail to the Depositary. In each case, the Company also will
contemporaneously publish notice of such Delisting Date in a United States
newspaper with a national circulation (currently expected to be The Wall
Street Journal).
Interest
Each PERQS will bear interest from February 13, 1996 at the rate of 6% of
the Issue Price per annum (or $3.36 per annum) until the amount payable at
maturity thereof is paid or made available for payment. Interest on the PERQS
will be payable quarterly in arrears on each February 15, May 15, August 15
and November 15 (each an "Interest Payment Date"), beginning May 15, 1996, and
at maturity. Interest on the PERQS will be computed on the basis of a 360-day
year of twelve 30-day months. The interest to be paid on May 15, 1996 will be
$.8587 per PERQS. Each payment of interest in respect of an Interest Payment
Date will include interest accrued to but not including such Interest Payment
Date. If an Interest Payment Date falls on a day that is not a Business Day,
the interest payment to be made on such Interest Payment Date will be made on
the next succeeding Business Day with the same force and effect as if made on
such Interest Payment Date, and no additional interest will accrue as a result
of such delayed payment. Interest payable on a PERQS on any Interest Payment
Date will be paid to the person in whose name such PERQS is registered at the
close of business on the applicable Record Date (as defined below); provided
that the interest payable upon maturity will be payable to the person to whom
principal is payable. "Record Date" means, for any Interest Payment Date, the
date 15 calendar days prior to such Interest Payment Date, whether or not such
Record Date is a Business Day.
Payments of interest, other than interest payable at maturity, will be made
by check mailed to the address of the person entitled thereto as shown on the
register maintained by the registrar for the PERQS. Payments of principal and
interest upon maturity will be made in immediately available funds against
presentation and surrender of the Certificate representing a PERQS.
Notwithstanding the foregoing, (a) if any PERQS are held in book-entry form by
the Depositary, the Depositary shall be entitled to receive payments of
interest by wire transfer of immediately available funds and (b) a holder of
$100,000 or more in aggregate Issue Price of Certificates shall be entitled to
receive payments of interest by wire transfer of immediately available funds
upon written request to the Trustee not later than 15 calendar days prior to
the applicable Interest Payment Date.
Dilution Adjustments
The Closing Price of Telebras American Depositary Shares on any of the 10
Trading Days (the "10 Trading Days") used to calculate the amount payable at
maturity of the PERQS shall be subject to adjustment as described below to the
extent that any of the events requiring such adjustment occur during the
period commencing on the date hereof and ending on the second Business Day
prior to the maturity of the PERQS:
(i) TELEBRAS STOCK DIVIDENDS, EXTRAORDINARY CASH DIVIDENDS AND OTHER
DISTRIBUTIONS. In the event that a dividend or other distribution (A) is
declared on any class of Telebras' capital stock (or on the capital stock
of any Telebras Survivor, as defined in clause (iv) below) payable in
Preferred Shares (or the applicable class of capital stock of any Telebras
Survivor) or (B) is to be paid to holders of Telebras American Depositary
Shares (or the applicable class of capital stock of any Telebras Survivor)
in U.S. dollars (the U.S. dollar amount of such payment to be determined,
if necessary, using the Commercial Market Rate on the Distribution Record
Date (as defined below)) in an amount greater than 10% of the Closing Price
of the Telebras American Depositary Shares (or the applicable class of
capital stock of any Telebras Survivor) on the Distribution Record Date (an
"Extraordinary Cash Dividend"), any Closing Price of Telebras American
Depositary Shares (or the applicable class of capital stock of any Telebras
Survivor) used to calculate the amount payable at maturity of the PERQS on
any Trading Day that follows the date (the "Distribution Record Date")
fixed for the determination of the shareholders of Preferred Shares (or of
shares of the applicable class of capital stock of any Telebras Survivor)
or in the case of an Extraordinary Cash Dividend, the holders of the
Telebras American Depositary Shares (or the applicable class of capital
stock of any Telebras Survivor) entitled to receive such distribution shall
be increased by multiplying such Closing Price by the Dividend Adjustment
Factor. The "Dividend Adjustment Factor" with respect to any Closing Price
will be a fraction (A) the numerator of which shall be the number of
Telebras American Depositary Shares (or the number of shares of the
applicable class of capital stock of any Telebras Survivor) outstanding on
the Distribution Record Date plus (x) the number of Telebras American
Depositary Shares (or the number of shares of the applicable class of
capital stock of any Telebras Survivor) to be issued as a result of such
distribution or (y) in the case of an Extraordinary Cash Dividend, the
number of Telebras American Depositary Shares (or number of shares of the
applicable class of capital stock of any Telebras Survivor) that could be
purchased with the amount of the applicable Extraordinary Cash Dividend
(determined as described above) at the Closing Price of such securities on
the Trading Day immediately subsequent to such Distribution Record Date,
and (B) the denominator of which shall be the number of Telebras American
Depositary Shares (or the number of shares of the applicable class of
capital stock of any Telebras Survivor) outstanding on the Distribution
Record Date; provided, however, that, in the case of a stock dividend, if
Telebras (or any Telebras Survivor) and the depositary for its American
depositary shares shall have adjusted the number of shares of capital stock
represented by each American depositary share so that the price of such
American depositary shares would not be affected by such stock dividend, no
adjustment of any such Closing Price shall be made.
