-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V+1/OLvJHQjDu9ruA7wDraSmfJEbaEUTvsui68X/Xe1WLFWzuZZJFO8jL1RtCkhJ GkJA4VLGzsjgfqToyPK2Fg== 0000950103-96-001138.txt : 19961024 0000950103-96-001138.hdr.sgml : 19961024 ACCESSION NUMBER: 0000950103-96-001138 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19961023 SROS: NYSE 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: 333-01655 FILM NUMBER: 96646662 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 424B3 1 PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 41 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655 Dated May 2, 1996 Dated October 16, 1996 Rule 424(b)(3) $10,220,000 Morgan Stanley Group Inc. MEDIUM-TERM NOTES, SERIES D MSCI ALL-COUNTRY FAR EAST FREE EX JAPAN INDEX NOTES DUE 2001 The MSCI All-Country Far East Free ex Japan Index Notes due 2001 (the "Notes") are Medium-Term Notes, Series D of Morgan Stanley Group Inc. (the "Company"), as further described herein and in the Prospectus Supplement under "Description of Notes--Fixed Rate Notes" and "--Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices." The Notes are being issued in minimum denominations of $10,000 and will mature on October 25, 2001 (the "Maturity Date"). The Notes will bear interest at the rate of 0.25% per annum payable on October 25 of each year (each an "Interest Payment Date"), commencing October 25, 1997. The Notes will not be redeemable by the Company in whole or in part prior to the Maturity Date other than under the circumstances described under "Description of Notes--Tax Redemption" in the accompanying Prospectus Supplement. The Notes will be issued only in bearer form, which form is further described under "Description of Notes--Forms, Denominations, Exchange and Transfer" in the accompanying Prospectus Supplement. Notes in bearer form will not be exchangeable at any time for Notes in registered form. At maturity, the holder of a Note will receive the par amount of such Note ("Par") plus accrued interest plus an amount (the "Supplemental Redemption Amount") based on the percentage increase, if any, in the Final Index Value (as defined herein) of the MSCI All-Country Far East Free ex Japan Index (the "MSCI AC Far East Free ex Japan Index" or the "Index") over the Initial Index Value (as defined herein), as further described in this Pricing Supplement. The Index is calculated in U.S. dollars without dividend reinvestment and is published by Morgan Stanley Capital International ("MSCI"), a unit of Morgan Stanley & Co. Incorporated, a subsidiary of the Company. MSCI([Registered]) is a registered trademark and service mark of the Company. See "MSCI AC Far East Free ex Japan Index--Affiliation of MSCI and the Company" in this Pricing Supplement. The Supplemental Redemption Amount, if any, payable with respect to each Note at maturity will equal the product of (i) the par amount of such Note and (ii) a fraction, the numerator of which will be the Final Index Value less the Initial Index Value and the denominator of which will be the Initial Index Value. The Supplemental Redemption Amount cannot be less than zero. The Initial Index Value has been set to equal 395.158. The Final Index Value will equal the closing value of the Index on October 16, 2001, (the "Determination Date"), except as described herein. See "Determination Date" and "Market Disruption Event" in this Pricing Supplement. If the Final Index Value is equal to or less than the Initial Index Value, the holder of a Note will be repaid the par amount of such Note plus accrued interest, but will not receive any Supplemental Redemption Amount. For information as to the calculation of the Supplemental Redemption Amount and certain tax consequences to beneficial owners of the Notes, see "Supplemental Redemption Amount," "Final Index Value," "Determination Date" and "United States Federal Taxation" in this Pricing Supplement. The Company will cause the "Supplemental Redemption Amount" to be determined by Morgan Stanley & Co. Incorporated ("MS & Co."), as Calculation Agent, for The Chase Manhattan Bank, as Trustee under the Senior Debt Indenture. The Global Medium-Term Notes, Series D of the Company, including the Notes, have been listed on the London Stock Exchange Limited (the "London Stock Exchange"). An investment in the Notes entails risks not associated with similar investments in a conventional debt security, including, without limitation, risks related to the affiliation of MSCI, MS & Co. and the Company, as described under "Risk Factors" on PS-5 through PS-8 herein. --------------- PRICE 100% --------------- Price to Public Agent's Commissions(1) Proceeds to Company --------------- ---------------------- ------------------- Per Note. 100.00% 2.00% 98.00% Total.... $10,220,000 $204,400 $10,015,600 - ------------ (1) The Company has agreed to indemnify the Agent against certain liabilities, including liabilities under the Securities Act of 1933 (USA). MORGAN STANLEY & CO. International Capitalized terms not defined herein have the meanings given to such terms in the accompanying Prospectus Supplement. Principal Amount.............. $10,220,000 Maturity Date................. October 25, 2001 Interest Rate ................ 0.25% Interest Payment Dates........ Each October 25, commencing October 25, 1997 Specified Currency............ U.S. Dollars Issue Price................... 100% Settlement Date (Original Issue Date)................... November 13, 1996 Common Code................... 7065345 ISIN.......................... XS0070653455 Book Entry Note or Certificated Note............. Book Entry Senior Note or Subordinated Note.......................... Senior Minimum Denominations......... $10,000 Trustee....................... The Chase Manhattan Bank Maturity Redemption Amount ... At maturity (including as a result of acceleration or otherwise), the holder of a Note will receive the par amount of such Note ("Par") plus accrued interest plus the Supplemental Redemption Amount, if any. Supplemental Redemption Amount ....................... The Supplemental Redemption Amount, if any, payable with respect to each Note at maturity will equal the product of (i) the par amount of such Note and (ii) a fraction, the numerator of which will be the Final Index Value less the Initial Index Value and the denominator of which will be the Initial Index Value. The Supplemental Redemption Amount will not be less than zero. The Supplemental Redemption Amount is described by the following formula: Par x (Final Index Value - Initial Index Value) ----------------------------------------- Initial Index Value The Company will cause MS & Co., as 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. All percentages resulting from any calculation with respect to the Notes will