PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 46 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655
Dated May 1, 1996 Dated November 12, 1996
Rule 424(b)(3)
$10,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
EQUITY LINKED NOTES DUE MARCH 3, 2003
The Equity Linked Notes due March 3, 2003 (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 March 3, 2003 (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
Index Value (as defined herein) of the S&P 500 Composite Stock Price Index
(the "S&P 500 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
be calculated on the Determination Date (as defined herein) and will equal the
product of (i) the par amount of such Note, (ii) 1.2375 and (iii) a fraction,
the numerator of which shall be the Final 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 732.70. The Final Index Value will equal the S&P
500 Index closing value on February 20, 2003 (the "Determination Date"),
except in the case of certain Market Disruption Events (as defined herein).
If the Final 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 Index Value,"
"Determination Date" 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 The Chase Manhattan 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%
----------
Agent's
Price to Public Commissions(1) Proceeds to Company
--------------- -------------- -------------------
Per Note... 100% .475% 99.525%
Total...... $10,000,000 $47,500 $9,952,500
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY & CO.
Incorporated
Principal Amount.............. $10,000,000
Maturity Date................. March 3, 2003
Interest Rate................. 0.00%
Specified Currency............ U.S. Dollars
Issue Price................... 100%
Settlement Date (Original
Issue Date).................. November 21, 1996
CUSIP......................... 61745EHX2
Book Entry Note or
Certificated Note............ Book Entry
Senior Note or Subordinated
Note......................... Senior
Minimum Denominations......... $1,000
Trustee....................... The Chase Manhattan 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. References herein
to "Notes" refer to each $1,000 principal
amount of any Note.
Supplemental Redemption
Amount........................ The Supplemental Redemption Amount, payable
with respect to each Note at maturity shall
be calculated on the Determination Date and
shall be an amount equal to the greater of
(a) the product of (i) the par amount of such
Note, (ii) 1.2375 and (iii) a fraction, the
numerator of which shall be the Final Index
Value less the Initial Index Value and the
denominator of which shall be the Initial
Index Value and (b) zero. The Supplemental
Redemption Amount is described by the
following formula:
Par x 1.2375 x (Final 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 500 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 732.70.
Final Index Value............. The Final Index Value shall be the Index
Closing Value (as defined below) on the
Determination Date, as determined by the
Calculation Agent.
Index Closing Value........... The Index Closing Value, as of the
Determination Date, will equal the closing
value of the S&P 500 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 500 Index; Alteration of Method of
Calculation."
References herein to the S&P 500 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 Date............ The Determination Date shall be February 20,
2003 or, if 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, the
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 February 20, 2003,
then (i) such fifth succeeding Trading Day
will be deemed to be the 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 500 Index on such fifth Trading Day
in accordance with the formula for and method
of calculating the S&P 500 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 500
Index.
Market Disruption Event....... "Market Disruption Event" means, with
respect to the S&P 500 Index:
(i)a suspension, absence or material
limitation of trading of 100 or more of
the securities included in the S&P 500
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 500
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 500 Index by the primary
securities market related to such contract
by reason of (a) a price change exceeding
limits set by such exchange or market, (b)
an imbalance of orders relating to such
contracts or (c) 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 500
Index and (5) a "suspension, absence or
material limitation of trading" on the
primary market on which futures or options
contracts related to the S&P 500 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 Index Value or
whether a Market Disruption Event has
occurred. See "Discontinuance of the S&P 500
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 Index Value of the S&P 500 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 Index Value will be based upon the
closing value of the S&P 500 Index on a
specified day (the Determination Date), a
significant increase in the S&P 500 Index
subsequent to issuance may be substantially
or entirely offset by subsequent decreases in
the value of the S&P 500 Index on or prior to
the Determination Date.
There will be no periodic payments of
interest on the Notes as there would be 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. 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 such a conventional
fixed-rate debt security.