(ii) SUBDIVISIONS AND COMBINATIONS OF TELEBRAS PREFERRED SHARES. In
the event that the outstanding Preferred Shares (or the applicable class of
capital stock of any Telebras Survivor) are subdivided into a greater
number of shares, the Closing Price of Telebras American Depositary Shares
(or the applicable class of capital stock of any Telebras Survivor) used to
calculate the amount payable at maturity of the PERQS on any Trading Day
that follows the date on which such subdivision becomes effective will be
proportionately decreased, and, conversely, in the event that the
outstanding Preferred Shares (or the applicable class of capital stock of
any Telebras Survivor) are combined into a smaller number of shares, such
Closing Price will be proportionately increased; provided, however, that if
Telebras (or any Telebras Survivor) and the depositary for its American
depositary shares shall have adjusted the number of shares of capital stock
represented by each American depositary share so that the price of such
American depositary shares would not be affected by such subdivision or
combination, no adjustment of such Closing Price shall be made.
(iii) CHANGE IN NUMBER OF TELEBRAS PREFERRED SHARES REPRESENTED BY
TELEBRAS AMERICAN DEPOSITARY SHARES. In the event that Telebras (or any
Telebras Survivor) and the depositary for its American depositary shares
elect, in the absence of any of the events described in clause (i) or (ii)
above, to change the number of shares of capital stock that are represented
by each American depositary share, the Closing Price of such American
depositary shares used to calculate the amount payable at maturity of the
PERQS on any Trading Day after the change becomes effective will be
proportionately adjusted.
(iv) DISSOLUTION OF TELEBRAS; MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS IN WHICH TELEBRAS IS NOT THE SURVIVING ENTITY; SPIN-OFFS. In the
event of any (A) consolidation or merger of Telebras, or any surviving
entity or subsequent surviving entity of Telebras (a "Telebras Survivor")
with or into another entity (other than a consolidation or merger in which
Telebras is the surviving entity), (B) sale, transfer, lease or conveyance
of all or substantially all of the assets of Telebras or any Telebras
Survivor, (C) liquidation, dissolution or winding up of Telebras or any
Telebras Survivor or (D) any declaration of a distribution on Preferred
Shares of the common stock of any subsidiary of Telebras (a "Telebras
Spin-Off") (any of the events described in (A), (B), (C) or (D), being a
"Reorganization Event"), for purposes of determining the amount payable at
maturity of each PERQS, the Closing Price of Telebras American Depositary
Shares on any Trading Day subsequent to the effective time of any
Reorganization Event will be deemed to be the amount equal to (a) the value
of the cash and other property (including securities) received by a holder
of a Telebras American Depositary Share in any such Reorganization Event
(plus, in the case of a Telebras Spin-Off, the value of a Telebras American
Depositary Share), and (b) to the extent that such holder obtains
securities in any Reorganization Event, the value of the cash and other
property received by the holder of such securities in any subsequent
Reorganization Event; provided, however, that in the case of a
Reorganization Event described in clause (A) above, no adjustment in the
method of determining the Closing Price of the American depositary shares
of Telebras (or of any Telebras Survivor) shall be made, if the depositary
for such American depositary shares shall have adjusted such American
depositary shares so that each such American depositary share represents
the securities and any other consideration received with respect to the
Preferred Shares (or the applicable capital stock of any Telebras Survivor)
in such Reorganization Event. For purposes of determining any such Closing
Prices, the value of (1) any cash and other property (other than
securities) received in any such Reorganization Event will be an amount
equal to the value of such cash and other property at the effective time of
such Reorganization Event and (2) any property consisting of securities
received in any such Reorganization Event will be an amount equal to the
Closing Prices of such securities. The depositary for the Telebras
American Depositary Shares (or the American depositary shares of any
Telebras Survivor) may sell securities distributed to the depositary (as a
holder of shares of the underlying capital stock) as a result of the events
described in (A) through (D) above and distribute the net cash proceeds of
such sales to the holders of Telebras American Depositary Shares (or the
American depositary shares of any Telebras Survivor). In such event, the
cash received by the holders of such American depositary shares, rather
than the Closing Prices of the securities distributed to holders of the
underlying shares of capital stock, shall be used in any determination of
the Closing Price of such American depositary shares.
