-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JIfYB9hk6Vyxbe82v81uJFmTFA4WdTjXXHjV2c7J/zPt3xkIuw5NI96CqguzAM3W lax/pCsVV8UcTC6aQCFI+g== 0000950103-95-000296.txt : 19950901 0000950103-95-000296.hdr.sgml : 19950901 ACCESSION NUMBER: 0000950103-95-000296 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950830 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-57833 FILM NUMBER: 95569115 BUSINESS ADDRESS: STREET 1: 1251 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127034000 424B3 1 PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 16 to PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833 Dated March 29, 1995 August 23, 1995 Rule 424(b)(3) Morgan Stanley Group Inc. MEDIUM-TERM NOTES, SERIES C EQUITY LINKED NOTES DUE MARCH 1, 2002 The Equity Linked Notes due March 1, 2002 (the "Notes" or "ELNs") are Medium-Term Notes, Series C of Morgan Stanley Group Inc. (the "Company"), as further described in this Pricing Supplement. The Notes will bear interest at the Base Coupon Rate (as defined below) semi-annually on each Interest Amount Date, in the manner described in the Prospectus Supplement under "Description of Notes - Fixed Rate Notes," from the date of issuance until the principal amount thereof is paid or made available for payment and at maturity shall also pay the Supplemental Interest Amount, if any, based on the amount by which the Final Value of the S&P 500 Composite Stock Price Index (the "S&P 500 Index" or "Index") on the Determination Date exceeds the Initial Value, as described more fully under "Supplemental Interest Amount" below. The Notes will not be redeemable by the Company prior to the Maturity Date. Principal Amount: $10,000,000 Redemption Dates: N/A Maturity Date: March 1, 2002 Redemption Percentage: N/A Book Entry Note or Certificated Note: Book Entry Note Base Coupon Rate: 0.50% per annum Interest Payment Senior Note or Period: Semi-annual Subordinated Note: Senior Note Interest Payment Total Amount of OID: N/A Dates: Each March 1 and September 1 commencing March 1, 1996 Specified Currency: U.S. Dollars Original Yield to Maturity: N/A Issue Price: 100% Settlement Date (Original Issue Date and Interest Accrual Date): September 1, 1995 Supplemental Interest Initial Accrual Amount: An amount payable at maturity equal to Period OID: N/A Principal Amount x 1.261 x (Final Value-Initial Value) --------------------------- Initial Value Initial Value: 558.00 Final Value: The closing value of the S&P 500 Index Calculation Agent: Morgan Stanley & Co. (as calculated by Standard & Poor's Incorporated ("S&P") and published in The Wall Street Journal) at the market close on the Determination Date. Determination Date: February 20, 2002 or, if such date is not Paying Agent: Chemical Bank an NYSE Trading Day (as defined herein), the next preceding NYSE Trading Day.
Whether or not the ELNs will pay any Supplemental Interest Amount at maturity is dependent upon the value of the S&P 500 Index on the Determination Date. See "Risk Factors" on pages PS-6 through PS-8. Capitalized terms not defined above have the meanings given to such terms in the accompanying Prospectus Supplement. MORGAN STANLEY & CO. Incorporated USE OF PROCEEDS AND HEDGING A portion of the proceeds to be received by the Company from the sale of the ELNs will be used by the Company or one or more of its affiliates to hedge market risks affecting the amount of the Supplemental Interest Amount. Such hedging may involve the purchase or sale of exchange traded or over the counter options on the S&P 500 Index or individual stocks included in the S&P 500 Index, futures contracts on the S&P 500 Index and options on such futures contracts. The balance of the net proceeds will be used as described under "Use of Proceeds" in the accompanying Prospectus. DESCRIPTION OF ELNs Interest and Payment at Maturity The ELNs will bear interest at the Base Coupon Rate semi-annually on each Interest Payment Date, in the manner described under "Description of Notes - Fixed-Rate Notes," from the date of issuance until the principal amount thereof is paid or made available for payment. At the Maturity Date, the holder of an ELN will be entitled to receive an amount equal to the principal amount of the ELN (the "Principal Amount") and any unpaid accrued interest at the Base Coupon Rate plus the Supplemental Interest Amount, if any, calculated in accordance with the following sentence by Morgan Stanley & Co. Incorporated (the "Calculation Agent"), a wholly-owned subsidiary of the Company. The Supplemental Interest Amount will be equal to the greater of zero and an amount calculated as follows: Principal Amount x 1.261 x (Final Value - Initial Value) _____________________________ Initial Value where the Initial Value is 558.00 and the Final Value is the value of the S&P 500 Index (such value as calculated by S&P and published in The Wall Street Journal) at the close of trading on February 20, 2002 or, if such date is not an NYSE Trading Day, the next preceding NYSE Trading Day (the "Determination Date"). The value of the S&P 500 Index appears in The Wall Street Journal and on the display designated as "SPX" on a number of electronic