Subject to Completion, Pricing Supplement dated November 13, 1996
PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 47 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655
Dated May 1, 1996 Dated November , 1996
Rule 424(b)(3)
$50,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
Reset Performance Equity-linked Redemption Quarterly-pay
Securities ("Reset PERQS")
% RESET PERQS DUE DECEMBER 1, 1998
Reset PERQS Mandatorily Exchangeable For Shares of Common Stock of
CISCO SYSTEMS, INC.
The % Reset PERQS due December 1, 1998 (the "Reset PERQS") are Medium-Term
Notes, Series C (Senior Fixed Rate Notes) of Morgan Stanley Group Inc. (the
"Company"), as further described below and in the Prospectus Supplement under
"Description of Notes - Fixed Rate Notes."
The principal amount of each of the Reset PERQS being offered hereby will be $
(the Market Price (as defined herein) of the common stock, without par
value, of Cisco Systems, Inc. ("Cisco") on , 1996) (the "Initial
Price"). The Reset PERQS will mature on December 1, 1998. Interest on the
Reset PERQS, at the rate of % of the principal amount per annum (equivalent
to $ per annum per Reset PERQS), is payable quarterly in arrears on each
March 1, June 1, September 1 and December 1, beginning March 1, 1997.
At maturity upon delivery of each Reset PERQS to the Trustee, each $
principal amount of such Reset PERQS will be applied by the Company as payment
for a number of shares of the common stock of Cisco (the "Cisco Stock") at the
then applicable Exchange Ratio. The Exchange Ratio, initially set at 1.0, is
subject to adjustment on December 1, 1997 and at maturity in order to cap the
value of the Cisco Stock to be received upon delivery of the Reset PERQS at $
per $ principal amount of each Reset PERQS ( % of the
Initial Price). Solely for purposes of adjustment upon the occurrence of
certain corporate events, the number of shares of Cisco Stock to be delivered
will also be adjusted by an Exchange Factor, initially set at 1.0. See
"Exchange at Maturity," "Exchange Factor" and "Antidilution Adjustments" in
this Pricing Supplement.
If the Market Price per share of Cisco Stock on December 1, 1997 (as defined
herein, the "First Year Closing Price") is less than or equal to % of
the Initial Price (the "First Year Cap Price"), no adjustment to the Exchange
Ratio will be made at such time. If the First Year Closing Price exceeds the
First Year Cap Price, the Exchange Ratio will be adjusted so that the new
Exchange Ratio will equal the product of (i) the existing Exchange Ratio and
(ii) a fraction the numerator of which will be the First Year Cap Price and
the denominator of which will be the First Year Closing Price. In addition, on
December 1, 1997, the Calculation Agent will establish the "Second Year Cap
Price" that will be equal to the greater of (x) % of the First Year
Closing Price and (y) the First Year Cap Price. If the Market Price at
maturity (as defined herein, the "Maturity Price") is less than or equal to
the Second Year Cap Price, no further adjustment to the Exchange Ratio will be
made. If the Maturity Price exceeds the Second Year Cap Price, the existing
Exchange Ratio will be adjusted so that the final Exchange Ratio will equal
the product of (i) the existing Exchange Ratio and (ii) a fraction the
numerator of which will be the Second Year Cap Price and the denominator of
which will be the Maturity Price. See "Exchange at Maturity" and
"Hypothetical Payments" in this Pricing Supplement.
The opportunity for appreciation afforded by an investment in the Reset PERQS
is less than that afforded by an investment in the Cisco Stock because at
maturity a holder may receive less than one share of Cisco Stock per Reset
PERQS if the Exchange Ratio has been adjusted to cap the value of the Cisco
Stock to be received upon delivery of the Reset PERQS. The value of the Cisco
Stock received by a holder of the Reset PERQS upon exchange at maturity,
determined as described herein, may be more or less than the principal amount
of the Reset PERQS. See "Hypothetical Payments" in this Pricing Supplement.
Cisco is not affiliated with the Company, is not involved in this offering of
Reset PERQS and will have no obligations with respect to the Reset PERQS. See
"Historical Information" in this Prospectus Supplement for information on the
range of Market Prices for Cisco Stock.
The Company will cause the Market Price, any adjustments to the Exchange
Ratio, the Exchange Factor and any other antidilution adjustments to be
determined by the Calculation Agent for The Chase Manhattan Bank, as Trustee
under the Senior Debt Indenture.
An investment in the Reset PERQS entails risks not associated with similar
investments in a conventional debt security, as described under "Risk Factors"
on PS-6 through PS-8 herein.
--------------------
PRICE $ A RESET PERQS
--------------------
Proceeds to
Agent's ------------
Price to Public(1) Commissions(2) Company(1)
------------------- --------------- ------------
Per Reset PERQS.. $ $ $
Total............ $ $ $
_______________
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY & CO.
Incorporated
INFORMATION CONTAINED IN THIS PRELIMINARY PRICING SUPPLEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE DELIVERED PRIOR TO
THE TIME A FINAL PRICING SUPPLEMENT IS DELIVERED. THIS PRICING SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AND PROSPECTUS SUPPLEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
(This page intentionally left blank)
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount:.............. $50,000,000
Maturity Date:................. December 1, 1998
Interest Rate:................. % per annum (equivalent to $ per
annum per Reset PERQS)
Interest Payment Dates......... March 1, June 1, September 1 and December 1,
beginning March 1, 1997.