(v) RECLASSIFICATION OF TELEBRAS PREFERRED SHARES. In the event
that Preferred Shares are changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (except to the extent otherwise provided in
clause (i), (ii) or (iv) above), no adjustment shall be made to the Closing
Prices of Telebras American Depositary Shares used to calculate the amount
payable at maturity of the PERQS; provided, however, that if as a result of
or in connection with such an event, Telebras and the depositary for
Telebras American Depositary Shares change the number of Preferred Shares
that are represented by a Telebras American Depositary Share, such Closing
Prices will be proportionately adjusted with respect to any Trading Day
that follows the effectiveness of such change. (No such adjustment to
Closing Prices is necessary (except in the circumstances described in the
proviso above) because Telebras American Depositary Shares provide that
they will, upon such a reorganization, reclassification or other event,
automatically represent appropriate numbers of shares of any such different
class or classes of capital stock into which Preferred Shares have been
changed.) In the event that shares of the applicable class of capital
stock of any Telebras Survivor are changed into the same or a different
number of shares of any class or classes of capital stock, whether by
capital reorganization, reclassification or otherwise (except to the extent
otherwise provided in clause (i), (ii) or (iv) above), the amount payable
at maturity of the PERQS shall be calculated by using Closing Prices of the
shares of capital stock into which a share of the applicable class of
capital stock of the Telebras Survivor was changed on any Trading Day that
follows the effectiveness of such change, except that no such adjustment
shall be made if the American depositary shares of such Telebras Survivor
provide that they will, upon such a reorganization, reclassification or
other event, automatically represent appropriate numbers of shares of any
such different class or classes of capital stock into which the applicable
class of stock of any Telebras Survivor has been changed.
In the case of a PERQS evidenced by a Certificate, the Company shall
promptly notify the holder of such Certificate, by first-class mail, of any
event requiring an adjustment and of the method of calculation to be used to
make any dilution adjustment as described above. In the case of Book-Entry
PERQS, notice of any event requiring such an adjustment and of the method of
calculation to be used to make any dilution adjustment as described above
shall promptly be sent by first-class mail to the Depositary. In each case,
the Company also will contemporaneously publish notice of any event requiring
such an adjustment and of the method of calculation to be used to make any
dilution adjustment in a United States newspaper with a national circulation
(currently expected to be The Wall Street Journal).
NOTWITHSTANDING THE FOREGOING, THE AMOUNT PAYABLE AT MATURITY WITH RESPECT
TO EACH PERQS WILL NOT, UNDER ANY CIRCUMSTANCES, EXCEED 142.5% OF THE ISSUE
PRICE (OR $79.80 PER PERQS).
Redemption; Defeasance
The PERQS are not subject to redemption prior to maturity and are not
subject to the defeasance provisions described in the accompanying Prospectus
under "Description of Debt Securities--Discharge, Defeasance and Covenant
Defeasance."
Certificates
The PERQS initially will be evidenced by certificates in fully registered
form (each, a "Certificate"). Chemical Bank, as trustee (the "Trustee"), will
from time to time register the transfer of any outstanding Certificate upon
surrender thereof at the office of the Trustee which is currently located at
55 Water Street, 2nd Floor, Room 234, North Building, New York, New York 10041
(the "Trustee's Office"), duly endorsed by, or accompanied by a written
instrument or instruments of transfer in a form satisfactory to the Trustee
duly executed by the holder thereof, a duly appointed legal representative or
a duly authorized attorney. Such signature must be guaranteed by a bank or
trust company having a correspondent office in New York City or by a broker or
dealer that is a member of the National Association of Securities Dealers,
Inc. (the "NASD") or a member of a U.S. national securities exchange. A new
Certificate will be issued to the transferee upon any such registration of
transfer.