quotation services. If the Final Value is equal to or less than the Initial Value, a holder of an ELN will be repaid 100% of the Principal Amount of the ELN with respect to each ELN held plus interest at the Base Coupon Rate, but the holder will not receive any Supplemental Interest Amount. The Company shall cause the Calculation Agent to provide written notice to the Paying Agent at its New York office, on which notice the Paying Agent may conclusively rely, of the Supplemental Interest Amount, on or prior to 11:00 a.m. on the second Business Day preceding the Maturity Date. See "Discontinuance of the S&P 500 Index" below. "NYSE Trading Day," for purposes of the Pricing Supplement, is a day on which the New York Stock Exchange, Inc. (the "NYSE") is open for trading. If any payment under the ELNs is to be made on a day which is not a Business Day, the obligation to make such payment will be satisfied if it is made on the next succeeding Business Day, and no interest will accrue as a result of such delayed payment. 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 hereinafter as a "Successor Index"), then the Interest Payment shall be determined by reference to the value of such Successor Index at the close of trading on the NYSE, the American Stock Exchange, Inc. ("Amex") or the relevant exchange or market for the Successor Index on the Determination Date and notice of such determination shall be given as described below. Notwithstanding the foregoing, if the Calculation Agent determines that a Market Disruption Event (as defined below) with respect to the S&P 500 Index (or a Successor Index) has occurred and is continuing on the Determination Date, then the Final Value shall be the value of the S&P 500 Index (or the Successor Index) at the close of trading on the NYSE and Amex (or on the relevant exchange or market for any Successor Index) on the next preceding NYSE Trading Day on which there was no Market Disruption Event. "Market Disruption Event" in respect of the S&P 500 Index (or Successor Index) means either of the following events: (i) the suspension or material limitation of trading in 100 or more of the securities included in the S&P 500 Index (or Successor Index), or (ii) the imposition of material adverse limitations on the prices of 100 or more of the securities included in the S&P 500 Index (or Successor Index), in either case, on the exchange on which or in the market in which such securities are primarily traded, provided, that a limitation on the hours in a trading day and/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. All determinations made by the Calculation Agent and the Company shall be at the sole discretion of the respective parties and shall, in the absence of manifest error, be conclusive for all purposes and binding on the Company, beneficial owners and holders of the ELNs. The following table illustrates, for a range of hypothetical Final Values, the percentage change in the S&P 500 Index from the date of this Pricing Supplement until maturity and the amount of the Supplemental Interest Amount at maturity for each $1,000 principal amount of ELNs. Supplemental Hypothetical Percentage Interest Payment Final Value Change per $1,000 of the in the Principal S&P 500 Index S&P 500 Index Amount ------------- ------------- ---------------- 450.0 -19.35% $ 0 500.0 -10.39% $ 0 550.0 -1.43% $ 0 558.0 0% $ 0 600.0 7.53% $ 95 650.0 16.49% $208 700.0 25.45% $321 750.0 34.41% $434 800.0 43.37% $547 850.0 52.33% $660
The above figures are for purposes of illustration only. The actual amount of the Supplemental Interest Amount, if any, will depend entirely on the actual Final Value determined as provided herein. Historical data regarding the S&P 500 Index is included herein under "S&P 500 Composite Stock Price Index." Discontinuance of the S&P 500 Index If S&P discontinues publication of the S&P 500 Index and a Successor Index is available, then, the Interest Payment will be determined by reference to the Successor Index as provided above. If publication of the S&P 500 Index is discontinued and S&P or another entity does not publish a Successor Index on the Determination Date, the amount of the Supplemental Interest Amount, if any, due at the Maturity Date will be computed by the Calculation Agent which will determine a Final Value by reference to the following formula: (1) determining the component stocks of the S&P 500 Index or any Successor Index (the "Component Stocks") as of the last date on which either of such indices was calculated by S&P or another entity and quoted on any quotation system (each such component stock a "Last Component Stock"); (2) for each Last Component Stock, calculated as of the relevant Business Day, the product of the market price per share and the number of the then outstanding shares (such product referred to as the "Market Value" of such stock), by reference to (a) the closing market price per share of such Last Component Stock as quoted by the NYSE or the Amex or any other nationally recognized stock exchange, or if no such quotation is available, then The Nasdaq National Market ("NASDAQ") (together with NASDAQ, the "Exchanges") and (b) the most