be rounded to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent with one-half cent being rounded upwards. Initial Index Value........... The Initial Index Value is 395.158. Final Index Value............. The Final Index Value will be the Index Closing Value (as defined below) on the Determination Date, as determined by MS & Co., as Calculation Agent. Index Closing Value .......... The Index Closing Value will equal the afternoon London closing value of the Index or any Successor Index (as defined below) at the regular official weekday time of publication on the Determination Date. See "MSCI AC Far East Free ex Japan Index--Index Calculation" and "--Affiliation of MSCI and the Company" and "Discontinuance of the MSCI AC Far East Free ex Japan Index; Alteration of Method of Calculation." References herein to the Index will be deemed to include any Successor Index, unless the context requires otherwise. Index Valuation Day........... Any day other than a Saturday or Sunday. Determination Date............ The Determination Date will be October 16, 2001; provided that if a Market Disruption Event occurs on such date, the Determination Date will be the immediately succeeding Index Valuation Day during which no Market Disruption Event shall have occurred; provided further that if a Market Disruption Event has occurred on each of the five Index Valuation Days immediately succeeding October 16, 2001, then (i) such fifth succeeding Index Valuation Day will be deemed to be the Determination Date, notwithstanding the occurrence of a Market Disruption Event on such day and (ii) with respect to any such fifth Index Valuation Day on which a Market Disruption Event occurs, MS & Co., as Calculation Agent, will determine the value of the Index on such fifth Index Valuation Day in accordance with the formula for and method of calculating the Index last in effect prior to the commencement of the Market Disruption Event, using the closing price (or, if trading in the relevant security 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 Valuation Day of each security most recently comprising the Index. Market Disruption Event....... "Market Disruption Event" means, with respect to the Index: (i) a suspension, absence or material limitation of trading of 20% or more of the securities in any component national index included in the 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 Index or any component national index included therein during the one-half hour period preceding the close of trading in the applicable market, in each case as determined by MS & Co., as Calculation Agent, in its sole discretion; and (ii) a determination by MS & Co., as 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 on trading during significant market fluctuations of the kind exemplified in the United States by New York Stock Exchange Rule 80A, as determined by MS & Co., as Calculation Agent, will constitute a suspension, absence or material limitation of trading for purposes of clause (i) above, (4) a suspension of trading in a futures or options contract on the Index or any component national index included therein by the primary securities market trading such contract by reason of (x) a price change exceeding limits set by such 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 futures or options contracts related to the Index or such component national index and (5) a suspension, absence or material limitation of trading on the primary market on which futures or options contracts related to the Index or any component national index included therein are traded will not include any time when such market is itself closed for trading under ordinary circumstances. Calculation Agent............. Morgan Stanley & Co. Incorporated All determinations made by MS & Co., as Calculation Agent, shall be at the sole discretion of MS & Co. and shall, in the absence of manifest error, be conclusive for all purposes and binding on the Company and holders of the Notes. Because MS & Co. is an affiliate of the Company, potential conflicts of interest may exist between MS & Co., as Calculation Agent, and the holders of the Notes, including with respect to certain determinations and judgments that MS & Co., as Calculation Agent, must make in determining the Final Index Value or whether a Market Disruption Event has occurred. See "Discontinuance of the MSCI AC Far East Free ex Japan Index; Alteration of Method of Calculation" below and "Market Disruption Event" above. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. Furthermore, MSCI is a unit of MS & Co. Because MS & Co. is an affiliate of the Company, potential conflicts of interest may also exist between MSCI and holders of the Notes. See "MSCI AC Far East Free ex Japan Index--Affiliation of MSCI and the Company." Risk Factors.................. An investment in the Notes entails significant risks not associated with similar investments in a conventional security, including the following. Comparison to Other Debt Securities If the Final Index Value of the Index does not exceed the Initial Index Value, the holders of the Notes will receive only the par amount of each Note plus accrued interest at maturity. Because the Final Index Value will be based upon the closing value of the Index on a specified day (the Determination Date), a significant increase in the Index subsequent to issuance may be substantially or entirely offset by subsequent decreases in the value of the Index on or prior to the Determination 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 a conventional fixed-rate debt security having the same maturity date as the Notes and issued by the Company on the Original Issue Date. The return of only the par amount of a Note plus accrued interest at maturity is not likely to 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 Index based on the Final Index Value over the Initial Index Value does not reflect the payment of dividends on the stocks underlying the Index. Therefore, the yield to maturity based on the Final Index Value relative to the Initial Index Value will not be the same yield as would be produced if such underlying stocks were purchased and held for a similar period. Possible Illiquidity of the Secondary Market There can be no assurance as to how the Notes will trade in the secondary market or whether such market will 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 Index, dividend rates on the stocks underlying the Index, the time remaining to the Determination Date and to the maturity of the Notes and market interest rates. In addition, the Final Index Value depends on a number of interrelated factors, including economic, financial and political events, over which the Company has no control. The value of the Notes prior to