Specified Currency:............ U.S. Dollars
Issue Price:................... $ a Reset PERQS
Original Issue Date
(Settlement Date):............. , 1996
Book Entry Note or
Certificated Note:............. Book Entry
Senior Note or Subordinated
Note:.......................... Senior
Denominations:................. $ and integral multiples thereof
Trustee:....................... The Chase Manhattan Bank
Exchange at Maturity:.......... At maturity (including as a result of
acceleration or otherwise), upon delivery of
each Reset PERQS to the Trustee, each $
principal amount of such Reset PERQS will be
applied by the Company as payment for a
number of shares of Cisco Stock at the
Exchange Ratio. The Exchange Ratio,
initially set at 1.0, is subject to
adjustment on December 1, 1997 (or if such
date is not a Trading Day on which no Market
Disruption Event occurs, the immediately
succeeding Trading Day on which no Market
Disruption Event occurs (the "First Year
Determination Date")) and at maturity in
order to cap the value of the Cisco Stock to
be received upon delivery of the Reset PERQS
at $ per principal amount of each Reset
PERQS ( % of the Initial Price).
Solely for purposes of adjustment upon the
occurrence of certain corporate events, the
number of shares of Cisco Stock to be
delivered at maturity will also be adjusted
by an Exchange Factor, initially set at 1.0.
See "Exchange Factor" and "Antidilution
Adjustments" below.
If on the First Year Determination Date the
First Year Closing Price is less than or
equal to % of the Initial Price (the
"First Year Cap Price"), no adjustment to the
Exchange Ratio will be made at such time. If
the First Year Closing Price exceeds the
First Year Cap Price, the Exchange Ratio will
be adjusted so that the new Exchange Ratio
will equal the product of (i) the existing
Exchange Ratio and (ii) a fraction the
numerator of which will be the First Year Cap
Price and the denominator of which will be
the First Year Closing Price. In addition,
on the First Year Determination Date, the
Calculation Agent will establish the "Second
Year Cap Price" that will be equal to the
greater of (x) % of the First Year
Closing Price and (y) the First Year Cap
Price. Notice of the Second Year Cap Price
and of any such adjustment to the Exchange
Ratio shall promptly be sent by first-class
mail to The Depository Trust Company, New
York, New York (the "Depositary"). If the
Maturity Price is less than or equal to the
Second Year Cap Price, no further adjustment
to the Exchange Ratio will be made. If the
Maturity Price exceeds the Second Year Cap
Price, the existing Exchange Ratio will be
adjusted so that the final Exchange Ratio
will equal the product of (i) the existing
Exchange Ratio and (ii) a fraction the
numerator of which will be the Second Year
Cap Price and the denominator of which will
be the Maturity Price. See "Hypothetical
Payments" below.
All percentages resulting from any
calculation with respect to the Reset PERQS
(and the First Year Cap Price and the Second
Year Cap Price) 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 related to payments at maturity
resulting from such calculation will be
rounded to the nearest cent with one-half
cent being rounded upwards.
The Company shall, or shall cause the
Calculation Agent to, (i) provide written
notice to the Trustee and to the Depositary,
on or prior to 10:30 a.m. on the Trading Day
immediately prior to maturity of the Reset
PERQS, of the amount of Cisco Stock to be
delivered with respect to each $
principal amount of each Reset PERQS and (ii)
deliver such shares of Cisco Stock (and cash
in respect of interest and any fractional
shares of Cisco Stock) to the Trustee for
delivery to the holders. The Calculation
Agent shall determine the Exchange Ratio
applicable at the maturity of the Reset PERQS
and calculate the Exchange Factor. References
to payment "per Reset PERQS" refer to each $
principal amount of any Reset PERQS.
No Fractional Shares:.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration or otherwise), the Company will
pay cash in lieu of issuing fractional shares
of Cisco Stock in an amount equal to the
corresponding fractional Market Price of such
fraction of a share of Cisco Stock as
determined by the Calculation Agent as of the
second scheduled Trading Day prior to
maturity of the Reset PERQS.
Initial Price:................. $
First Year Closing Price:...... First Year Closing Price means the product of
(i) the Market Price of one share of Cisco
Stock and (ii) the Exchange Factor, each
determined as of the First Year Determination
Date.
Maturity Price:................ Maturity Price means the product of (i) the
Market Price of one share of Cisco Stock and
(ii) the Exchange Factor, each determined as
of the second scheduled Trading Day
immediately prior to maturity.
First Year Cap Price:.......... % of the Initial Price
Second Year Cap Price:......... Second Year Cap Price means the greater of
% of the First Year Closing Price and (y)
the First Year Cap Price. See "Exchange at
Maturity" above.
Exchange Factor:............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
through and including the second scheduled
Trading Day immediately prior to maturity.
See "Antidilution Adjustments" below.
Market Price:.................. If Cisco Stock (or any other security for
which a Market Price must be determined) is
listed on a national securities exchange, is
a security of The Nasdaq National Market
("NASDAQ NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of
Securities Dealers, Inc. (the "NASD"), the
Market Price for one share of Cisco Stock (or
one unit of any such other security) on any
Trading Day means (i) the last reported sale
price, regular way, on such day on the
principal United States securities exchange
registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on
which Cisco Stock (or such other security) is
listed or admitted to trading or (ii) if not
listed or admitted to trading on any such
securities exchange or if such last reported
sale price is not obtainable, the last
reported sale price on the over-the-counter
market as reported on the NASDAQ NMS or OTC
Bulletin Board on such day. If the last
reported sale price is not available pursuant
to clause (i) or (ii) of the preceding
sentence, the Market Price for any Trading
Day shall be the mean, as determined by the
Calculation Agent, of the bid prices for
Cisco Stock (or such other security) obtained
from as many dealers in such stock, but not
exceeding three, as will make such bid prices
available to the Calculation Agent. The term
"NASDAQ NMS security" shall include a
security included in any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
Trading Day:................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted (i) on the New York Stock Exchange
("NYSE"), the American Stock Exchange, Inc.