recent publicly available statement of the number of outstanding shares of such Last Component Stock; (3) aggregating the Market Values obtained in clause (2) for all Last Component Stocks; (4) determining the Index Divisor (as defined below under "S&P's 500 Composite Stock Price Index -- Computation of the S&P 500 Index") as of the last day on which either the S&P 500 Index or any Successor Index was published, as adjusted thereafter as described below; and (5) dividing the aggregate Market Value of all Last Component Stocks by the Index Divisor (adjusted as aforesaid). If any Last Component Stock is no longer publicly traded on any nationally recognized stock exchange, major regional stock exchange or in the over-the-counter market, the last available market price per share for such Last Component Stock as quoted by any exchange, and the number of outstanding shares thereof at such time, will be used in computing the last available Market Value of such Last Component Stock. If a company that has issued a Last Component Stock and another company that has issued a Last Component Stock are consolidated to form a new company, the common stock of such new company will be considered a Last Component Stock, and the common stocks of the constituent companies will no longer be considered Last Component Stocks. If any company that has issued a Last Component Stock merges with, or acquires, a company that has not issued a Last Component Stock, the common stock of the surviving corporation will, upon the effectiveness of such merger or acquisition, be considered a Last Component Stock. However, in each case, the Index Divisor will be adjusted in accordance with the formula set forth in the penultimate paragraph under "S&P 500 Composite Stock Price Index -- Computation of the S&P 500 Index." As a result of adjustment, the Index Divisor immediately after such corporate event will equal the quotient of the aggregate Market Value of all Last Component Stocks immediately after such event, divided by the aggregate Market Value of all Last Component Stocks immediately prior to such event. If a company that has issued a Last Component Stock issues a stock dividend or declares a stock split, the stock price and number of shares outstanding shall be adjusted so that there is no change in the Market Value of such Last Component Stock caused by such corporate action. If a company that has issued a Last Component Stock issues new shares, repurchases shares, issues a special cash dividend, makes a rights offering or effects a spinoff, then, in each case, the Index Divisor will be adjusted in accordance with the formula referred to in the preceding paragraph. The Index Divisor may not be adjusted by the Calculation Agent in all cases in which S&P, in its discretion, would have adjusted the Index Divisor (as described below under "S&P 500 Composite Stock Price Index -- Computation of the S&P 500 Index"). If at any time the method of calculating the S&P 500 Index or a Successor Index, or the value thereof, is changed in a material respect, or if the S&P 500 Index or a Successor Index is in any other way modified so that such index does not, in the opinion of the Calculation Agent, fairly represent the value of the S&P 500 Index or such Successor Index had such changes or modifications not been made, then, from and after such time, the Calculation Agent shall, at the close of business in New York City on each date the closing value with respect to the Final Value is to be calculated, 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 Interest Amount with reference to the S&P 500 Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the S&P 500 Index or a Successor Index is modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent shall adjust such index in order to arrive at a value of the S&P 500 Index or such Successor Index as if it had not been modified (e.g., as if such split had not occurred). Upon any selection by the Calculation Agent of a Successor Index, the Calculation Agent shall cause written notice thereof to be furnished to the Paying Agent, to the Company and to the holders of the ELNs within three NYSE Trading Days of such selection. If S&P discontinues publication of the S&P 500 Index prior to the Determination Date and the Calculation Agent determines that no Successor Index is available at such time, then on each NYSE Trading Day until the earlier to occur of (i) the Determination Date and (ii) a determination by the Calculation Agent that a Successor Index is available, the Calculation Agent shall determine the value that would be used in computing the Supplemental Interest Amount as if such day were the Determination Date. The Calculation Agent shall cause notice of each such value to be provided to the holders of the ELNs on each succeeding NYSE Trading Day until and including the Determination Date (unless a Successor Index is prior thereto determined to be available). Notwithstanding these alternative arrangements, discontinuance of the publication of the S&P 500 Index may adversely affect the value of the ELNs. Acceleration upon Event of Default In case an Event of Default with respect to any ELNs shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the ELNs will be determined by the Calculation Agent and will be equal to the Principal Amount, plus any unpaid accrued interest at the Base Coupon Rate, plus the Supplemental Coupon Amount, if any, determined as though the Determination Date were the date of acceleration. RISK FACTORS Payment at Maturity The Supplemental Interest Amount will be determined by reference to the value of the S&P 500 Index on the Determination Date. If the Final Value is equal to or less than the Initial Value, then beneficial owners of the ELNs will receive no Supplemental Interest Amount and will be entitled to receive only an amount equal to the Principal Amount of their ELNs plus any unpaid accrued interest at the Base Coupon Rate. This will be true even though the value of the S&P 500 Index as of some interim date or dates prior to the Determination Date of the ELNs may have been greater than the Initial Value, because the Supplemental Interest Amount of the ELNs is calculated on the basis of the Final Value for the Determination Date and not on the basis of the S&P 500 Index as of any such earlier interim date. Return of only the Principal Amount at maturity of an ELN plus any unpaid accrued interest at the Base Coupon Rate may not compensate the holder for any opportunity cost implied by inflation and other factors relating to the time value of money. The Base Coupon Rate is less than that which would be payable on a conventional fixed-rate debt security having the same maturity date as the ELNs and issued by the Company on the Original Issue Date. The return based on the Final Value relative to the Initial Value may not produce the same return as if the Component Stocks were purchased and held for a similar period, because, among other reasons, any payment at maturity on the ELNs based on an increase in the value of the Component Stocks will reflect 126.10% of any percentage increase in the S&P 500 Index but will not reflect payment of dividends on the Component Stocks. Liquidity and Value The ELNs have not been approved for listing on any securities exchange and the Company does not intend to apply for any such listing. Investors should be aware that because there is no public market for the ELNs, it may be difficult or impossible for holders to sell them. The market value of an ELN may be affected by the extent of the appreciation or depreciation of the S&P 500 Index from the Initial Value. The market value of an ELN may also be affected by a number of interrelated factors, including those listed below. The relationship among these factors is complex. Accordingly, investors should be aware that factors other than the level of the S&P 500 Index are likely to affect the liquidity and market value of the ELNs. The expected effect on the market value of the ELNs of each of the factors listed below, assuming in each case that all other factors are held constant, is as follows: Changes in Value of the S&P 500 Index or a Successor Index. The market value of the ELNs is expected to depend primarily on the value of the S&P 500 Index or a Successor Index over the life of the ELNs. In general, increases in the S&P 500 Index are expected to have a favorable effect on the market value of the ELNs, while decreases in the S&P 500 Index are likely to have an unfavorable effect on such market value. Prospective investors should be aware that the price at which a beneficial owner of ELNs may be able to sell ELNs at any time may be at a discount, which could be substantial, from the Principal Amount thereof. Prospective investors should also consider the possibility that S&P may discontinue or suspend calculation or dissemination of the S&P 500 Index, or that the method of calculating the S&P 500 Index may be modified. Any such action could have an adverse effect on the value of the ELNs. See "Affiliation of the Company and the Calculation Agent" below. Interest Rates. If U.S. interest rates increase, the value of the ELNs may decrease. Interest rates may also affect the U.S. economy and, in turn, the value of the S&P 500 Index or a Successor Index. Volatility of the S&P 500 Index or a Successor Index. If the volatility of the S&P 500 Index or a Successor Index decreased, the market value of the ELNs may decrease. Time Remaining to Maturity. The ELNs may have a market value above that which may be inferred from the level of interest rates and the S&P 500 Index or a Successor Index. This difference will reflect a "time premium" for the ELNs due to expectations concerning the value of the S&P 500 Index or such Successor Index during the remaining period prior to the Determination Date. As the time remaining to the Determination Date decreases, however, this time premium is expected to decrease, which may decrease the market value of the ELNs. Dividend Rates in the United States. If dividend rates for the stocks comprising the S&P 500 Index or a Successor Index increase, the market value of the ELNs may decrease. General U.S. corporate dividend rates may also affect the S&P 500 Index or a Successor Index and, in turn, the market value of the ELNs. Modifications and Determination