At the option of a holder, Certificates may be exchanged for other
Certificates representing a like number of PERQS, upon surrender to the
Trustee at the Trustee's Office of the Certificates to be exchanged. The
Company will thereupon execute, and the Trustee will authenticate and deliver,
one or more new Certificates representing such like number of PERQS.
If any Certificate is mutilated, lost, stolen or destroyed, the Company
shall execute, and the Trustee shall authenticate and deliver, in exchange and
substitution for such mutilated Certificate, or in replacement for such lost,
stolen or destroyed Certificate, a new Certificate representing the same
number of PERQS represented by such Certificate, but only upon receipt of
evidence satisfactory to the Company and to the Trustee of loss, theft or
destruction of such Certificate and security or indemnity, if requested,
satisfactory to them. Holders requesting replacement Certificates must also
comply with such other reasonable regulations as the Company or the Trustee
may prescribe.
No service charge will be made for any registration of transfer or exchange
of Certificates, but the Company may require the payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection
therewith, other than exchanges not involving any transfer. In the case of
the replacement of mutilated, lost, stolen or destroyed Certificates, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Book-Entry PERQS
Optional Exchange for Book-Entry PERQS. Following the issuance of the
PERQS, the Company may, at its option, elect to make the PERQS available in
book-entry form ("Book-Entry PERQS"). If the Company makes such an election,
holders may (but are not required to) exchange Certificates for Book-Entry
PERQS, which will be represented by a beneficial interest in a Global Security
(as defined below), by causing the Certificates to be delivered to The
Depository Trust Company (the "Depositary"), in proper form for deposit into
the Depositary's book-entry system, on or after the Initial Exchange Date (as
defined below). Certificates received by the Depositary for exchange during
the period commencing on a date designated by the Company (the "Initial
Exchange Date") and ending on the 45th day after the Initial Exchange Date
(the "Initial Exchange Period") will be exchanged for Book-Entry PERQS by the
close of business on the Business Day on which they are received by the
Depositary (if received by the Depositary by its then applicable cut-off time
for same-day credit) or on the following Business Day (if received by the
Depositary by its then applicable cut-off time for next-day credit). After
the last day of the Initial Exchange Period, the Depositary will not be
required to accept delivery of Certificates in exchange for Book-Entry PERQS,
but the Depositary may permit such Certificates to be so exchanged on a
case-by-case basis. It is anticipated that after the Initial Exchange Period,
Certificates delivered to the Depositary in good order and in proper form for
deposit will be accepted by the Depositary for exchange for Book-Entry PERQS
generally within three to four Business Days after delivery to the Depositary.
However, there can be no assurance that such Certificates will be accepted for
exchange or, if accepted, that such exchange will occur within such time
period. Certificates surrendered at any time for exchange for Book-Entry
PERQS may not be delivered for settlement or transfer until such exchange has
been effected. Accordingly, persons purchasing PERQS in secondary market
trading after the Initial Exchange Date may wish to make specific arrangements
with brokers or the Depositary's participants if they wish to purchase only
Book-Entry PERQS and not Certificates.
In the event that the Company elects to make the PERQS available in
book-entry form, it will notify the Depositary and the Trustee by facsimile
and first-class mail and each holder of a Certificate by first-class mail.
Exchanges of Certificates for Book-Entry PERQS will commence on the Initial
Exchange Date, which will be approximately five Business Days after the date
on which the Company notifies the Depositary that it has elected to permit
such exchanges.
In order to be exchanged for Book-Entry PERQS, a Certificate must be
delivered to the Depositary, in proper form for deposit, by a participant.