("AMEX") and the NASDAQ NMS, (ii) on the
Chicago Mercantile Exchange, (iii) on the
Chicago Board of Options Exchange and (iv) in
the over-the-counter market for equity
securities in the United States.
Acceleration Event:............ If on any date the product of the Market
Price per share of Cisco Stock and the
Exchange Factor is less than $5.00, the
maturity date of the Reset PERQS will be
deemed to be accelerated to such date, and
each $ principal amount of each
Reset PERQS will be applied by the Company as
payment for a number of shares of Cisco Stock
at the then current Exchange Ratio, as
adjusted by the then current Exchange Factor.
See also "Antidilution Adjustments" below.
Calculation Agent:............. Morgan Stanley & Co. Incorporated ("MS & Co.")
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 Reset PERQS,
including with respect to certain
determinations and judgments that the
Calculation Agent must make in making
adjustments to the Exchange Factor or other
antidilution adjustments or determining any
Market Price or whether a Market Disruption
Event has occurred. See "Antidilution
Adjustments" and "Market Disruption Event"
below. 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 Reset PERQS entails
significant risks not associated with similar
investments in a conventional debt security,
including the following:
The Reset PERQS combine features of equity
and debt instruments. For example, the terms
of the Reset PERQS differ from those of debt
securities in that the value of the Cisco
Stock that a holder of the Reset PERQS will
receive upon mandatory exchange of the
principal amount thereof at maturity is not
fixed, but is based on the price of the Cisco
Stock on the First Year Determination Date
and at maturity of the Reset PERQS. Because
the price of the Cisco Stock is subject to
market fluctuations and because the Exchange
Ratio will be adjusted to cap the value of
the Cisco Stock to be received upon delivery
of the Reset PERQS, the value of the Cisco
Stock received by a holder of Reset PERQS
upon exchange at maturity, determined as
described herein, may be more or less than
the principal amount of the Reset PERQS. The
amount receivable upon exchange will be less
than the principal amount of the Reset PERQS
if the Maturity Price of the Cisco Stock is
(x) less than the Initial Price or (y) not
sufficiently above the Initial Price
following any adjustment of the Exchange
Factor on the First Year Determination Date.
In either case, an investment in the Reset
PERQS would result in a loss. See
"Hypothetical Payments" below.
The opportunity for capital appreciation
afforded by an investment in the Reset PERQS
is less than that afforded by an investment
in Cisco Stock because of the First and
Second Year Cap Prices and because at
maturity a holder may receive less than one
share of Cisco Stock per Reset PERQS if the
Exchange Ratio has been adjusted to cap the
value of the Cisco Stock to be received upon
delivery of the Reset PERQS. In addition,
because the Exchange Ratio and the Maturity
Price are determined as of the second
scheduled Trading Day prior to maturity of
the Reset PERQS and because the price of
Cisco Stock may fluctuate after such Trading
Day and prior to its delivery at maturity,
the value of any Cisco Stock delivered at
maturity may be less than the value of such
Cisco Stock on such Trading Day. The amount
payable at maturity with respect to each
Reset PERQS, determined as of the second
scheduled Trading Day prior to maturity, will
not under any circumstances exceed $ per
Reset PERQS.
Although the amount that holders of the Reset
PERQS are entitled to receive at maturity is
subject to adjustment for certain corporate
events, such adjustments do not cover all
events that could affect the Market Price of
the Cisco Stock, including, without
limitation, the occurrence of a partial
tender or exchange offer for the Cisco Stock
by Cisco or any third party. Such other
events may adversely affect the market value
of the Reset PERQS.
There can be no assurance as to how the Reset
PERQS will trade in the secondary market or
whether such market will be liquid or
illiquid. Securities with characteristics
similar to the Reset PERQS are novel
securities, and there is currently no
secondary market for the Reset PERQS. The
market value for the Reset PERQS will be
affected by a number of factors in addition
to the creditworthiness of the Company and
the value of Cisco Stock, including, but not
limited to, the volatility of Cisco Stock,
the dividend rate on Cisco Stock, market
interest and yield rates and the time
remaining to the maturity of the Reset PERQS.
In addition, the value of Cisco Stock depends
on a number of interrelated factors,
including economic, financial and political
events, that can affect the capital markets
generally and the market segment of which
Cisco is a part and over which the Company
has no control. The market value of the
Reset PERQS is expected to depend primarily
on changes in the Market Price of Cisco
Stock. The price at which a holder will be
able to sell Reset PERQS prior to maturity
may be at a discount, which could be
substantial, from the principal amount
thereof, if, at such time, the Market Price
of Cisco Stock is below, equal to or not
sufficiently above the Initial Price. The
historical Market Prices of Cisco Stock
should not be taken as an indication of Cisco
Stock's future performance during the term of
any Reset PERQS.
The Reset PERQS will not be listed on any
national securities exchange or accepted for
quotation on a trading market and, as a
result, pricing information for the Reset
PERQS may be difficult to obtain.
The Company is not affiliated with Cisco and,
although the Company as of the date of this
Pricing Supplement does not have any material
non-public information concerning Cisco,
corporate events of Cisco, including those
described below in "Antidilution
Adjustments," are beyond the Company's
ability to control and are difficult to
predict.