of the S&P 500 Index The policies of S&P concerning additions, deletions and substitutions of the Component Stocks and the manner in which S&P takes account of certain changes affecting the Component 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 could also affect the value of the S&P 500 Index. See "S&P 500 Composite Stock Price Index." Certain Factors Affecting the S&P 500 Index The trading prices of the Component Stocks 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 Component Stocks 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 Component Stocks are traded and by various circumstances that can influence the values of Component Stocks in a specific market segment or particular Component Stocks. Affiliation of the Company and the Calculation Agent 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 ELNs, including with respect to certain determinations and judgments that the Calculation Agent must make in determining whether a Market Disruption Event has occurred and may be required to make if S&P discontinues publication of the S&P 500 Index. See "Market Disruption Event" and "Discontinuance of the S&P 500 Index" 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 ELNs to restrict the use of information relating to any calculation of the Final 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. Limitations of Claims in Bankruptcy or on Acceleration of Maturity Based upon an Event of Default If a bankruptcy proceeding is commenced in respect of the Company, the claim of a holder of an ELN may, under Section 502(b)(2) of Title 11 of the United States Code, be limited to the principal amount of an ELN plus accrued interest at the Base Coupon Rate. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS WHO CONSIDER PURCHASING THE ELNs SHOULD BE EXPERIENCED WITH RESPECT TO OPTIONS AND OPTION TRANSACTIONS AND INDEX OPTIONS AND REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING, WITH THEIR ADVISORS, THE SUITABILITY OF AN INVESTMENT IN THE ELNs IN THE LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. S&P 500 COMPOSITE STOCK PRICE INDEX 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. General 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 above) of the common stocks of 500 companies 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. As of December 31, 1993, the 500 companies included in the S&P 500 Index represented approximately 74% of the aggregate Market Value of common stocks traded on the NYSE; however, 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. 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. As of December 31, 1993, the 500 companies included in the S&P 500 Index were divided into 88 industry groups. These individual groups comprised the following four main groups of companies (with the number of companies in each group indicated in parentheses): Industrials (381), Utilities (47), Financials (56) and Transportation (16). 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. Computation of the S&P 500 Index 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"). The Market Value of a company is determined by multiplying the price of such company's common stock by the number of common shares outstanding. 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 500 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 market value of the Index require an Index Divisor adjustment. By adjusting the Index Divisor for the change in 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 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. Type of Corporate Divisor Action Adjustment Factor Adjustment - ----------------- --------------------- Required ----------- Stock split Shares Outstanding multiplied by 2; No (i.e. 2x1) Stock Price divided by 2 Share issuance Shares Outstanding plus newly issued Shares Yes (i.e. Change > 5%) Share repurchase Shares Outstanding minus Repurchased Shares Yes (i.e. Change > 5%) Special cash dividends Shares Price minus Special Dividend Yes Company change Add new company Market Value minus old Yes company Market Value Rights offering Price of parent company minus Yes Price of Rights ___________________ Right Ratio Spinoffs Price of Parent company minus Yes 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: 1) Post-Event Aggregate Market Value = Pre-Event Index Value _________________________________ New Divisor 2) New Divisor = Post-Event Aggregate Market Value _________________________________ Pre-Event Index Value A large part of the S&P 500 Index Maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P 500 Index companies. Four times a year, on a Friday close to the end of each calendar quarter, the share totals of such 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 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. Historical Data on the S&P 500 Index The following table sets forth the high, low and closing values of the S&P 500 Index for each quarter in the period from January 1, 1990 through August 29, 1995, as published by S&P. The recent historical experience of the S&P 500 Index should not be taken as an indication of future performance, and no assurance can be given that the value of the S&P Index will not decrease and thereby reduce or eliminate the Interest Payment which may be payable to Holders of the ELNs at maturity or otherwise. Last Daily Values ____________________________________ Closing High Low Value 1990 ______ ______ ______ 1st Quarter......... 