Accordingly, holders of PERQS that are not participants must deliver their
Certificates, in proper form for deposit, to a participant, either directly or
through a brokerage firm that maintains an account with a participant, in
order to have their Certificates exchanged for Book-Entry PERQS. Holders of
PERQS that desire to exchange their Certificates for Book-Entry PERQS should
contact their broker or a participant to ascertain whether the Company has
elected to make Book-Entry PERQS available, and if the Company has made such
election, to obtain information on procedures for submitting their
Certificates to the Depositary, including the proper form for submission and
(during the Initial Exchange Period) the cut-off times for same-day and
next-day exchange. A Certificate that is held on behalf of a beneficial owner
in nominee or "street name" may be automatically exchanged for Book-Entry
PERQS by the broker or other entity that is the registered holder of such
PERQS, without any action of or consent by the beneficial owner of the PERQS.
Book-Entry System. Any Book-Entry PERQS will be represented by a single
global security (a "Global Security"), which will be deposited with, or on
behalf of, the Depositary, and registered in the name of a nominee of the
Depositary. Certificates that have been exchanged for Book-Entry PERQS may
not be reexchanged for Certificates, except under the limited circumstances
described in the accompanying Prospectus under "Description of Debt Securities
- -- Global Securities." Unless and until it is exchanged in whole or in part
for Certificates, the Global Security may not be transferred except as a whole
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary.
The Depositary has advised the Company and the Underwriters as follows:
The Depositary is a limited-purpose trust company organized under the laws of
the State of New York, 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. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's 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 the Depositary. Access to the Depositary's
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.
A further description of the Depositary's procedures with respect to the
Global Securities representing the PERQS is set forth in the accompanying
Prospectus under "Description of Debt Securities -- Global Securities." The
Depositary has confirmed to the Company, the Underwriters and the Trustee for
the PERQS that it intends to follow such procedures.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, special tax counsel to the
Company, the following is a summary of the material U.S. federal income tax
considerations that are generally relevant to holders of PERQS. The summary
is based on tax laws in effect as of the date of this Prospectus Supplement,
which are subject to change by legislative, judicial or regulatory action that
in some cases may have retroactive effect. This summary does not discuss all
of the tax considerations that may be relevant to a holder in light of such
holder's particular circumstances. In particular, this summary addresses only
persons who hold PERQS as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986 (the "Code"), and does not deal with persons
subject to special rules, such as certain financial institutions, insurance
companies, dealers in options or securities or purchasers holding PERQS as a
part of a hedging transaction or straddle or as part of a "synthetic security"
or other integrated investments. This summary also does not deal with holders
other than initial holders of the PERQS who purchase PERQS at the Issue Price.
The Company currently intends to treat the PERQS as indebtedness of the
Company for U.S. federal income tax purposes. Such treatment is binding on
the Company and on all holders of the PERQS except for holders who disclose on
their tax returns that they are treating the PERQS in a manner inconsistent
with the Company's treatment. The Company's treatment of the PERQS is not,
however, binding upon the Internal Revenue Service (the "IRS") or the courts,
and there can be no assurance that it will be accepted. Because of the
absence of authority on point, there are substantial uncertainties regarding
the U.S. federal income tax consequences of an investment in PERQS.
Prospective purchasers are urged to consult their tax advisors in this regard
and with respect to any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means a holder of a PERQS
that is (i) a United States citizen or a resident of the United States for
U.S. federal income tax purposes, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its source or
(iv) a person otherwise subject to U.S. federal income taxation on a net
income basis in respect of such holder's ownership of the PERQS.
As used herein, the term "Non-U.S. Holder" means a holder of a PERQS that
is not a United States Holder.
Tax Consequences to United States Holders
Payments of Interest on the PERQS. The Company currently intends to treat
the full amount of each periodic interest payment on the PERQS as reportable
interest. Under this approach, such interest would be taxable to a United
States Holder as ordinary interest income at the time it accrues or is
received in accordance with the holder's method of accounting for U.S. federal
income tax purposes. However, if the PERQS are not treated as indebtedness
of the Company, it is possible that all or a portion of the interest paid on
the PERQS could be treated as ordinary income other than interest income.
Although proposed Treasury regulations addressing the treatment of
contingent debt instruments were issued on December 15, 1994, such
regulations, which generally would require current accrual of contingent
amounts and would affect the character of gain on the sale, exchange or
retirement of debt, by their terms apply only to debt instruments issued on or
after the 60th day after the regulations are finalized.