Cisco is not involved in the offering of the
Reset PERQS and has no obligations with
respect to the Reset PERQS, including any
obligation to take the interests of the
Company or of holders of Reset PERQS into
consideration for any reason. Cisco will not
receive any of the proceeds of the offering
of the Reset 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 Reset PERQS offered
hereby.
Holders of the Reset PERQS will not be
entitled to any rights with respect to the
Cisco Stock (including, without limitation,
voting rights, the rights to receive any
dividends or other distributions in respect
thereof and the right to tender or exchange
Cisco Stock in any partial tender or exchange
offer by Cisco or any third party) until such
time as the Company shall deliver shares of
Cisco Stock to holders of the Reset PERQS at
maturity.
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 Reset PERQS,
including with respect to certain adjustments
to the Exchange Factor and other antidilution
adjustments that may influence the
determination of the amount of Cisco Stock or
other property receivable at the maturity of
the Reset PERQS. See "Antidilution
Adjustments" and "Market Disruption Event."
It is suggested that prospective investors
who consider purchasing the Reset PERQS
should reach an investment decision only
after carefully considering the suitability
of the Reset PERQS in light of their
particular circumstances.
Investors should also consider the tax
consequences of investing in the Reset PERQS.
No statutory, judicial or administrative
authority definitively addresses the
characterization for U.S. federal income tax
purposes of the Reset PERQS or instruments
similar to the Reset PERQS. As a result,
significant aspects of the U.S. federal
income tax treatment of an investment in the
Reset PERQS are uncertain. No ruling has
been or will be requested from the Internal
Revenue Service ("IRS") with respect to the
Reset PERQS and no assurance can be given
that the IRS or a court will agree with the
analysis set forth herein. See "United
States Federal Taxation" below.
Antidilution Adjustments:...... The Exchange Factor will be adjusted as
follows:
1. If Cisco Stock is subject to a stock
split or reverse stock split, then once such
split has become effective, the Exchange
Factor will be adjusted to equal the product
of the prior Exchange Factor and the number
of shares issued in such stock split or
reverse stock split with respect to one share
of Cisco Stock.
2. If Cisco Stock is subject to a stock
dividend (issuance of additional shares of
Cisco Stock) that is given ratably to all
holders of shares of Cisco Stock, then once
the dividend has become effective and Cisco
Stock is trading ex-dividend, the Exchange
Factor will be adjusted so that the new
Exchange Factor shall equal the prior
Exchange Factor plus the product of (i) the
number of shares issued with respect to one
share of Cisco Stock and (ii) the prior
Exchange Factor.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends or
other distributions paid with respect to
Cisco Stock other than distributions
described in clause (v) of paragraph 5 below
and Extraordinary Dividends as described
below. A cash dividend or other distribution
with respect to Cisco Stock will be deemed to
be an "Extraordinary Dividend" if such
dividend or other distribution exceeds the
immediately preceding non-Extraordinary
Dividend for Cisco Stock by an amount equal
to at least 10% of the Market Price of Cisco
Stock on the Trading Day preceding the
ex-dividend date for the payment of such
Extraordinary Dividend (the "ex-dividend
date"). If an Extraordinary Dividend occurs
with respect to Cisco Stock, the Exchange
Factor with respect to Cisco Stock will be
adjusted on the ex-dividend date with respect
to such Extraordinary Dividend so that the
new Exchange Factor will equal the product of
(i) the then current Exchange Factor and (ii)
a fraction, the numerator of which is the
Market Price on the Trading Day preceding the
ex-dividend date, and the denominator of
which is the amount by which the Market Price
on the Trading Day preceding the ex-dividend
date exceeds the Extraordinary Dividend
Amount. The "Extraordinary Dividend Amount"
with respect to an Extraordinary Dividend for
Cisco Stock will equal (i) in the case of
cash dividends or other distributions that
constitute quarterly dividends, the amount
per share of such Extraordinary Dividend
minus the amount per share of the immediately
preceding non-Extraordinary Dividend for
Cisco Stock or (ii) in the case of cash
dividends or other distributions that do not
constitute quarterly dividends, the amount
per share of such Extraordinary Dividend. To
the extent an Extraordinary Dividend is not
paid in cash, the value of the non-cash
component will be determined by the
Calculation Agent, whose determination shall
be conclusive. A distribution on the Cisco
Stock described in clause (v) of paragraph 5
below that also constitutes an Extraordinary
Dividend shall cause an adjustment to the
Exchange Factor pursuant only to clause (v) of
paragraph 5.
4. If Cisco issues rights or warrants to all
holders of Cisco Stock to subscribe for or
purchase Cisco Stock at an exercise price per
share less than the Market Price of the Cisco
Stock on (i) the date the exercise price of
such rights or warrants is determined and
(ii) the expiration date of such rights or
warrants, and if the expiration date of such
rights or warrants precedes the maturity of
the Reset PERQS, then the Exchange Factor
will be adjusted to equal the product of the
prior Exchange Factor and a fraction, the
numerator of which shall be the number of
shares of Cisco Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional shares
of Cisco Stock offered for subscription or
purchase pursuant to such rights or warrants
and the denominator of which shall be the
number of shares of Cisco Stock outstanding
immediately prior to the issuance of such
rights or warrants plus the number of
additional shares of Cisco Stock which the
aggregate offering price of the total number
of shares of Cisco Stock so offered for
subscription or purchase pursuant to such
rights or warrants would purchase at the
Market Price on the expiration date of such
rights or warrants, which shall be determined
by multiplying such total number of shares
offered by the exercise price of such rights
or warrants and dividing the product so
obtained by such Market Price.