maturity is expected to depend primarily on market interest rates and the extent of the appreciation, if any, of the Final Index Value over the Initial Index Value. If, however, the Notes are sold prior to maturity at a time when the Index exceeds the Initial Index Value, the sale price may be at a discount from the amount expected to be payable to the holder if such excess were to prevail on the Determination Date. The price at which a holder will be able to sell the Notes prior to maturity may be at a discount, which could be substantial, from the par amount thereof, if, at such time, the Index or the Final Index Value, if determined, is below, equal to or not sufficiently above the Initial Index Value. Relationship of the Notes and the MSCI AC Far East Free ex Japan Index The historical Index values should not be taken as an indication of the future performance of the Index during the term of the Notes. It is impossible to predict whether the value of the Index will rise or fall. Trading prices of the stocks underlying the 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. In addition, the national component indices comprising the Index have been adjusted in the past and are subject to further adjustment during the term of the Notes. Social, Political and Economic Conditions The component countries included in the Index currently or in the future may be subject to a greater degree of social, political and economic instability than is the case in the United States and Western European countries. Such instability may result from (i) authoritarian governments or military involvement in political and economic decision-making; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious, and racial disaffection. The economies of these Far Eastern countries continue to depend heavily upon international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally the United States, Japan, China and the European Community. The enactment by the United States or other principal trading partners of projectionist trade legislation, reduction of foreign investment in the local economies, and general declines in the international securities markets could have a significant adverse effect upon the economies and securities markets of these Far Eastern countries. Exchange Rate Exposure Because the prices of the component stocks in each component national index are converted into U.S. Dollars for purposes of calculating the value of the component national indices and the Index, holders of the Notes will be exposed to currency exchange rate risk with respect to each of the currencies represented in the Index. Currently, some of the currencies represented in the Index are tied to the U.S. Dollar; the degree of currency exposure that holders of the Notes experience may increase if any of such currencies are no longer tied to the U.S. Dollar. A holder's net exposure will depend on the extent to which the currencies of the component national indices strengthen or weaken against the U.S. Dollar and the relative weight of each component national index in the Index. If, taking into account such weighting, the dollar strengthens against the component currencies, the value of the Index will be adversely affected so that the Supplemental Redemption Amount may be reduced or eliminated. See "MSCI AC Far East Free ex Japan Index--Foreign Exchange Rates" and "Historical Information on Exchange Rates" below. Affiliation of MSCI, MS & Co., as Calculation Agent, and the Company. In 1986, MS & Co. acquired the rights to the indices and data bases developed by Capital International Perspective, S.A. ("CIPSA"), a corporation organized under Swiss law and based in Geneva, that became the basis of the Index and other MSCI([Registered]) indices. MSCI([Registered]) is a registered trademark and service mark of the Company. MSCI is also a unit of MS & Co. MSCI and, ultimately, the Company are responsible for the Index and the guidelines and policies governing its composition and calculation. Currently, MSCI has retained CIPSA to maintain the Index and make decisions regarding the calculation of the Index, including constituent additions and deletions, adjustments to the component stocks and other methodological modifications to the Index. Nevertheless, there can be no assurance that MSCI will continue to contract out such maintenance work to CIPSA in the future. The policies and judgments for which MSCI is responsible concerning additions, deletions, substitutions and weightings of the component national indices comprising the Index and of the stocks underlying those component national indices and the manner in which certain changes affecting such underlying stocks are taken into account may affect the value of the Index. Furthermore, the policies and judgments for which MSCI is responsible with respect to the calculation of the Index, including, without limitation, the selection of the foreign exchange rates used for the purpose of establishing the daily prices of the stocks underlying the component national indices, could also affect the level of the Index. It is also possible that MSCI may discontinue or suspend calculation or dissemination of the Index and that, consequently, MS & Co., as Calculation Agent, also an affiliate of the Company, would have to select a successor or substitute index, or itself calculate an index value, from which to calculate the Final Index Value and the Supplemental Redemption Amount, if any. Any such actions or judgments could adversely affect the value of the Notes. See "MSCI AC Far East Free ex Japan Index--The MSCI AC Far East Free ex Japan Index as a 'Free' Index," "--Foreign Exchange Rates" and "--Affiliation of MSCI and the Company" and "Discontinuance of the MSCI AC Far East Free ex Japan Index; Alteration of Method of Calculation" below. Because MS & Co. is an affiliate of the Company, potential conflicts of interest may exist between MS & Co., as Calculation Agent, and the holders of the Notes, including with respect to certain determinations and judgments that MS & Co. must make in determining the Final Index Value or whether a Market Disruption Event has occurred. See "Discontinuance of the MSCI AC Far East Free ex Japan Index; Alteration of Method of Calculation" below and "Market Disruption Event" above. MS & Co., as a registered broker-dealer, and MSCI, as a unit of MS & Co., are 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 Index and the Final Index Value prior to the dissemination of such information. MS & Co. and MSCI, as a unit of MS & Co., are obligated to carry out their duties and functions as Calculation Agent and publisher of the Index, respectively, in good faith and using their reasonable judgment. Bankruptcy and Tax Matters If a bankruptcy proceeding is commenced in respect of the Company, the claim of a holder of a Note may, under Section 502(b)(2) of Title 11 of the United States Code, be limited to the par amount of such Note. 