PROSPECTUS Dated June 2, 1997 Pricing Supplement No. 41 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-27919
Dated June 2, 1997 Dated January 30, 1998
Rule 424(b)(3)
CHF 10,000,000
Morgan Stanley, Dean Witter, Discover & Co.
MEDIUM-TERM NOTES, SERIES C
EQUITY LINKED NOTES DUE FEBRUARY 4, 1999
------------
The Equity Linked Notes due February 4, 1999 (the "Notes") are
Medium-Term Notes, Series C of Morgan Stanley, Dean Witter, Discover & Co.
(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 CHF 1,000,000 ("Par") and
will mature on February 4, 1999 (the "Maturity Date"). The Issue Price of
each Note will be CHF 1,000,000 (the "Issue Price"), and 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 an amount in
Swiss Francs equal to 101% of the par amount of such Note plus an amount (the
"Supplemental Redemption Amount") based on any percentage increase (subject to
a cap) in the Final Average Index Value 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,
each as further described below. The Supplemental Redemption Amount, if any,
payable with respect to each Note at maturity will be calculated on the last
of the Index Determination Dates and will equal the product of (i) Par times
the Initial Currency Exchange Rate, (ii) the Index Appreciation Factor and
(iii) the Final Currency Exchange Rate; provided that the Supplemental
Redemption Amount cannot be less than zero. The Index Appreciation Factor will
be the lesser of (a) 4.5% and (b) 30% of a fraction, the numerator of which
will be the Final Average Index Value less the Initial Index Value and the
denominator of which will be the Initial Index Value. The Initial Index Value
will equal 982.20. The Final Average Index Value will equal the arithmetic
average of the S&P 500 Index closing values on January 30, 1998 and on the
first day of each month thereafter commencing March 1, 1998 to and including
February 1, 1999 (the "Index Determination Dates"). The Initial Currency
Exchange Rate is the U.S. Dollar/Swiss Franc exchange rate as of January 30,
1998 and the Final Currency Exchange Rate will be the Swiss Franc/U.S. Dollar
exchange rate as of the last Index Determination Date, each as further
described herein.
If the Final Average Index Value is equal to or less than the
Initial Index Value, the holder of each Note will be repaid 101% of the par
amount of such Note, but will not receive any Supplemental Redemption Amount.
The Index Determination Dates are subject to adjustment as set forth herein.
For information as to the calculation of the Supplemental
Redemption Amount and the Final Average Index Value and certain tax
consequences to beneficial owners of the Notes, see "Supplemental Redemption
Amount," "Final Average Index Value," and "United States Federal Taxation" in
this Pricing Supplement.
The Company will cause the Supplemental Redemption Amount, the
Final Average Index Value, the Initial Currency Exchange Rate and the Final
Currency Exchange Rate 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-6 through PS-8 herein.
---------------
PRICE 100%
---------------
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY DEAN WITTER MORGAN STANLEY BANK AG
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES OR THE INDIVIDUAL STOCKS UNDERLYING THE S&P 500. SPECIFICALLY, THE AGENT
MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE,
THE NOTES OR INDIVIDUAL STOCKS UNDERLYING THE S&P 500 IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES SEE "USE OF PROCEEDS AND HEDGING."
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount.............. CHF 10,000,000
Maturity Date................. February 4, 1999
Stated Interest Rate.......... 0.00%
Specified Currency............ Swiss Francs
Issue Price................... 100%
Settlement Date (Original
Issue Date)................. February 13, 1998
CUSIP......................... 61745ELP4
Book Entry Note or Certificated
Note........................ Book Entry
Senior Note or Subordinated
Note........................ Senior
Minimum Denominations......... CHF 1,000,000 ("Par")
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
Maturity Redemption Amount.... At maturity (including as a result of
acceleration or otherwise), the holder of
each Note will receive 101% of the par amount
of such Note plus the Supplemental Redemption
Amount, if any. References herein to "Notes"
refer to each CHF 1,000,000 principal amount
of any Note.
Supplemental Redemption Amount The Supplemental Redemption Amount, payable
with respect to each Note at maturity, will
be calculated on the last Index Determination
Date and will equal the product of (i) Par
times the Initial Currency Exchange Rate,
(ii) the Index Appreciation Factor and (iii)
the Final Currency Exchange Rate; provided
that the Supplemental Redemption Amount
cannot be less than zero. The Supplemental
Redemption Amount is described by the
following formula:
(Par x Initial Currency) x Index Appreciation Factor x Final Currency
(Exchange Rate) Exchange Rate
; provided that the Supplemental Redemption
Amount will not be less than zero.