5. If (i) there occurs any reclassification
of Cisco Stock, (ii) Cisco or any surviving
entity or subsequent surviving entity of
Cisco (a "Cisco Successor") has been subject
to a merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of Cisco or
any Cisco Successor with another corporation
occurs (other than pursuant to clause (ii)
above), (iv) Cisco is liquidated, (v) Cisco
issues to all of its shareholders equity
securities of an issuer other than Cisco
(other than in a transaction described in
clauses (ii), (iii) or (iv) above) (a
"Spin-off Event") or (vi) a tender or
exchange offer is consummated for all the
outstanding shares of Cisco Stock (any such
event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the amount payable upon exchange
at maturity for each Reset PERQS will be
adjusted to provide that each holder of Reset
PERQS will receive at maturity, in respect of
each $ principal amount of each Reset
PERQS, securities, cash or any other assets
distributed in any such Reorganization Event,
including, in the case of a Spin-off Event,
the share of Cisco Stock with respect to
which the spun-off security was issued
(collectively, the "Exchange Property") in
an amount with a value equal to (a) if the
Exchange Ratio has not been adjusted prior to
maturity, the Transaction Value or (b) if the
Exchange Ratio has been adjusted, an amount
equal to the product of the final Exchange
Ratio and the Transaction Value. In
addition, following a Reorganization Event,
the method of determining the Maturity Price
will be adjusted so that the Maturity Price
will mean the Transaction Value as of the
second scheduled Trading Day immediately
prior to maturity, and if the Reorganization
Event occurs prior to the First Year
Determination Date, the First Year Closing
Price will mean the Transaction Value
determined as of the First Year Determination
Date. Notwithstanding the above, if the
Exchange Property received in any such
Reorganization Event consists only of cash,
the maturity date of the Reset PERQS will be
deemed to be accelerated to the date on which
such cash is distributed to holders of Cisco
Stock and holders will receive in lieu of any
Cisco Stock and as liquidated damages in full
satisfaction of the Company's obligations
under the Reset PERQS the product of (i) the
Transaction Value as of such date and (ii)
the then current Exchange Ratio adjusted as
if such date were the next to occur of either
the First Year Determination Date or the
second scheduled Trading Day prior to
maturity. If Exchange Property consists of
more than one type of property, holders of
Reset PERQS will receive at maturity a pro
rata share of each such type of Exchange
Property. "Transaction Value" at any date
means (i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of Cisco Stock, as
adjusted by the Exchange Factor, (ii) for any
property other than cash or securities
received in any such Reorganization Event,
the market value, as of the date of receipt,
of such Exchange Property received for each
share of Cisco Stock, as adjusted by the
Exchange Factor, as determined by the
Calculation Agent and (iii) for any security
received in any such Reorganization Event, an
amount equal to the Market Price, as of the
date on which the Transaction Value is
determined, per share of such security
multiplied by the quantity of such security
received for each share of Cisco Stock, as
adjusted by the Exchange Factor.
For purposes of paragraph 5 above, in the
case of a consummated tender or exchange
offer for all Exchange Property of a
particular type, Exchange Property shall be
deemed to include the amount of cash or other
property paid by the offeror in the tender or
exchange offer with respect to such Exchange
Property (in an amount determined on the
basis of the rate of exchange in such tender
or exchange offer). In the event of a tender
or exchange offer with respect to Exchange
Property in which an offeree may elect to
receive cash or other property, Exchange
Property shall be deemed to include the kind
and amount of cash and other property
received by offerees who elect to receive
cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one thousandth with five
ten-thousandths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the Cisco Stock, including, without
limitation, a partial tender or exchange
offer for the Cisco Stock.
NOTWITHSTANDING THE FOREGOING, THE AMOUNT
PAYABLE AT MATURITY WITH RESPECT TO EACH RESET
PERQS, DETERMINED AS OF THE SECOND SCHEDULED
TRADING DAY PRIOR TO MATURITY, WILL NOT UNDER
ANY CIRCUMSTANCES EXCEED $ PER RESET PERQS.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio and of any related
determinations and calculations with respect
to any distributions of stock, other
securities or other property or assets
(including cash) in connection with any
corporate event described in paragraph 5
above, and its determinations and
calculations with respect thereto shall be
conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio upon written request by any
holder of the Reset PERQS.
Market Disruption Event:....... "Market Disruption Event" means, with respect
to Cisco Stock:
(i) a suspension, absence or material
limitation of trading of Cisco Stock on the
primary market for Cisco Stock 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 or material
limitation on the primary market for trading
in options contracts related to Cisco Stock,
if available, 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 Reset PERQS.
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, (2) a
decision to permanently discontinue trading
in the relevant option 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 New
York Stock Exchange, 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 an options
contract on Cisco Stock by the primary
securities market trading in such options, if
available, by reason of (x) a price change
exceeding limits set by such securities
exchange or market, (y) an imbalance of
orders relating to such contracts or (z) a
disparity in bid and ask quotes relating to
such contracts will constitute a suspension or
material limitation of trading in options
contracts related to Cisco Stock and (5) a
"suspension, absence or material limitation
of trading" on the primary securities market
on which options contracts related to Cisco
Stock are traded will not include any time
when such securities market is itself closed
for trading under ordinary circumstances.
Alternate Exchange Calculation
in case of an Event of
Default..................... In case an Event of Default with respect to
the Reset PERQS shall have occurred and be
continuing, holders will be entitled to
receive, upon any acceleration of the Reset
PERQS, an amount determined by MS & Co., as
Calculation Agent, equal to the Issue Price
of each Reset PERQS, plus any accrued
interest to, but not including, the date of
acceleration.