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. MSCI AC Far East Free ex Japan Index................... Composition of the Index The Index, with a base date of January 1, 1988, is a stock index currently calculated for MSCI by CIPSA and published and disseminated daily by MSCI, a unit of MS & Co., on Bloomberg Financial Markets and Reuters Limited. See "--Affiliation of MSCI and the Company" below. The Index is intended to provide a performance benchmark for the combined developed and emerging equity markets in the Far East excluding Japan. The Index is a weighted averaging of the U.S. dollar values of national indices compiled for each of the markets currently in the Index. See "--Maintenance of the MSCI AC Far East Free ex Japan Index as a Regional Index" below. The weightings of the component national indices are based on the relative market capitalizations of such indices (without dividend reinvestment) and are readjusted on every Index Valuation Day. The weightings as of October 11, 1996 are set forth below. Weight in MSCI AC Far Component Number of East Free ex National Index Securities Japan Index -------------- ---------- ------------ CHINA FREE 26 0.61% HONG KONG 38 29.14% INDONESIA 39 6.56% KOREA @50% 116 7.37% MALAYSIA 76 20.40% PHILIPPINES FREE 30 4.15% SINGAPORE FREE 38 13.39% TAIWAN @50% 77 11.25% THAILAND 76 7.14% --- --------- 516 100.01%(1) -------------- (1) Deviation from 100% due to rounding. Each component national index of the Index is designed to reflect the performance of a national market by capturing approximately 60% of the market capitalization of each industry group within that market. A uniform methodology is applied to calculate and adjust each component national index. The designation "Free" indicates that the Index tracks investments generally available to non-domestic investors in each market. Some of the markets in the Index significantly limit investments by foreigners in various ways. See "The MSCI AC Far East Free ex Japan Index as a 'Free' Index" below. The Component National Indices The selection of the stocks represented in the component national indices comprising the Index is based on the following guidelines: (i) Define the "Market" (ii) Capture approximately 60% of the market capitalization of the country across all industry groups (iii) Select the most liquid securities within each industry (iv) Select stocks with sufficient public float (v) Avoid cross-ownership (vi) Apply full market capitalization weights These overall guidelines have governed the compilation of the Index since its inception. However, the policies set forth below implementing the guidelines and the guidelines themselves are the responsibility of, and, ultimately, subject to adjustment by, MSCI. (i) The initial research for each component national index includes tracking both listed and unlisted shares of domestically listed companies domiciled in Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand and of companies domiciled in China whose shares are available only to foreign investors and determining the total market capitalization for each country. (ii) Once the total market capitalization for each country is analyzed, approximately 60% of the capitalization of each industry group and thus 60% of the entire market is targeted for each component national index. In this way each component national index reflects the industry characteristics of the overall market and permits the construction of comparable national indices. With the uniform application of a 60% coverage target in each country market, each country carries its proportional weight in the Index. Securities are selected to represent an industry based on size and the portion of earnings and revenues attributable to that industry group. Within an industry, the goal of the Index is to represent the diversity of business segments to the extent possible. In some instances, an industry representation may exceed the 60% target because one or two large companies dominate an industry. Similarly, an industry may fall below the 60% target because its companies lack good liquidity and float, or because of extensive cross-ownership. (iii) When constructing each MSCI([Registered]) component national index, the most liquid stocks within each industry group are selected, all other things being equal. Liquidity is monitored by tracking monthly average trading value over time in order to determine normal levels of volume, excluding temporary peaks and troughs. A stock's liquidity is accessed not only in absolute terms, but also relative to its market capitalization and to average liquidity for the country as a whole. Liquidity is not used as an absolute measure to select constituents because (a) an absolute minimum level of liquidity would be arbitrary and would have different meanings in different markets and (b) liquidity is partly a function of the cyclicality of markets and industries. (iv) Float is monitored for every security in each country market, and low float (a small percentage of shares freely tradeable) may exclude a stock from consideration in any of the component national indices comprising the Index. However, sufficient float is an important consideration, not an inflexible rule. A stock with lower float may be included in a component national index because the company has an important role in the local economy, high visibility or broad impact on financial markets or because a stock with limited float may still be actively traded. (v) Cross-ownership occurs when one company has a significant ownership in another company in the same country. In situations where cross-ownership is substantial, it can skew industry weights, distort country-level valuations and overstate a country's true market size. The Index seeks to identify cross-ownerships in order to avoid or minimize them. (vi) Generally, each component national index comprising the Index weights each company by its full market capitalization (both listed and unlisted shares). However, as of March 1996, the policies currently governing the Index were amended to allow weighing at less than full market capitalization where very sizeable companies have been, or are expected to be, brought to market with modest initial tranches being made publicly available. Currently, Singapore Telecommunications Limited, weighted at 40% of its full market capitalization, is the only company included in the Index pursuant to this amendment. The MSCI AC Far East Free ex Japan Index as a "Free" Index In order to address the issue of restrictions on foreign ownership, the Index is calculated