The Company will 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.
Index Appreciation Factor..... The Index Appreciation Factor, as determined
by the Calculation Agent on the last Index
Determination Date, will be the lesser of
(a) 4.5% and (b) 30% of a fraction, the
numerator of which will be the Final Average
Index Value less the Initial Index Value and
the denominator of which will be the Initial
Index Value. The Index Appreciation Factor is
described by the following formula:
Final Average Index Value - Initial Index Value
Min[.045, (0.30 x -----------------------------------------------)]
Initial Index Value
Index Closing Value........... The Index Closing Value, on any Trading Day,
will equal the closing value of the S&P 500
Index or any Successor Index at the regular
official weekday close of trading on such
Trading Day. See "Discontinuance of the S&P
500 Index; Alteration of Method of
Calculation."
References herein to the S&P 500 Index will
be deemed to include any Successor Index,
unless the context requires otherwise.
Initial Index Value........... 982.20
Final Average Index Value..... The Final Average Index Value will equal the
arithmetic average of the Index Closing
Values on each of the Index Determination
Dates as calculated on the last Index
Determination Date by the Calculation Agent
Index Determination Dates..... The Index Determination Dates will be January
30, 1998 and the first day of each month
thereafter commencing March 1, 1998 to and
including February 1, 1999, or, if any such
day is not a Trading Day, the next succeeding
Trading Day, unless there is a Market
Disruption Event on any such Trading Day. If
a Market Disruption Event occurs on any such
Trading Day, such Index Determination Date
will 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 an
Index Determination Date, then (i) such fifth
succeeding Trading Day will be deemed to be
the relevant Index 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.
If the last Index Determination Date is not a
Trading Day or if there is a Market
Disruption Event on such last Index
Determination Date, such last Index
Determination Date will be the immediately
succeeding Trading Day during which no Market
Disruption Event shall have occurred;
provided that the last Index Determination
Date will be no later than the second
scheduled Trading Day preceding the Maturity
Date, and if such date is not a Trading Day
or if there is a Market Disruption Event on
such date, the Calculation Agent will
determine the value of the S&P 500 Index on
such last Index Determination Date in
accordance with clause (ii) of the preceding
paragraph.
Trading Day................... A day on which trading is generally conducted
on the New York Stock Exchange ("NYSE"), the
American Stock Exchange, Inc. ("AMEX"), the
NASDAQ National Market ("NASDAQ NMS"), the
Chicago Mercantile Exchange and the Chicago
Board of Options Exchange, as determined by
the Calculation Agent.
Initial Currency Exchange Rate .676 U.S. Dollars
-----------------
1 CHF
Final Currency Exchange Rate.. The Swiss Franc/U.S. Dollar exchange
reference rate as of February 1, 1999 as
shown on Reuter's Page WMRH (or any
replacement page for the purpose of
displaying such rate) under the caption
"Closing Mid Rates V US $ [1]," as determined
by the Calculation Agent. See "Historical
Information - Swiss Franc/U.S. Dollar
Exchange Rate" below.
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 will
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.
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 101% of Par plus the
Supplemental Redemption Amount, if any,
determined as though each Index Determination
Date scheduled to occur on or after such date
of acceleration were the date of acceleration.
Calculation Agent............. Morgan Stanley & Co. Incorporated ("MS & Co.")
All determinations made by the Calculation
Agent will be at the sole discretion of the
Calculation Agent and will, in the absence of
manifest error, be conclusive for all
purposes and binding on the Company and
holders of the Notes.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in determining the Final Average Index Value
or whether a Market Disruption Event has
occurred. See "Discontinuance of the S&P 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 Average Index Value
that the Calculation Agent may be required to
make prior to its dissemination. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good faith
and using its reasonable judgment.
Risk Factors.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional security,
including the following.
If the Final Average Index Value is equal to
or less than the Initial Index Value, the
holders of the Notes will receive only 101%
of the par amount of each Note at maturity.
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 101% of 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 Average Index Value over the
Initial Index Value does not reflect the
payment of dividends on the stocks underlying
the S&P 500 Index. In addition, a holder of
the Notes only participates in 30% of any
appreciation of the S&P 500 Index.
Therefore, the yield to maturity based on the
Final Average Index Value relative to the
Initial Index Value will not be the same
yield as would be produced if such underlying
stocks were purchased and held for a similar
period. Furthermore, due to the cap on the
Supplemental Redemption Amount, any increase
greater than 15% in the Final Average Index
Value over the Initial Index Value will not
be recognized by a holder of the Notes.