Cisco Stock; Public
Information.................... Cisco develops, manufactures, markets and
supports multiprotocol internetworking
systems that link geographically dispersed
local-area and wide-area networks to form a
single information infrastructure. Cisco
Stock is registered under the Exchange Act.
Companies with securities registered under
the Exchange Act are required to file
periodically certain financial and other
information specified by the Securities and
Exchange Commission (the "Commission").
Information provided to or filed with the
Commission is available at the offices of the
Commission specified under "Available
Information" in the accompanying Prospectus.
In addition, information regarding Cisco may
be obtained from other sources including, but
not limited to, press releases, newspaper
articles and other publicly disseminated
documents. The Company makes no
representation or warranty as to the accuracy
or completeness of such reports.
THIS PRICING SUPPLEMENT RELATES ONLY TO THE
RESET PERQS OFFERED HEREBY AND DOES NOT RELATE
TO CISCO STOCK OR OTHER SECURITIES OF CISCO.
ALL DISCLOSURES CONTAINED IN THIS PRICING
SUPPLEMENT REGARDING CISCO ARE DERIVED FROM
THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN
THE PRECEDING PARAGRAPH. NEITHER THE COMPANY
NOR THE AGENT HAS PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE
DILIGENCE INQUIRY WITH RESPECT TO CISCO IN
CONNECTION WITH THE OFFERING OF THE RESET
PERQS. NEITHER THE COMPANY NOR THE AGENT
MAKES ANY REPRESENTATION THAT SUCH PUBLICLY
AVAILABLE DOCUMENTS OR ANY OTHER PUBLICLY
AVAILABLE INFORMATION REGARDING CISCO 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 CISCO (AND THEREFORE THE INITIAL
PRICE, THE FIRST YEAR CAP PRICE AND THE
MAXIMUM APPRECIATION AMOUNT) HAVE BEEN
PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF
ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING CISCO COULD AFFECT THE VALUE
RECEIVED AT MATURITY WITH RESPECT TO THE
RESET PERQS AND THEREFORE THE TRADING PRICES
OF THE RESET PERQS.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES
MAKES ANY REPRESENTATION TO ANY PURCHASER OF
RESET PERQS AS TO THE PERFORMANCE OF CISCO
STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
Cisco including extending loans to, or making
equity investments in, Cisco or providing
advisory services to Cisco, including merger
and acquisition advisory services. In the
course of such business, the Company or its
affiliates may acquire non-public information
with respect to Cisco and, in addition, one
or more affiliates of the Company may publish
research reports with respect to Cisco. The
Company does not make any representation to
any purchaser of Reset PERQS with respect to
any matters whatsoever relating to Cisco.
Any prospective purchaser of a Reset PERQS
should undertake an independent investigation
of Cisco as in its judgment is appropriate to
make an informed decision with respect to an
investment in Cisco Stock.
Historical Information......... The following table sets forth the high and
low Market Price during 1993, 1994, 1995 and
1996 through November , 1996. The Market
Price on November , 1996 was $ .
All Market Prices are rounded to the nearest
one-tenth of a cent. The Market Prices listed
below were obtained from Bloomberg Financial
Markets and that the Company believes such
information to be accurate. The historical
prices of Cisco Stock should not be taken as
an indication of future performance, and no
assurance can be given that the price of Cisco
Stock will not decrease so that the
beneficial owners of the Reset PERQS will
receive at maturity shares of Cisco Stock
worth less than the principal amount of the
Reset PERQS. Nor can assurance be given that
the price of Cisco Stock will increase above
the Initial Price so that at maturity the
beneficial owners of the Reset PERQS will
receive an amount in excess of the principal
amount of the Reset PERQS.
Cisco High Low
----- ---- ---
(CUSIP #17275R102)
1993:
First Quarter.......... $ 11 31/32 $ 9 3/4
Second Quarter......... 14 1/16 10 3/32
Third Quarter.......... 14 11/16 10 15/32
Fourth Quarter......... 16 7/16 11 1/4
1994:
First Quarter.......... 20 3/16 16
Second Quarter......... 17 13/16 10 1/2
Third Quarter.......... 13 11/16 9 13/16
Fourth Quarter......... 17 15/16 13 1/8
1995:
First Quarter.......... 19 9/16 16 9/32
Second Quarter......... 25 15/16 19 5/16
Third Quarter.......... 36 1/16 25 3/16
Fourth Quarter......... 43 15/16 32 7/32
1996:
First Quarter.......... 50 32 11/16
Second Quarter......... 57 1/4 44 5/16
Third Quarter.......... 63 3/8 47 1/8
Fourth Quarter
(through November
, 1996).......... 67 57 5/8
Historical prices have been adjusted for
three 2 for 1 stock splits of the Cisco
Stock, which became effective in each of the
first quarter of 1993, the first quarter of
1994 and the first quarter of 1996.
Cisco has not paid cash dividends on the
Cisco Stock to date. The Company makes no
representation as to the amount of dividends,
if any, that Cisco will pay in the future.
In any event, holders of the Reset PERQS will
not be entitled to receive dividends, if any,
that may be payable on Cisco Stock.
Use of Proceeds and Hedging:... The net proceeds to be received by the
Company from the sale of the Reset PERQS 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 Reset PERQS.
See also "Use of Proceeds" in the
accompanying Prospectus.