to exclude companies and share classes that may not be purchased by foreigners and to take into account, in some instances, the differences between the prices paid by foreign and domestic investors. Foreign ownership restrictions include such things as (a) foreign ownership limits across all securities in that market; (b) foreign ownership limits on specific stocks or classes of shares; (c) restrictions on an investor's ability to withdraw funds; and (d) investor qualification requirements. In the case of the Philippines and Singapore, CIPSA currently calculates both a "Free" and "non-Free" MSCI([Registered]) index. For China, only a "Free" index is currently calculated. These "Free" indices are included in the Index. The "Free" indices may have higher or lower aggregate market capitalization than an index that includes securities available to both foreign and domestic investors. For example, currently the market capitalization of the Philippines "Free" Index is based exclusively on securities available to foreign investors and therefore has a lower market capitalization than the "non-Free" Philippines index. The Singapore "Free" index, on the other hand, has a higher market capitalization than its "non-Free" counterpart, due to the different nature of the restrictions on foreign ownership. In Singapore, foreign ownership is currently limited in the case of certain securities to a certain percentage of total capitalization. When foreign ownership reaches the permitted level, the available foreign shares trade separately, typically at a premium. The Singapore "Free" Index, unlike its "non-Free" counterpart, uses the "foreign" price, rather than the domestic market price, to determine aggregate market capitalization. Because restrictions in Korea and Taiwan are generally tighter for the securities of all companies than in other markets in the Index, companies domiciled in those countries are weighted at 50% of their total market capitalization in the Index, but there is currently no separate "Free" index for those countries. As restrictions on foreign investment change and the markets included in the Index develop, additional "Free" indices may be included in the Index, either by substitution or addition. On October 15, 1996, CIPSA announced that additional "Free" indices would be calculated for Malaysia, Thailand and Indonesia commencing during the first quarter of 1997. The substitution of these new "Free" indices into the Index will not be immediate and will be announced at least two months prior to their inclusion. At the time of any such substitution or addition, the method of calculating particular "Free" indices may have to be adjusted. Any such change may alter the relative Index weightings accorded to the national component indices and increase the volatility of the particular national component index affected by the change. See "Maintenance of the MSCI AC Far East Free ex Japan Index as a Regional Index" below. Index Calculation The Index is calculated daily using the Laspeyres' concept of a weighted arithmetic average together with the concept of "chain-linking," a classical method of calculating stock market indices. Under this method of calculation, the value of the Index on each Index Valuation Day will equal the product of (i) the value of the Index on the immediately preceding Index Valuation Day and (ii) a fraction, the numerator of which will be the full market capitalization of the Index on the relevant Index Valuation Day and the denominator of which will be the full market capitalization of the Index on the immediately preceding Index Valuation Day. Share prices used to calculate full market capitalization are "swept clean" daily and adjusted for any rights issues, stock dividends, splits or other such corporate actions. Prices used to calculate the component national indices comprising the Index are the official exchange closing prices or prices accepted as such. In general, all prices are taken from the main stock exchange in each market except for companies where the trading volume is more significant on the secondary exchange. In countries where there are foreign ownership limits (Indonesia, Korea, Malaysia, Taiwan and Thailand), the price quoted on the official exchange is used in the Index regardless of whether the limit has been reached (subject to the recently announced development of additional "Free" indices for Indonesia, Malaysia and Thailand) so that in practice foreign investors might have to pay a premium for such shares over the official exchange price. Once prices for the securities comprising each component national index are determined, CIPSA, under its contractual arrangement with MSCI, determines the foreign exchange rates to be used to convert the prices into U.S. Dollars. See "--Foreign Exchange Rates" below. CIPSA then assigns a specific weight to each security based on its market capitalization. Foreign Exchange Rates To calculate the value of the Index, the share prices underlying each component national index are converted into U.S. Dollars. The WM /Reuters Closing Spot Rates currently used for such conversions were established by a committee of investment managers and data providers, including MSCI, whose object was to standardize exchange rates used by the investment community. Exchange rates used for the conversion of the component stocks are currently taken daily in the afternoon London time by the WM Company and are sourced whenever possible from multi-contributor quotes on Reuters. Representative rates are selected by CIPSA, under its contractual arrangement with MSCI, for each currency based on a number of "snapshots" of the latest contributed quotations taken from the Reuters service at short intervals around an appointed time in the afternoon. WM/Reuters publishes closing bid and offer rates. These rates are used to calculate the mid-point exchange rate. Other sources of exchange rates may be used for purposes of such conversions in the future. Exchange rates are monitored independently and, under exceptional circumstances (such as a significant devaluation of a currency after the daily posting of the WM/Reuters Closing Spot Rates (or the rates of any successor source) but prior to the close of the relevant market) an alternative exchange rate may be used if the WM/Reuters rate (or the rate of any successor source) is believed to be unrepresentative for a given currency on a particular day. See "--Affiliation of MSCI and the Company" and "Historical Information on Foreign Exchange Rates" below. Maintenance of the MSCI AC Far East Free ex Japan Index as a Regional Index The objective of the Index is to represent the investment opportunities available to foreign equity investors in the Far East region excluding Japan as those