Because the Notes are paid in Swiss Francs,
any increase in the Final Average Index Value
over the Initial Index Value may be offset by
a decline in the value of Swiss Francs
relative to U.S. Dollars. See "Historical
Information: Swiss Franc/U.S. Dollar Exchange
Rate" below.
The Notes are not currently listed on any
exchange. The Company is not obligated to
list the Notes; however, it may do so in the
future. 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 last Index Determination
Date and to the maturity of the Notes, the
exchange rate between Swiss Francs and U.S.
Dollars and market interest rates. In
addition, the Final Average Index Value
depends on a number of interrelated factors,
including economic, financial and political
events, over which the Company has no
control. The value of the Notes prior to
maturity is expected to depend primarily on
market interest rates, the exchange rate
between Swiss Francs and U.S. Dollars and the
extent of the appreciation or depreciation of
the S&P 500 Index from the Initial Index
Value through the last Index 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 Average
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 Initial Average Index
Value, the Final Average 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.
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 plus Yes
(i.e. Change > 5%) newly issued Shares
Share repurchase Shares Outstanding minus Yes
(i.e. Change > 5%) Repurchased Shares
Special cash Share Price minus Special Yes
dividends Dividend
Company change Add new company Market Yes
Value minus old company
Market Value
Rights offering Price of parent company Yes
minus
(Price of Rights)
---------------
(Right Ratio)
Spinoffs Price of parent company Yes
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
Post-Event Aggregate Market Value
New Divisor = ---------------------------------
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.
Discontinuance of the S&P 500
Index; Alteration of Method
of Calculation................. 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 each subsequent Index Closing Value will
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 an Index Determination Date.
Upon any selection by the Calculation Agent
of a Successor Index, the Calculation Agent
will 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, any Index Determination Date
and the Calculation Agent determines that no
Successor Index is available at such time,
then on such Index Determination Date, the
Calculation Agent will determine the Index
Closing Value that would be used in computing
the Supplemental Redemption Amount on such
Index Determination Date. The Index Closing
Value will 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 Index 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 will,
at the close of business in New York City on
each subsequent Index 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 will 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).
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, 1993 through January 30, 1998.
The Index Closing Values listed below were
obtained from Bloomberg Financial Markets.
The Company believes all such information to
be accurate. 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
-------------------------------
High Low Period End
---- --- ----------
1993
First Quarter........ 456.34 429.05 451.67
Second Quarter....... 453.85 433.54 450.53
Third Quarter........ 463.56 441.43 458.93
Fourth Quarter....... 470.94 457.48 466.45
1994
First Quarter........ 482.00 445.55 445.76
Second Quarter....... 462.37 438.92 444.27
Third Quarter........ 476.07 446.13 462.71
Fourth Quarter....... 473.77 445.45 459.27
1995
First Quarter........ 503.90 459.11 500.71
Second Quarter....... 551.07 501.85 544.75
Third Quarter........ 586.77 547.09 584.41
Fourth Quarter....... 621.69 576.72 615.93
1996
First Quarter........ 661.45 598.48 645.50
Second Quarter....... 678.51 631.18 670.63
Third Quarter........ 687.31 626.65 687.31
Fourth Quarter....... 757.03 689.08 740.74
1997
First Quarter........ 816.29 737.01 757.12
Second Quarter....... 898.70 737.65 885.14
Third Quarter........ 960.32 891.03 947.28
Fourth Quarter....... 983.79 876.98 970.43
1998
First Quarter (through
January 30, 1998).. 985.49 927.69 980.28
Swiss Franc/U.S. Dollar Exchange Rate.
Fluctuations in the exchange rate between the
Swiss Franc and the U.S. Dollar will affect the
market price of the Notes and the value of any
Supplemental Redemption Amount. The following
table sets forth, for the periods indicated,
the month-end rates for the purchase of U.S.
Dollars, expressed in Swiss Francs per $.