The return of only the par amount of a Note
at maturity may 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 500 Index based on the Final Index Value
over the Initial Index Value does not reflect
the payment of dividends on the stocks
underlying the S&P 500 Index. Therefore, the
yield to maturity based on the Final 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 500 Index,
dividend rates on the stocks underlying the
S&P 500 Index, the time remaining to the
Determination Date and to the maturity of the
Notes and market interest rates. In
addition, the Final 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 or depreciation of the S&P 500
Index from the Initial Index Value through
the Determination Date. 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 500 Index or the
Final Index Value, if determined, is below,
equal to or not sufficiently above the
Initial Index Value.
The historical S&P 500 Index values should
not be taken as an indication of the
future performance of the S&P 500 Index
during the term of the Notes. While the
trading prices of the stocks underlying
the S&P 500 Index will determine the value
of the S&P 500 Index, it is impossible to
predict whether the value of the S&P 500
Index will rise or fall. Trading prices
of the stocks underlying the S&P 500 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 500 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 500 Index. The policies
of S&P with respect to the calculation of the
S&P 500 Index could also affect the value of
the S&P 500 Index. S&P may discontinue or
suspend calculation or dissemination of the
S&P 500 Index. Any such actions could affect
the value of the Notes. See "S&P 500 Index"
and "Discontinuance of the S&P 500 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 Index Value or
whether a Market Disruption Event has
occurred. See "Discontinuance of the S&P 500
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
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.
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 500 Index................. The S&P 500 Index is published by S&P and is
intended to provide a performance benchmark
for the U.S. equity markets. The calculation
of the value of the S&P 500 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
500 companies (the "Component Stocks") as of
a particular time as compared to the
aggregate average Market Value of the common
stocks of 500 similar companies during the
base period of the years 1941 through 1943.
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. The 500 companies are
not the 500 largest companies listed on the
NYSE and not all 500 companies are listed on
such exchange. S&P chooses companies for
inclusion in the S&P 500 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 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 500 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 500 Index is calculated using a
base-weighted aggregate methodology: the
level of the Index reflects the total Market
Value of all 500 Component Stocks relative to
the S&P 500 Index's base period of 1941-43
(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 10.
This is often indicated by the notation
1941-43=10. In practice, the daily
calculation of the S&P 500 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 500 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 500 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 500 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
500 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
500 Index maintenance adjustments and
indicates whether or not an Index Divisor
adjustment is required.
Divisor
Type of Adjustment
Corporate Action Adjustment Factor Required
---------------- ----------------- ----------
Stock split Shares Outstanding No
(i.e. 2x1) multiplied by 2;
Stock Price divided by
2
Share issuance Shares Outstanding Yes
(i.e. Change > 5%) plus newly issued
Shares
Share repurchase Shares Outstanding Yes
(i.e. Change > 5%) minus Repurchased
Shares
Special cash dividends Share Price minus Yes
Special Dividend
Company change Add new company Yes
Market Value minus
old company Market
Value
Rights offering Price of parent Yes
company minus
Price of Rights
Right Ratio
Spinoffs Price of parent Yes
company minus
Price of Spinoff Co.
Share Exchange
Ratio
Stock splits and stock dividends do not
affect the Index Divisor of the S&P 500
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 500 Index maintenance
process involves tracking the changes in the
number of shares outstanding of each of the
S&P 500 Index companies. Four times a year,
on a Friday close 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 500
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 Index Values, the
Supplemental Redemption Amount for each
$1,000 par amount of Notes.
Hypothetical Hypothetical
Final Supplemental Redemption
Index Value Amount
------------ -----------------------
550.00 $ 0
600.00 $ 0
650.00 $ 0
700.00 $ 0
732.70 $ 0
750.00 $ 29.22
800.00 $113.67
850.00 $198.11
900.00 $282.56
The above figures are for purposes of
illustration only. The actual Supplemental
Redemption Amount, if any, will depend
entirely on the actual Final Index Value.
See "Final Index Value" and "Supplemental
Redemption Amount" above.
Discontinuance of the S&P 500
Alteration of Method of
Calculation Index;............ If S&P discontinues publication of the S&P
500 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 500 Index (such index
being referred to herein as a "Successor
Index"), then the Index Closing 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 Determination
Date.