opportunities evolve over time. MSCI causes CIPSA to monitor evolving markets to assess the level of investment by non-domestic investors and the degree of government regulation of such foreign investment. In order to maintain the representativeness of the Index as a regional index, structural changes to the Index as a whole may be made on the basis of such monitoring by adding or deleting national component indices from the Index, by substituting "Free" indices for "non-Free" indices or by increasing or decreasing the weight given to the aggregate market capitalization of a national component index. Currently, such changes in the Index may only be made on four dates throughout the year: the last Index Valuation Day of February, May, August and November. At the base date of the Index, only five component national indices comprised the Index. Indonesia was added in September 1989 and Korea, at 20% of its aggregate market capitalization, in July 1992, as these markets opened and liberalized their restrictions on foreign equity investments. In September 1996, the Index was enlarged by the addition of the China Free index, the Taiwan index (at 50% of its aggregate market capitalization) and by the increased weight accorded Korea's aggregate market capitalization, which was raised from 20% to 50%. Additional component national indices may be added to the Index prior to the maturity of the Notes. Any such adjustments are made to the Index so that the value of the Index at the effective date of such change is the same as it was immediately prior to such change. See "--The MSCI AC Far East Free ex Japan Index as a 'Free' Index" above. Maintenance of the National Component Indices To achieve the six objectives stated above under "--The Component National Indices," CIPSA, under its contractual arrangement with MSCI, may from time to time, in its sole discretion, add companies to, or delete companies from, the component national indices comprising the Index. There are two broad categories of changes to the component national indices comprising the Index. The first consists of market-driven changes such as mergers, acquisitions, bankruptcies, etc. These are announced and implemented as they occur. The second category consists of structural changes to reflect the evolution of a market, for example due to changes in industry composition or regulations within any country represented in the Index. Currently, structural changes in the component national indices comprising the Index may only be made on four dates throughout the year: the last Index Valuation Day of February, May, August and November. Additions. Restructuring any component national index involves a balancing of additions and deletions. To maintain continuity and minimize turnover, MSCI is reluctant to have index constituents deleted, and its approach to additions is correspondingly stringent. As markets grow because of privatizations, investor interest, or the relaxation of regulations, index additions (with or without corresponding deletions) may be needed to bring industry representations up to the 60% target. Companies are considered not only with respect to their broad industry, but also with respect to their sub-sector, in order to achieve, if possible, a broader coverage of economic activity. Beyond industry representativeness, new constituents are selected based on the criteria discussed above, i.e., float, liquidity, cross-ownership, etc. New Issues. In general, new issues are not eligible for immediate inclusion in the component national indices comprising the Index because their liquidity remains unproven. Usually, new issues undergo a "seasoning" period of one year to eighteen months between index restructurings until a trading pattern and volume are established. After that time, they are eligible for inclusion, subject to the criteria discussed above (industry representation, float, cross-ownership, etc.). In the emerging markets, however, it is not uncommon that a large new issue, usually a privatization, comes to market and substantially changes the country's industry profile. In exceptional circumstances, where the issue's size, visibility and investor interest assure high liquidity, and where excluding it would distort the characteristics of the market, CIPSA, under its contractual arrangement with MSCI, may decide to include it immediately in an index. Deletions. The primary principle governing deletions is the continuity of the Index. Of secondary concern are the turnover costs associated with deletions. The Index must represent the full investment cycle, including bear as well as bull markets. Out-of-favor stocks may exhibit declining price, market capitalization or liquidity, and yet continue to be good representatives of their industry. Companies may be deleted because they have diversified away from their industry classification, because the industry has evolved in a different direction from the company's thrust, or because a better industry representative exists (either a new issue or an existing company). In addition, in order not to exceed the 60% target coverage of industries and countries, adding new Index companies may entail corresponding deletions. Usually such deletions take place within the same industry, but there are occasional exceptions. Adjustments of the underlying stocks in the national component indices are made so that the value of the affected component national index at the effective date of such change is the same as it was immediately prior to such change. Index maintenance also includes monitoring and completing the adjustments for share changes, stock splits, stock dividends, and stock price adjustments due to company restructurings or spinoffs. A large part of Index maintenance involves tracking the changes in the number of shares outstanding of each of the securities comprising each component national index. In some cases where a company has multiple classes of shares, only one (or a few) of which are liquid, market capitalization is determined for purposes of the Index by an assimilation process that applies the share price of the most liquid class of shares to the total number outstanding for all classes. Assimilation is designed to reflect accurately the approximate weight of companies in each country. Affiliation of MSCI and the Company In 1986, MS & Co. acquired the rights to the indices and data bases developed by Capital International Perspective, S.A. ("CIPSA"), a corporation organized under Swiss law and based in Geneva, that became the basis of the Index and other MSCI([Registered]) indices. MSCI([Registered]) is a registered trademark and service mark of the Company. MSCI is also a unit of MS & Co. MSCI and, ultimately, the Company are responsible for the Index and the