Month-end Exchange Rates
(amounts in CHF)(1)
Date Rate Date Rate
--------------------------------------------------------------------
January 31, 1995 1.286 July 31, 1996 1.197
February 28, 1995 1.237 August 31, 1996 1.201
March 31, 1995 1.129 September 30, 1996 1.254
April 30, 1995 1.145 October 31, 1996 1.268
May 31, 1995 1.167 November 30, 1996 1.304
June 30, 1995 1.148 December 31, 1996 1.341
July 31, 1995 1.152 January 31, 1997 1.424
August 31, 1995 1.203 February 28, 1997 1.478
September 30, 1995 1.154 March 31, 1997 1.448
October 31, 1995 1.136 April 30, 1997 1.473
November 30, 1995 1.176 May 31, 1997 1.414
December 31, 1995 1.153 June 30, 1997 1.461
January 31, 1996 1.213 July 31, 1997 1.512
February 29, 1996 1.202 August 31, 1997 1.492
March 31, 1996 1.189 September 30, 1997 1.447
April 30, 1996 1.244 October 31, 1997 1.400
May 31, 1996 1.248 November 30, 1997 1.426
June 30, 1996 1.254 December 31, 1997 1.462
January 30, 1998 1.476
- ----------
(1) Source: Reuters
The information presented in this Pricing
Supplement relating to the exchange rate of
the Swiss Franc as compared to the U.S.
Dollar is furnished as a matter of
information only. The Swiss Franc has been
subject to fluctuations in the past and may
be subject to significant fluctuations in the
future. The fluctuations in the Swiss
Franc/U.S. Dollar exchange rate that have
occurred in the past are not necessarily
indicative of fluctuations in that rate that
may occur over the term of the Notes.
The spot exchange rates between the Swiss
Franc and U.S. Dollar are at any moment a
result of the supply of and demand for the
currencies being compared, and changes in the
exchange rates result over time from the
interaction of many factors directly or
indirectly affecting economic and political
developments in other countries. Of
particular importance are rates of inflation,
interest rate levels, the balance of payments
and the extent of governmental surpluses or
deficits in Switzerland and the United
States, all of which are in turn sensitive to
the monetary, fiscal and trade policies
pursued by the governments of Switzerland,
the United States and other countries
important to international trade and finance.
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 of futures
contracts on the S & P 500 Index. 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
did not, or in the future will not, affect
such prices as a result of its hedging
activities. The Company, through its
subsidiaries, is likely to modify its hedge
position throughout the life of the Notes,
including on each Index Determination Date,
by purchasing and selling exchange traded and
over the counter options on the S&P 500
Index, individual stocks included in the S&P
500 Index, futures contracts on the S&P 500
Index and options on such futures contracts
as well as other available securities and
instruments. 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 Tax Disclosure for U.S. Holders. The Notes
are short-term Discount Notes and Foreign
Currency Notes and investors should refer to
the discussion under "United States Federal
Taxation--Notes--Discount Notes" and "United
States Federal Taxation--Notes--Foreign
Currency Notes" in the accompanying
Prospectus Supplement.
The following discussion regarding "Tax
Disclosure for U.S. Holders" and "Additional
Disclosure for Non-U.S. Holders" is based
on the opinion of Davis Polk & Wardwell,
special tax counsel to the Company. For
United States federal income tax purposes,
it is not entirely clear to what extent
gain realized, if any, upon the sale or
exchange of a Note prior to maturity will
constitute ordinary interest income. The
Company intends to treat payment of the
Supplemental Redemption Amount, if any, as
a payment of ordinary interest income.
United States Holders are urged to consult
their tax advisors in this regard.
Additional Disclosure for Non-U.S. Holders.
As used herein, the term "Non-U.S.
Holder" means an owner of a Note that is,
for United States federal income tax
purposes, (i) a nonresident alien
individual, (ii) a foreign corporation,
(iii) a nonresident alien fiduciary of a
foreign trust or estate or (iv) a foreign
partnership one or more of the members of
which is, for United States federal income
tax purposes, a nonresident alien
individual, a foreign corporation or a
nonresident alien fiduciary of a foreign
trust or estate. The following summary
does not deal with persons that are not
Non-U.S. Holders or that are subject to
special rules, such as nonresident alien
individuals that have lost United States
citizenship or that have ceased to be
taxed as United States resident aliens,
corporations that are treated as foreign
personal holding companies, controlled
foreign corporations or passive foreign
investment companies, and certain other
Non-U.S. Holders that are owned or
controlled by persons subject to United
States federal income tax. In addition,
unless otherwise noted, the following
summary does not apply to persons for whom
interest or gain on a Note is effectively
connected with a trade or business in the
United States. Persons considering the
purchase of the Notes should consult their
tax advisors with regard to the
application of the United States federal
income tax laws to their particular
situations as well as any tax consequences
arising under the laws of any state, local
or foreign taxing jurisdiction. This
discussion is based on the Code, and
administrative interpretations as of the
date hereof, all of which are subject to
change, including changes with retroactive
effect. Capitalized terms appearing
herein and not defined have the meanings
assigned to such terms in the Prospectus
Supplement.