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
500 Index prior to, and such discontinuance
is continuing on, the Determination Date and
the Calculation Agent determines that no
Successor Index is available at such time,
then on such Determination Date, the
Calculation Agent shall determine the Index
Closing Value that would be used in computing
the Supplemental Redemption Amount on such
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 500 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 500 Index. Notwithstanding these
alternative arrangements, discontinuance of
the publication of the S&P 500 Index may
adversely affect the value of the Notes.
If at any time the method of calculating
the S&P 500 Index or a Successor Index, or
the value thereof, is changed in a
material respect, or if the S&P 500 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 500
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 the
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 500
Index or such Successor Index, as the case
may be, as if such changes or
modifications had not been made, and
calculate the Supplemental Redemption
Amount with reference to the S&P 500 Index
or such Successor Index, as adjusted.
Accordingly, if the method of calculating
the S&P 500 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
500 Index or such Successor Index as if it
had not been modified (e.g., as if such
split had not occurred).
Alternative Determination Date
in case of an Event of Default 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, if any,
determined as though the Determination Date
was the date of acceleration.
Public Information............ All disclosure contained in this Pricing
Supplement regarding the S&P 500 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 500
Index for each quarter in the period from
January 1, 1991 through November 12, 1996.
The historical values of the S&P 500 Index
should not be taken as an indication of
future performance, and no assurance can be
given that the S&P 500 Index will increase
sufficiently to cause the holders of the
Notes to receive any Supplemental Redemption
Amount.
Daily Index Closing Values
Period
High Low End
---- --- ------
1991
1st Quarter 376.72 311.49 375.22
2nd Quarter 390.45 368.57 371.16
3rd Quarter 396.64 373.33 387.86
4th Quarter 417.09 375.22 417.09
1992
1st Quarter 420.77 403.00 403.69
2nd Quarter 418.49 394.50 408.14
3rd Quarter 425.27 409.16 417.80
4th Quarter 441.28 402.66 435.71
1993
1st Quarter 456.34 429.05 451.67
2nd Quarter 453.85 433.54 450.53
3rd Quarter 463.56 441.43 458.93
4th Quarter 470.94 457.48 466.45
1994
1st Quarter 482.00 445.55 445.76
2nd Quarter 462.37 438.92 444.27
3rd Quarter 476.07 446.13 462.71
4th Quarter 473.77 445.45 459.27
1995
1st Quarter 503.90 459.11 500.71
2nd Quarter 551.07 501.85 544.75
3rd Quarter 586.77 547.09 584.41
4th Quarter 621.69 576.72 615.93
1996
1st Quarter 661.45 598.48 645.50
2st Quarter 678.51 631.18 670.63
3rd Quarter 687.31 626.65 687.31
4th Quarter (through
November 12, 1996) 731.87 689.08 729.56
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. On
the date of this Pricing Supplement, the
Company, through its subsidiaries and others,
hedged its anticipated exposure in connection
with the Notes by the purchase and sale of
exchange traded and over the counter options
on the S&P 500 Index or individual stocks
included in the S&P 500 Index, futures
contracts on the S&P 500 Index and options on
such futures contracts. Although the
Company has no reason to believe that its
hedging activity had a material impact on the
price of such options, stocks, 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 future hedging activities. The Company,
through its subsidiaries, is likely to modify
its hedge position throughout the life of the
Notes by purchasing and selling these
instruments and any other instruments that it
may wish to use in connection with such
hedging. 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 500 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 500 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 500 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 500 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 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE COMPANY,
HOLDERS OF THE NOTES, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P INDEX OR
ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE RIGHTS LICENSED UNDER THE LICENSE
AGREEMENT DESCRIBED HEREIN OR FOR ANY
OTHER USE. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY
DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 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 500[Registered]",
"Standard & Poor's 500," and "500" 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 in
the Prospectus Supplement are equally
applicable to the summary below.
For U.S. federal income tax purposes, the
Notes will be treated as debt obligations
subject to final Treasury Regulations
published on June 14, 1996, relating to
contingent debt obligations (the
"Regulations").