On or prior to the date of this Pricing
Supplement, the Company, through its
subsidiaries or others, may hedge its
anticipated exposure in connection with the
Reset PERQS by taking positions in Cisco
Stock, in options contracts on Cisco Stock
listed on major securities markets or
positions in any other instruments that it
may wish to use in connection with such
hedging. In the event that the Company
pursues such a hedging strategy, the price at
which the Company is able to purchase such
positions may be a factor in determining the
pricing of the Reset PERQS. Purchase
activity could potentially increase the price
of Cisco Stock, and therefore effectively
increase the level to which Cisco Stock must
rise before a holder of a Reset PERQS would
receive at maturity an amount of Cisco Stock
worth as much as or more than the principal
amount of the Reset PERQS. Although the
Company has no reason to believe that its
hedging activity will have a material impact
on the price of Cisco Stock, there can be no
assurance that the Company will not affect
such price as a result of its hedging
activities. The Company, through its
subsidiaries, is likely to modify its hedge
position throughout the life of the Reset
PERQS by purchasing and selling the
securities and instruments listed above and
any other available securities and
instruments.
United States Federal Taxation: The following discussion is based upon the
opinion of the Company's counsel, Shearman &
Sterling, as to certain of the material U.S.
federal income tax considerations with
respect to the acquisition, ownership and
disposition of Reset PERQS by an initial
purchaser thereof. This summary is based on
the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and
proposed Treasury regulations promulgated
thereunder, and administrative and judicial
interpretations thereof, all as currently in
effect and all of which are subject to change
(possibly with retroactive effect) and to
differing interpretations. This summary
deals only with "U.S. Holders" (as defined
below) who or that purchase the Reset PERQS
at the Issue Price and hold the Reset PERQS
as capital assets. Furthermore, this summary
does not discuss all aspects of U.S. federal
income taxation that may be applicable to
particular investors in light of their
individual circumstances, or to investors
subject to special treatment under U.S.
federal income tax law (including, for
example, life insurance companies, dealers in
securities, financial institutions, tax-exempt
organizations, persons having a functional
currency other than the U.S. dollar, persons
holding Reset PERQS as a position in a
"straddle" or conversion transaction, or as
part of a "synthetic security," a hedging
transaction or other integrated financial
transaction). This summary also does not
address the state, local or foreign tax
consequences of an investment in Reset PERQS.
As the tax law in this area is technical and
complex, the discussion below necessarily
represents only a general summary.
As used herein, the term "U.S. Holder" means
an initial purchaser of a Reset PERQS who or
that is, for U.S. federal income tax purposes,
(i) a citizen or resident of the United
States, (ii) a corporation, partnership or
other entity created in or organized under
the laws of the United States or of any
political subdivision thereof, or (iii) an
estate or trust the income of which is
subject to United States federal income
taxation regardless of its source.
Under current U.S. federal income tax law, it
is unclear whether the Reset PERQS will be
treated, in whole or in part, as forward
contracts to purchase Cisco Stock, as
indebtedness of the Company, as one or more
options or other derivative instruments, or
as a combination thereof. No statutory,
judicial or administrative authority
definitively addresses the characterization
for U.S. federal income tax purposes of the
Reset PERQS or instruments similar to the
Reset PERQS. As a result, significant
aspects of the U.S. federal income tax
treatment of an investment in the Reset PERQS
are uncertain. No ruling has been or will be
requested from the IRS with respect to the
Reset PERQS and no assurance can be given
that the IRS or a court will agree with the
analysis set forth herein. ACCORDINGLY,
PROSPECTIVE INVESTORS IN THE RESET PERQS
SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE TAX CONSEQUENCES OF
INVESTMENTS IN THE RESET PERQS IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE
APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
Pursuant to the terms of a supplement to the
Senior Debt Indenture, the Company and all
holders of the Reset PERQS will be obligated
(in the absence of an administrative ruling
or judicial determination to the contrary) to
treat the Reset PERQS as a forward contract
for the purchase of Cisco Stock at maturity
(including as a result of acceleration) with
a cash deposit pledged by the holders of the
Company. Under this characterization, for
U.S. federal income tax purposes (i) the
Company and each holder of the Reset PERQS
should treat amounts paid to the Company in
respect of the original issuance of the Reset
PERQS as allocable in their entirety to a
cash deposit attributable to such forward
contract; (ii) amounts denominated as
interest on the Reset PERQS should be treated
as interest payable on the amount of such
cash deposit, includible annually in the
income of a U.S. Holder as interest income in
accordance with such holder's method of
accounting; and (iii) a U.S. Holder's tax
basis in any Reset PERQS should equal the
cost of the Reset PERQS.
In addition, under the characterization of
the Reset PERQS described above, a U.S.
Holder would recognize no gain or loss upon
the delivery of the Cisco Stock at maturity,
other than short-term capital gain or loss
with respect to any cash received in lieu of
fractional shares in an amount equal to the
difference between the cash received and the
portion of the tax basis of the Reset PERQS
allocable to such fractional shares. A U.S.
Holder would have a tax basis in the Cisco
Stock received equal to such holder's tax
basis in the Reset PERQS less the portion
thereof allocable to the fractional shares.
Alternatively, if, at maturity, the Company
is unable to deliver the Cisco Stock, a U.S.
Holder would recognize gain or loss on that
portion, if any, of the Exchange Property
that consists of cash.
If a U.S. Holder sells or otherwise disposes
of a Reset PERQS prior to maturity, such
holder generally would, under the
characterization of the Reset PERQS described
above, recognize gain or loss equal to the
difference between the amount realized on the
sale or other disposition and the U.S.
Holder's tax basis in the Reset PERQS. Such
gain or loss generally will be long-term
capital gain or loss if the U.S. Holder has
held the Reset PERQS for more than one year
at the time of disposition.