Subject to the discussion below concerning
backup withholding, the Company does not
intend to withhold on payments of
principal and the Supplemental Redemption
Amount, if any, at maturity of a Note by
the Company to a Non-U.S. Holder, and
gain realized on the sale, exchange or
other disposition of such Note will not be
subject to United States federal income or
withholding tax, provided that: (i) such
Holder does not own, actually or
constructively, 10 percent or more of the
total combined voting power of all classes
of stock of the Company entitled to vote,
is not a controlled foreign corporation
related, directly or indirectly, to the
Company through stock ownership, and is
not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; (ii)
the statement required by Section 871(h)
or Section 881(c) of the Code has been
provided with respect to the beneficial
owner, as discussed below; (iii) such
Non-U.S. Holder is not an individual who
is present in the United States for 183
days or more in the taxable year of
disposition, or such individual does not
have a "tax home" (as defined in Section
911(d)(3) of the Code) or an office or
other fixed place of business in the
United States; and (iv) such payment and
gain are not effectively connected with
the conduct by such Holder of a trade or
business in the United States.
Sections 871(h) and 881(c) of the Code
require that, in order to obtain the
portfolio interest exemption from withholding
tax, either the beneficial owner of the Note,
or a securities clearing organization, bank
or other financial institution that holds
customers' securities in the ordinary course
of its trade or business (a "Financial
Institution") and that is holding the Note on
behalf of such beneficial owner, file a
statement with the withholding agent to the
effect that the beneficial owner of the Note
is not a United States person. Under United
States Treasury Regulations, such requirement
will be fulfilled if the beneficial owner of
a Note certifies on Internal Revenue Service
Form W-8, under penalties of perjury, that it
is not a United States person and provides
its name and address, and any Financial
Institution holding the Note on behalf of the
beneficial owner files a statement with the
withholding agent to the effect that it has
received such a statement from the Holder
(and furnishes the withholding agent with a
copy thereof). With respect to Notes held
by a foreign partnership, under current law,
the Form W-8 may be provided by the foreign
partnership. However, for payments with
respect to a Note after December 31, 1998,
unless the foreign partnership has entered
into a withholding agreement with the
Internal Revenue Service, a foreign
partnership will be required, in addition to
providing an intermediary Form W-8, to attach
an appropriate certification by each partner.
Prospective investors, including foreign
partnerships and their partners, should
consult their tax advisors regarding possible
additional reporting requirements.
Under Section 2105(b) of the Code, a Note
held by an individual who is not a citizen or
resident of the United States at the time of
his death will not be subject to United
States federal estate tax as a result of such
individual's death, provided that the
individual does not own, actually or
constructively, 10 percent or more of the
total combined voting power of all classes of
stock of the Company entitled to vote and, at
the time of such individual's death, payments
with respect to such Note would not have been
effectively connected to the conduct by such
individual of a trade or business in the
United States.
Under current Treasury Regulations, backup
withholding at 31% will not apply to payments
by the Company made on a Note if the
certifications required by Sections 871(h)
and 881(c) are received, provided in each
case that the Company or such paying agent,
as the case may be, does not have actual
knowledge that the payee is a United States
person.
Under current Treasury Regulations, payments
on the sale, exchange or other disposition of
a Note made to or through a foreign office of
a broker generally will not be subject to
backup withholding. However, if such broker
is a United States person, a controlled
foreign corporation for United States tax
purposes, a foreign person 50 percent or more
of whose gross income is effectively connected
with a United States trade or business for a
specified three-year period or, in the case
of payments made after December 31, 1998, a
foreign partnership with certain connections
to the United States, information reporting
will be required unless the broker has in its
records documentary evidence that the
beneficial owner is not a United States
person and certain other conditions are met
or the beneficial owner otherwise establishes
an exemption. Under proposed Treasury
Regulations, backup withholding may apply to
any payment which such broker is required to
report if such broker has actual knowledge
that the payee is a United States person.
Payments to or through the United States
office of a broker will be subject to backup
withholding and information reporting unless
the Holder certifies, under penalties of
perjury, that it is not a United States
person or otherwise establishes an exemption.
Non-U.S. Holders of Notes should consult
their tax advisors regarding the application
of information reporting and backup
withholding in their particular situations,
the availability of an exemption therefrom,
and the procedure for obtaining such an
exemption, if available. Any amounts
withheld from a payment to a Non-U.S. Holder
under the backup withholding rules will be
allowed as a credit against such Holder's
United States federal income tax liability
and may entitle such Holder to a refund,
provided that the required information is
furnished to the Internal Revenue Service.