Sale, Exchange or Retirement of a PERQS. Upon the sale, exchange or
retirement of a PERQS, a United States Holder will recognize gain or loss
equal to the difference between the amount realized on the sale, exchange or
retirement and such holder's tax basis in the PERQS. For these purposes, the
amount realized does not include any amount attributable to accrued interest
on the PERQS. Amounts attributable to accrued interest are treated as
interest as described under "Payments of Interest on the PERQS" above.
In general, any gain or loss recognized by the holder upon the sale or
exchange of the PERQS will be long-term capital gain or loss if the United
States Holder has held the PERQS for more than one year at the time of the sale
or exchange.
It is likely that any loss on the retirement of a PERQS will be a capital
loss. However, it is unclear whether gain on the retirement of a PERQS will
be capital or ordinary in character. Under the proposed Treasury regulations
dealing with contingent debt obligations, any such gain would be treated as
interest income, assuming that the PERQS constitute indebtedness of the
Company, and any such loss would be a capital loss. However, pending the
issuance of definitive regulatory guidance, the Company does not currently
intend to treat the payment of principal at maturity as reportable interest.
Tax Consequences to Non-U.S. Holders
Under present U.S. federal income and estate law and subject to the
discussion of backup withholding below, the Company believes that:
(a) Payments of periodic interest and principal at maturity on the
PERQS by the Company to any Non-U.S. Holder should not be subject to U.S.
federal withholding tax, provided that (i) the holder does not actually or
constructively own 10 percent or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (ii) the holder is
not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership, (iii) the holder is not
a bank receiving interest described in Section 881(c)(3)(A) of the Code and
(iv) either (a) the beneficial owner of the PERQS certifies to the Company
or its agent, under penalties of perjury, that it is not a United States
Holder and provides its name and address on United States Treasury Form W-8
(or a suitable substitute form) or (b) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the PERQS certifies to the Company or its agent under penalties of
perjury that such a Form W-8 (or a suitable substitute form) has been
received by it (or by a financial institution between it and the beneficial
owner) from the beneficial owner and furnishes the payor with a copy
thereof. Provided that proper certifications as described above are
furnished, the Company does not currently intend to withhold on payments of
interest and principal on the PERQS. In the event of a change of U.S.
federal income tax law (including a change in the interpretation of law or
regulation by any judicial or regulatory authority), U.S. federal
withholding tax may be imposed on payments of interest and principal on the
PERQS. In such event, these payments would be treated as "other income"
exempt from withholding under certain tax treaties (such as the income tax
treaty between the United Kingdom and the United States). Therefore, any
Non-U.S. Holder who is a resident in a jurisdiction where the applicable
treaty with the United States affords an exemption for such income would be
exempt from withholding tax if a Form 1001 (or a suitable substitute form)
were furnished by such holder.
(b) Generally, a Non-U.S. Holder will not be subject to U.S. federal
income taxes on any amount recognized upon the sale, exchange or retirement
of a PERQS unless in the case of an individual Non-U.S. Holder, such holder
is present in the United States for 183 days or more in the year of such
sale, exchange or retirement and has a "tax home" (as defined in Section
911(d)(3) of the Code) or an office or other fixed place of business in the
United States.
(c) Unless an applicable estate tax treaty provides otherwise, the
fair market value of the PERQS may be includible in the gross estate of a
non-resident alien individual for U.S. federal estate tax purposes.
Backup Withholding and Information Reporting
Payments of principal and interest and proceeds from the sale or exchange
of a PERQS may be subject to a United States backup withholding at the rate of
31% if the holder fails to provide appropriate certifications (generally, by
completing a Form W-9 or an acceptable substitute form in the case of a United
States Holder and by completing a Form W-8, Form 1001 or an acceptable
substitute form in the case of a Non-U.S. Holder). Any amounts withheld under
the backup withholding rules from a payment to a beneficial owner would be
allowed as a refund or a credit against such beneficial owner's U.S. federal
income tax provided the required information is furnished to the Internal
Revenue Service.
Payments to Non-U.S. Holders will generally be subject to annual tax
reporting on IRS Form 1042S.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
The Company and certain affiliates of the Company, including MS & Co., 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 PERQS are acquired by or with the
assets of a pension or other employee benefit plan subject to ERISA or the
Code with respect to which MS & Co. or any of its affiliates is a service
provider, unless such PERQS 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
such 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 PERQS should consult with its legal counsel.