359.69 322.98 339.94 2nd Quarter......... 367.40 329.11 358.02 3rd Quarter......... 368.95 300.97 306.05 4th Quarter......... 331.75 295.46 330.22 1991 1st Quarter......... 376.72 311.49 375.22 2nd Quarter......... 390.45 368.57 371.16 3rd Quarter......... 396.64 373.33 387.86 4th Quarter......... 417.09 375.22 417.09 1992 1st Quarter......... 420.77 403.00 403.69 2nd Quarter......... 418.49 394.50 408.14 3rd Quarter......... 425.27 409.16 417.80 4th Quarter......... 441.28 402.66 435.71 1993 1st Quarter......... 456.34 429.05 451.67 2nd Quarter......... 453.85 433.54 450.53 3rd Quarter......... 463.56 441.43 458.93 4th Quarter......... 470.94 457.48 466.45 1994 1st Quarter......... 482.00 445.55 445.76 2nd Quarter......... 462.37 438.92 444.27 3rd Quarter......... 476.07 446.13 462.71 4th Quarter......... 473.77 445.45 459.27 1995 1st Quarter......... 503.90 459.11 500.71 2nd Quarter......... 551.07 501.85 544.75 3rd Quarter (through August 29, 1995)... 565.22 547.09 560.00 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 ELNs. The license agreement between S&P and MS & Co. provides that the following language must be set forth in this Pricing Supplement: The ELNs 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 ELNs or any member of the public regarding the advisability of investing in securities generally or in the ELNs 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 ELNs. S&P has no obligation to take the needs of the Company or the Holders of the ELNs 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 ELNs to be issued or in the determination or calculation of the equation by which the ELNs are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the ELNs. 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 ELNs, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. "Standard & Poor's[Registered]", "S&P[Registered]", "S&P 500[Registered]", "Standard & Poor's 500", and "500" are trademarks of McGraw-Hill, Inc. and have been licensed for use by MS & Co.. United States Federal Taxation The following discussion supplements the "United States Federal Taxation" section in the accompanying Prospectus Supplement and should be read in conjunction therewith. Any limitations on disclosure and any defined terms contained therein are equally applicable to the summary below. The Notes will be treated as debt for United States federal income tax purposes. Coupon interest on the Notes will be taxable to a United States Holder as ordinary interest income at the time it accrues or is received in accordance with the United States Holder's method of accounting for United States income tax purposes. Although proposed Treasury regulations addressing the treatment of contingent debt instruments were issued on December 15, 1994, such regulations, which generally would require current accrual of contingent amounts and would affect the character of gain on the sale, exchange or retirement of a Note, by their terms apply only to debt instruments issued on or after the 60th day after the regulations are finalized. Under general United States federal income tax principles, upon maturity of the Notes, a United States Holder will recognize gain, if any, equal to the difference between the amount realized at maturity and such Holder's tax basis in the Notes. It is unclear under existing law whether gain recognized at maturity will be treated as ordinary or capital in character. Subject to further guidance from the Internal Revenue Service, however, the Company intends to treat such gain as interest income and to report such amounts accordingly. Prospective investors should consult with their tax advisors regarding the character of gain recognized at maturity. United States Holders that have acquired debt instruments similar to the Notes and have accounted for such debt instruments under proposed, but subsequently withdrawn, Treasury regulation Section 1.1275-4(g) may be deemed to have established a method of accounting that must be followed with respect to the Notes, unless consent of the Commissioner of the Internal Revenue Service is obtained to change such method. Absent such consent, such a Holder would be required to account for the Notes in the manner prescribed in proposed, but subsequently withdrawn, Treasury regulation Section 1.1275-4(g). The Internal Revenue Service, however, would not be required to accept such method as correct. Any gain or loss recognized on the sale or exchange of a Note prior to maturity will be treated as capital in character. There can be no assurance that the ultimate tax treatment of the Notes would not differ significantly from the description herein. Prospective investors are urged to consult their tax advisors as to the possible consequences of holding the Notes. See also "United States Federal Taxation" in the accompanying Prospectus Supplement. -----END PRIVACY-ENHANCED MESSAGE-----