All prospective purchasers are urged to
consult their tax advisors regarding the
consequences of holding the Notes in their
particular circumstances. This general
discussion addresses only initial United
States Holders who purchase the Notes at the
"issue price," that is, the first price to
the public (not including bond houses,
brokers or similar persons or organizations
acting in the capacity of underwriters,
placement agents or wholesalers) at which a
substantial amount of the Notes is sold for
money and does not purport to address
prospective purchasers in special tax
situations, such as persons other than United
States Holders, financial institutions,
tax-exempt organizations, insurance
companies, regulated investment companies,
dealers in securities or foreign
currencies, persons holding Notes as a
hedge against currency risks or as a
position in a "straddle," conversion
transaction, or other intergrated
transaction, or United States Holders
whose functional currency (as defined in
Section 985 of the Code) is not the United
States dollar. Other prospective
purchasers, including purchasers of Notes
in the secondary market, if any, should
also consult their tax advisors regarding
special rules applicable to them; in
particular, the Regulations generally
replace or modify, among others, the rules
on market discount, acquisition premium,
and amortizable bond premium described in
the accompanying Prospectus Supplement.
Under the Regulations, for each accrual
period, the amount of interest that accrues
on a Note for federal income tax purposes
equals the product of (i) the "Adjusted Issue
Price" (as of the beginning of the accrual
period) and (ii) the "Comparable Yield"
(adjusted for the length of the accrual
period). This amount is ratably allocated to
each day in the accrual period and is
includible in income by a United States
Holder for each day in the accrual period on
which the United States Holder holds the
Note, and the amounts treated as interest
under the Regulations are treated as original
issue discount for all purposes of the Code.
For these purposes, the Adjusted Issue Price
is the issue price of the Note, increased by
any interest previously accrued on the Note.
The Company has determined that the
Comparable Yield is an annual rate of 6.36%,
compounded semi-annually. Under the
Regulations, the Company is required, solely
for tax purposes, to provide a schedule of
the projected amounts of payments on a Note
(the "Schedule"). Based on the Company's
determination of the Comparable Yield, the
Schedule for a Note (assuming a par amount
of $1,000 or with respect to each integral
multiple thereof) consists of a projected
amount due at maturity, equal to $1,481.90
(the "Projected Amount"). For U.S. federal
income tax purposes, a United States Holder
is required to use the Comparable Yield and
the Schedule in determining its interest
accruals and adjustments in respect of the
Note, unless such United States Holder timely
discloses and justifies the use of other
estimates to the Internal Revenue Service.
THE COMPARABLE YIELD, THE SCHEDULE AND THE
PROJECTED AMOUNT ARE NOT PROVIDED FOR ANY
PURPOSE OTHER THAN THE DETERMINATION OF
UNITED STATES HOLDERS' INTEREST ACCRUALS AND
ADJUSTMENTS IN RESPECT OF THE NOTES, AND THE
COMPANY MAKES NO REPRESENTATION REGARDING THE
ACTUAL AMOUNT OF THE PAYMENT AT MATURITY.
At maturity, if the amount received is more
than the Projected Amount, the difference
will produce a "Net Positive Adjustment"
under the Regulations, which will be treated
as additional interest for the taxable year.
If the amount received is less than the
Projected Amount, the difference will produce
a "Net Negative Adjustment" under the
Regulations, which will be treated as a
reduction of interest, for the taxable year,
that the United States Holder would otherwise
have accounted for on the Note. If the Net
Negative Adjustment exceeds such interest,
the excess will be treated as ordinary loss.
The Regulations provide that a Net Negative
Adjustment is not subject to the two percent
floor limitation imposed on miscellaneous
deductions under Section 67 of the Code.
Upon the sale or exchange of a Note, the
United States Holder will recognize gain or
loss equal to the difference between the
United States Holder's "Adjusted Basis" and
the amount realized. The Adjusted Basis will
be the United States Holder's original basis
in the Note, increased by the interest
previously accrued by the United States
Holder on the Note. Any gain upon sale or
exchange of a Note will be additional
interest income; any loss will be ordinary
loss to the extent of the interest previously
included as income by the United States
Holder on the Note, and thereafter, capital
loss.
The distinction between capital loss and
ordinary loss is potentially significant
in several respects. For example,
limitations apply to a United States
Holder's ability to offset capital losses
against ordinary income.
See also "United States Federal Taxation"
section in the accompanying Prospectus
Supplement.