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof among the Company and the Underwriters (the
"Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters") and each of the Underwriters has
severally agreed to purchase, the number of PERQS set forth opposite its name
below:
Number of
Name PERQS
____ __________
Morgan Stanley & Co. Incorporated...................... 765,000
Oppenheimer & Co., Inc................................. 765,000
Donaldson, Lufkin & Jenrette Corporation............... 60,000
Lehman Brothers Inc.................................... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated..... 60,000
J.P. Morgan Securities Inc............................. 60,000
Paine Webber Incorporated.............................. 60,000
Prudential Securities Incorporated..................... 60,000
Advest, Inc............................................ 30,000
Arnhold and S. Bleichroeder, Inc....................... 30,000
William Blair & Company................................ 30,000
J.C. Bradford & Co..................................... 30,000
The Chicago Corporation................................ 30,000
Cowen & Company........................................ 30,000
Crowell, Weeden & Co................................... 30,000
Dain Bosworth Incorporated Securities, Inc............. 30,000
EVEREN Securities, Inc................................. 30,000
Fahnestock & Co., Inc.................................. 30,000
First Albany Corporation............................... 30,000
First of Michigan Corporation.......................... 30,000
Gruntal & Co. Incorporated............................. 30,000
Interstate/Johnson Lane Corporation.................... 30,000
Janney Montgomery Scott Inc............................ 30,000
Laidlaw Equities Inc................................... 30,000
Legg Mason Wood Walker, Incorporated................... 30,000
McDonald & Company Securities, Inc..................... 30,000
NatCity Investments, Inc............................... 30,000
Needham & Company, Inc.. .............................. 30,000
The Ohio Company. ..................................... 30,000
Parallax ........................................... 30,000
Parker/Hunter Incorporated............................. 30,000
Piper Jaffray Inc...................................... 30,000
Principal Financial Securities, Inc.................... 30,000
Pryor, McClendon Counts................................ 30,000
Rauscher Pierce Refsnes, Inc. ......................... 30,000
Raymond James & Associates, Inc........................ 30,000
The Robinson-Humphrey Company, Inc..................... 30,000
Rodman & Renshaw, Inc.................................. 30,000
Scott & Stringfellow, Inc.............................. 30,000
Stifel, Nicolaus & Company Incorporated................ 30,000
Sutro & Co. Incorporated............................... 30,000
Tucker Anthony Incorporated............................ 30,000
Van Kasper & Company................................... 30,000
Wedbush Morgan Securities.............................. 30,000
Wheat, First Securities, Inc........................... 30,000
__________
Total...................................... 3,000,000
==========
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the PERQS are subject to the
approval of certain legal matters by its counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the
PERQS (other than those covered by the over-allotment option described below)
if any such PERQS are taken.
The Underwriters initially propose to offer the PERQS directly to the
public at the applicable public offering price set forth on the cover page
hereof and to certain dealers at a price that represents a concession not in
excess of $0.95 per PERQS. After the initial offering of the PERQS, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus Supplement, to purchase up to an aggregate of 450,000 additional
PERQS at the public offering price set forth on the cover page hereof less
underwriting discounts and commissions. The Underwriters may exercise such
option to purchase PERQS solely for the purpose of covering over-allotments,
if any, incurred in connection with the sale of the PERQS offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
Application has been made to list the PERQS on the AMEX. The Company will
use its best efforts to maintain the listing of the PERQS on the AMEX or a
U.S. national securities system or another self-regulatory organization whose
rules and regulations are filed with the Commission pursuant to the Exchange
Act. In addition, the Company has been advised by the Underwriters that they
currently intend to make a market in the PERQS as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a
market in the PERQS and any such market-making may be discontinued at any time
at the sole discretion of the Underwriters. Accordingly, no assurances can be
given as to the liquidity of the market for the PERQS.
This Prospectus Supplement and the accompanying Prospectus may be used by
MS & Co. in connection with offers and sales of the PERQS in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale or otherwise. MS & Co. may act as principal or agent in such
transactions.
MS & Co. is a wholly owned subsidiary of the Company. The offering of the
PERQS and any market-making activities of MS & Co. will comply with the
requirements of Schedule E of the By-Laws of the NASD regarding an NASD member
firm's underwriting securities of an affiliate.
The Underwriters and any dealers utilized in the sale of the PERQS will not
confirm sales to accounts over which they exercise discretionary authority.