guidelines and policies governing its composition and calculation. Currently, MSCI has retained CIPSA to maintain the Index and make decisions regarding the calculation of the Index, including constituent additions and deletions, adjustments to the component stocks and other methodological modifications to the Index. Nevertheless, there can be no assurance that MSCI will continue to contract out such maintenance work to CIPSA in the future. BECAUSE MSCI IS A UNIT OF MS & CO., A SUBSIDIARY OF THE COMPANY, POTENTIAL CONFLICTS OF INTEREST MAY EXIST BETWEEN MSCI AND THE HOLDERS OF THE NOTES, INCLUDING WITH RESPECT TO CERTAIN DETERMINATIONS AND JUDGMENTS MADE IN DETERMINING THE INDEX. THE POLICIES AND JUDGMENTS FOR WHICH MSCI IS RESPONSIBLE CONCERNING ADDITIONS, DELETIONS AND SUBSTITUTIONS OF THE COMPONENT NATIONAL INDICES COMPRISING THE INDEX AND OF THE STOCKS UNDERLYING THOSE COMPONENT NATIONAL INDICES AND THE MANNER IN WHICH CERTAIN CHANGES AFFECTING SUCH UNDERLYING STOCKS ARE TAKEN INTO ACCOUNT MAY AFFECT THE VALUE OF THE INDEX. FURTHERMORE, THE POLICIES AND JUDGMENTS FOR WHICH MSCI IS RESPONSIBLE WITH RESPECT TO THE CALCULATION OF THE INDEX, INCLUDING, WITHOUT LIMITATION, THE SELECTION OF THE FOREIGN EXCHANGE RATES USED FOR THE PURPOSE OF ESTABLISHING THE DAILY PRICES OF THE STOCKS UNDERLYING THE COMPONENT NATIONAL INDICES, COULD ALSO AFFECT THE LEVEL OF THE INDEX. IT IS ALSO POSSIBLE THAT MSCI MAY DISCONTINUE OR SUSPEND CALCULATION OR DISSEMINATION OF THE INDEX AND THAT, CONSEQUENTLY, MS & CO., AS CALCULATION AGENT, ALSO AN AFFILIATE OF THE COMPANY, WOULD HAVE TO SELECT A SUCCESSOR OR SUBSTITUTE INDEX, OR ITSELF CALCULATE AN INDEX VALUE, FROM WHICH TO CALCULATE THE FINAL INDEX VALUE AND THE SUPPLEMENTAL REDEMPTION AMOUNT, IF ANY. ANY SUCH ACTIONS OR JUDGMENTS COULD ADVERSELY AFFECT THE VALUE OF THE NOTES. MSCI, as a unit of MS & Co., 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 Index prior to its dissemination. MSCI is obligated to carry out its duties and functions in connection with its determination of the Index in good faith and using its reasonable judgment. Hypothetical Supplemental Redemption Amount............. The following table illustrates, for a range of hypothetical Final Index Values, the Supplemental Redemption Amount for each $10,000 par amount of Notes based on the Initial Index Value of 395.158. Hypothetical Hypothetical Final Average Supplemental Redemption Index Value Amount ------------- ----------------------- 100.000 $0.00 200.000 $0.00 300.000 $0.00 395.158 $0.00 400.000 $122.53 500.000 $2,653.17 600.000 $5,183.80 700.000 $7,714.43 800.000 $10,245.07 The above figures are for purposes of illustration only. The actual Supplemental Redemption Amount, if any, will depend entirely on the actual Final Index Value. See "Final Index Value" and "Supplemental Redemption Amount" above. Discontinuance of the MSCI AC Far East Free ex Japan Index; Alteration of Method of Calculation................... If MSCI discontinues publication of the Index and MSCI or another entity publishes a successor or substitute index that MS & Co., as Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued Index (such index being referred to herein as a "Successor Index"), then the relevant Index Closing Value will be determined by reference to the value of such Successor Index at the appropriate time of publication, as determined by MS & Co. on the Determination Date. Upon any selection by MS & Co. of a Successor Index, MS & Co. will cause written notice thereof to be furnished to the Trustee, to the Company and to the holders of the Notes within three Business Days of such selection. If MSCI discontinues publication of the Index prior to, and such discontinuance is continuing on, the Determination Date and MS & Co., as Calculation Agent, determines that no Successor Index is available at such time, then on such Determination Date, MS & Co. will determine the Index Closing Value to be used in computing the Supplemental Redemption Amount on such Determination Date using the following procedure. The Index Closing Value will be computed by MS & Co. in accordance with the formula for and method of calculating the 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 the Determination Date of each security most recently comprising the Index. Notwithstanding these alternative arrangements, discontinuance of the publication of the Index may adversely affect the value of the Notes. If at any time, other than as described above under "MSCI AC Far East Free ex Japan Index," the method of calculating the Index or a Successor Index, or the value thereof, is changed in a material respect or if the Index or a Successor Index is in any other way modified so that such index does not, in the opinion of MS & Co., as Calculation Agent, fairly represent the value of the Index or such Successor Index had such changes or modifications not been made, then, from and after such time, MS & Co. will, at the close of business in New York City on the Determination Date, make such calculations and adjustments as, in the good faith judgment of MS & Co., may be necessary in order to arrive at a value of a stock index comparable to the 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 Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the 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 MS & Co. will adjust such index in order to arrive at a value of the Index or such Successor Index as if it had not been modified (e.g., as if such split had not occurred). Alternate Determination Date in case of an Event of Default....................... In case an Event of Default with respect to the Notes shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the Notes will be determined by MS & Co, as Calculation Agent, and will be equal to the par amount of the Notes plus the Supplemental Redemption Amount determined as though the Determination Date were the date of acceleration, plus any accrued interest to, but not including, the date of acceleration. Historical Information on the Index.................. The following table sets forth the high and low daily closing values, as well as end-of-quarter closing values, of the Index for each quarter in the period from January 1, 1991 through October 16, 1996. CIPSA, under its contractual arrangement with MSCI, obtains information for inclusion in or for use in the calculation of the Index from sources that it considers reliable. If an error in such information or in the calculation of the Index generally for any day is discovered subsequent to the publication of the value of the Index and such error would affect the aggregate market capitalization used to calculate the Index for that day by more than 0.5%, then the value of the Index for that day is recalculated and the corrected value is adopted and published. The historical values of the Index should not be taken as an indication of future performance, and no assurance can be given that the Index will increase sufficiently to cause the holders of the Notes to receive any Supplemental Redemption Amount. Daily Index Closing Values --------------------------------------- Period High Low End 1991 ------- ------- ------- 1st Quarter............... 