Although counsel does not believe that it is
more likely, it is possible that the Reset
PERQS would be treated as debt instruments,
the principal amount of which is wholly
dependent upon the future value of Cisco
Stock. In such case, the Reset PERQS would
be subject to the "original issue discount"
provisions of the Code and the Treasury
regulations issued thereunder, and the
Company would be required to determine a
comparable yield for the Reset PERQS. Such
comparable yield would take into account the
yield at which the Company would issue a
fixed rate debt instrument with terms similar
to those of the Reset PERQS (excluding any
adjustments for liquidity or for the
riskiness of the contingencies). Based on
that comparable yield and the Issue Price of
the Reset PERQS, a yield to maturity on the
investment would be determined and a U.S.
Holder (regardless of accounting method)
would be required to accrue as original issue
discount the product of the comparable yield
and the "adjusted issue price" of the Rest
PERQS, on a quarterly basis. The adjusted
issue price of the Reset PERQS at the
beginning of the first accrual period would
equal their Issue Price and at the beginning
of any accrual period thereafter would be (x)
the sum of the Issue Price of such Reset
PERQS and the accrued original issue discount
for all prior accrual periods minus (y) the
amount of any prior payments on the Reset
PERQS. On a sale or exchange of the Reset
PERQS, a U.S. Holder generally would treat any
gain as interest income and any loss as
ordinary loss to the extent of previous
interest inclusions and the balance as
capital loss.
It is also possible that the Reset PERQS
could be characterized in a manner that
results in tax consequences different from
those described above, including treating the
Reset PERQS as evidencing constructive
ownership of Cisco Stock or as a unit
consisting of (i) a debt obligation with a
fixed principal amount unconditionally
payable at maturity equal to the principal
amount of the Reset PERQS, bearing interest
at the stated interest rate of the Reset
PERQS (the "Exchange Note"), and (ii) a
forward purchase contract pursuant to which
the holder agrees to use the principal
payment due on the Exchange Note to purchase
at maturity the Cisco Stock which the holder
is entitled to receive at that time.
Under alternative characterizations of the
Reset PERQS, it is possible, for example,
that (i) a U.S. Holder could be taxable upon
the receipt of Cisco Stock with a value in
excess of the principal amount of the
Exchange Note, rather than upon the sale or
such stock, (ii) gain could be treated as
ordinary income, instead of capital gain, or
(iii) a portion of the Issue Price of the
Reset PERQS could be allocated to the forward
purchase contract and a U.S. Holder could be
required to accrue original issue discount on
the Exchange Note equal to that amount.
DUE TO THE ABSENCE OF AUTHORITY AS TO THE
PROPER CHARACTERIZATION OF THE RESET PERQS,
NO ASSURANCE CAN BE GIVEN THAT THE IRS WILL
ACCEPT OR THAT A COURT WOULD UPHOLD ANY OF
THE CHARACTERIZATIONS DESCRIBED ABOVE.
Backup Withholding and Information Reporting
A holder of the Reset PERQS may be subject to
information reporting and to backup
withholding at a rate of 31 percent of
certain amounts paid to the holder unless
such holder provides proof of an applicable
exemption or a correct taxpayer
identification number, and otherwise complies
with applicable requirements of the backup
withholding rules. Any amounts withheld
under the backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided the
required information is furnished to the IRS.
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on an Initial Price of $64.50 per share of Cisco Stock and an annual cap
of 133%, the following table illustrates, for a range of First Year Closing
Prices and Maturity Prices, the consequent adjustments to the Exchange Ratio,
Second Year Cap Prices, the Payments at Maturity Based on Cisco Stock for each
$64.50 principal amount of Reset PERQS and the total return including interest
payments, based on a hypothetical interest rate of 6% per annum, for each
$64.50 principal amount of Reset PERQS. For purposes of this table, all
Adjusted Exchange Ratios are rounded to the nearest one-hundredth of a
percentage point with five one-hundredths of a percentage point being rounded
upwards.
<TABLE>
<CAPTION>
Reset
Reset PERQS
PERQS Payment
12/1/97 12/1/98 Payment at Maturity
Initial Adjusted Second Adjusted at Maturity plus 6.00% Coupon
Exchange First Year First Year Exchange Year Exchange Based on ----
Initial Price Ratio Cap Price Closing Price Ratio Cap Price Maturity Price Ratio Cisco Stock ("Total Payment")
- -------------- -------- ---------- ------------- -------- ---------- -------------- -------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$64.50 1.00 $85.785 $100.00 0.8579 $133.000 $140.00 0.8150 $114.10 $121.84
$64.50 1.00 $85.785 $ 90.00 0.9532 $119.700 $115.00 0.9532 $109.62 $117.36
$64.50 1.00 $85.785 $ 90.00 0.9532 $119.700 $ 70.00 0.9532 $ 66.72 $ 74.46
$64.50 1.00 $85.785 $ 75.00 1.0000 $ 99.750 $100.00 0.9975 $ 99.75 $107.49
$64.50 1.00 $85.785 $ 80.00 1.0000 $106.400 $ 70.00 1.0000 $ 70.00 $ 77.74
$64.50 1.00 $85.785 $ 50.00 1.0000 $ 85.785 $100.00 0.8579 $ 85.79 $ 93.53
$64.50 1.00 $85.785 $100.00 0.8579 $133.000 $ 50.00 0.8579 $ 42.90 $ 50.64
$64.50 1.00 $85.785 $ 50.00 1.0000 $ 85.785 $ 35.00 1.0000 $ 35.00 $ 42.74
133% of Greater of Maturity Price
Initial (x) times Adjusted
Price 133% of -----
First Year Exchange Rate
Closing
Price and
(y)
First Year
Cap Price
</TABLE>