180.944 139.774 179.033 2nd Quarter............... 182.349 172.483 173.389 3rd Quarter............... 179.828 161.567 168.907 4th Quarter............... 184.445 167.547 184.445 1992 1st Quarter............... 205.734 183.913 201.430 2nd Quarter............... 226.459 194.664 225.783 3rd Quarter............... 226.614 202.580 215.564 4th Quarter............... 239.948 210.285 218.483 1993 1st Quarter............... 239.423 216.295 237.368 2nd Quarter............... 273.454 237.368 264.651 3rd Quarter............... 298.129 259.732 298.129 4th Quarter............... 434.341 299.099 434.341 1994 1st Quarter............... 449.037 328.350 338.337 2nd Quarter............... 369.234 333.978 351.122 3rd Quarter............... 407.514 342.642 392.655 4th Quarter............... 399.837 329.301 351.775 1995 1st Quarter............... 351.871 300.159 345.545 2nd Quarter............... 392.069 337.833 376.384 3rd Quarter............... 393.502 359.157 368.787 4th Quarter............... 375.729 341.547 375.729 1996 1st Quarter............... 420.700 375.729 410.176 2nd Quarter............... 420.916 403.108 407.157 3rd Quarter............... 408.252 374.174 399.380 4th Quarter (through October 16, 1996) 399.430 393.275 395.158 Historical Information on Foreign Exchange Rates........ The following chart describes the historical exposure of the Index to fluctuations in the value of the U.S. Dollar against the net value of the component currencies in the Index, as determined by giving effect to the weightings of the national component indices in the Index. The chart compares the historical level of the Index as calculated in U.S. Dollars, indicated by the dotted line, to the level of the Index as it would have been calculated without exposure to exchange rate fluctuations between local currencies and the U.S. Dollar (i.e., by using constant exchange rates based on the exchange rate first used for each currency in the calculation of the Index), indicated by the solid line. Currently, some of the currencies represented in the Index are tied to the U.S. Dollar; the degree of currency exposure that holders of the Notes experience may increase if any of such currencies are no longer tied to the U.S. Dollar. The following is a description of a graphic chart which illustrates six month periods beginning with December 1987 and ending with September 1996. The ranges are 100 to 450: DATE in US$ in Local Dec-87 100 100 Jan-88 104.964 105.693 Feb-88 105.719 107.062 Mar-88 111.196 112.284 Apr-88 115.877 117.243 May-88 114.918 116.56 Jun-88 124.809 127.181 Jul-88 127.023 129.63 Aug-88 116.102 118.913 Sep-88 116.601 119.473 Oct-88 122.346 124.544 Nov-88 123.616 125.139 Dec-88 125.844 127.742 Jan-89 140.637 142.691 Feb-89 139.497 141.563 Mar-89 141.885 144.558 Apr-89 150.758 152.739 May-89 143.78 146.258 Jun-89 133.152 135.432 Jul-89 144.729 146.453 Aug-89 141.955 144.5 Sep-89 151.023 153.43 Oct-89 148.167 150.682 Nov-89 154.084 156.758 Dec-89 161.086 162.892 Jan-90 160.572 161.757 Feb-90 166.625 168.025 Mar-90 167.037 169.366 Apr-90 159.666 161.532 May-90 175.043 176.235 Jun-90 178.792 179.92 Jul-90 189.255 189.293 Aug-90 161.669 160.917 Sep-90 136.531 135.88 Oct-90 144.822 143.299 Nov-90 139.158 138.199 Dec-90 145.503 144.884 Jan-91 153.079 152.122 Feb-91 171.604 170.825 Mar-91 179.033 180.762 Apr-91 176.564 177.733 May-91 178.636 179.159 Jun-91 173.389 174.695 Jul-91 178.807 179.599 Aug-91 174.227 174.399 Sep-91 168.907 167.571 Oct-91 171.045 170.285 Nov-91 176.083 174.634 Dec-91 184.445 181.64 Jan-92 197.051 193.087 Feb-92 203.598 199.113 Mar-92 201.43 196.933 Apr-92 208.239 203.338 May-92 222.082 215.93 Jun-92 225.783 218.784 Jul-92 219.426 212.376 Aug-92 211.73 203.827 Sep-92 215.564 207.8 Oct-92 234.484 227.069 Nov-92 225.58 219.695 Dec-92 218.483 214.268 Jan-93 225.016 220.979 Feb-93 237.865 233.675 Mar-93 237.368 232.3 Apr-93 257.741 251.297 May-93 272.184 264.983 Jun-93 264.651 258.775 Jul-93 265.8 260.135 Aug-93 287.582 280.68 Sep-93 298.129 290.415 Oct-93 352.642 344.072 Nov-93 349.753 341.508 Dec-93 434.341 430.33 Jan-94 404.28 402.169 Feb-94 380.62 377.17 Mar-94 338.337 333.687 Apr-94 353.451 347.837 May-94 368.099 358.147 Jun-94 351.122 341.957 Jul-94 370.226 359.365 Aug-94 399.772 386.558 Sep-94 392.655 378.956 Oct-94 399.8371 384.442 Nov-94 361.197 347.033 Dec-94 351.775 338.156 Jan-95 313.633 301.617 Feb-95 344.902 331.839 Mar-95 345.545 329.86 Apr-95 341.572 323.234 May-95 382.626 361.763 Jun-95 376.384 354.948 Jul-95 381.723 360.748 Aug-95 362.973 346.767 Sep-95 368.787 352.728 Oct-95 362.689 347.793 Nov-95 358.386 343.7 Dec-95 375.729 360.765 Jan-96 409.658 394.847 Feb-96 407.665 392.21 Mar-96 410.176 394.037 Apr-96 420.916 402.846 May-96 416.105 399 Jun-96 407.157 390.958 Jul-96 377.114 362.153 Aug-96 390.025 374.276 Sep-96 399.380 383.836 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 or prior to the date of this Pricing Supplement, the Company, through its affiliates, hedged its anticipated exposure in connection with the Notes by purchasing individual stocks included in the component national indices and other stocks in the component national markets. The Company, through its subsidiaries, is likely to modify its hedge position throughout the life of the Notes by purchasing and selling such stocks or by purchasing and selling exchange traded or over the counter options on the Index, national component indices or individual stocks included in the national component indices, futures contracts on the Index or national component indices and options on such futures contracts or positions in any other instruments that the Company and its affiliates may wish to use in connection with such hedging. Although the Company has no reason to believe that its hedging activity will have a material impact on the price of such stocks, options, futures contracts, options on futures contracts and other instruments, there can be no assurance that the Company will not affect such prices as a result of its hedging activities. See also "Use of Proceeds" in the accompanying Prospectus. United States Federal Taxation...................... The Notes will be treated as debt of the Company for United States federal income tax purposes. See "United States Federal Taxation--Foreign Holders" section in the accompanying Prospectus Supplement. -----END PRIVACY-ENHANCED MESSAGE-----