EXHIBIT 99.1
MORGAN STANLEY UK GROUP PROFIT
SHARING SCHEME
Accounts for the years ended
31 December 1997 and 1996
DELOITTE & TOUCHE
STONECUTTER COURT
1 STONECUTTER STREET
LONDON EC4A 4TR
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
REPORT AND FINANCIAL STATEMENTS 1997 AND 1996
CONTENTS Page
Report of the Independent Chartered Accountants 1
Statement of the financial condition 2
Statement of income and changes in scheme equity 3
Notes to the financial statements 4
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
REPORT OF THE INDEPENDENT CHARTERED ACCOUNTANTS
TO THE TRUSTEES OF THE MORGAN STANLEY, DEAN WITTER, DISCOVER & CO. UK PROFIT
SHARING SCHEME
We have audited the accompanying statement of financial condition of the Morgan
Stanley UK Group Profit Sharing Scheme ("the Scheme") as of 31 December 1997 and
1996 and the related statement of income and changes in scheme equity for the
years ended 31 December 1997, 1996 and 1995. These financial statements are the
responsibility of the Scheme's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Scheme as of 31 December
1997 and 1996 and the income and changes in plan equity for the years ended 31
December 1997, 1996 and 1995 in conformity with United States generally accepted
accounting principles.
/s/ Deloitte & Touche
Chartered Accountants
1 Stonecutter Street
London, England
17 February 1998
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
STATEMENT OF THE FINANCIAL CONDITION
31 DECEMBER 1997 AND 1996
1997 1996
$ $
ASSETS
Investments at market value
Morgan Stanley, Dean Witter, Discover & Co.
Common Stock 2, 3 32,361,300 19,373,829
Amounts due from Trustee 33,834 99,827
Employee contributions receivable 6,886,185 1,380,689
---------- ----------
39,281,319 20,854,345
========== ==========
LIABILITIES AND PLAN EQUITY
Dividend income, net of withholding taxes,
payable to participants 18,189 99,743
Taxes withheld in respect of dividend income 15,646 82
Scheme Equity 39,247,484 20,754,520
---------- ----------
39,281,319 20,854,345
========== ==========
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
STATEMENT OF INCOME AND CHANGES IN SCHEME EQUITY
YEARS ENDED 31 DECEMBER 1997 AND 1996
NOTE 1997 1996 1995
$ $ $
CASH DIVIDENDS
Distribution from Morgan Stanley, Dean
Witter, Discover & Co. Common Stock 291,301 252,685 160,989
Less: United States tax withheld 38,021 37,902 24,148
---------- ---------- ----------
253,280 214,783 136,841
Gain on sale of Morgan Stanley, Dean
Witter, Discover & Co. Common Stock 2 980,382 1,572,440 580,573
Change in unrealised appreciation of
investments 3 12,503,846 4,473,693 3,096,879
EMPLOYEE CONTRIBUTIONS
Current year 6,900,757 1,395,261 2,737,495
---------- ---------- ----------
INCOME FOR THE YEAR 20,638,265 7,656,177 6,551,788
Less:
Dividend income payable to participants 233,049 202,148 128,791
Income tax payable 20,232 12,635 8,050
Withdrawals disbursed to employees 1,754,676 2,172,670 828,659
Value of shares transferred to employees 137,342 440,689 127,626
---------- ---------- ----------
INCREASE IN SCHEME EQUITY 18,492,966 4,828,035 5,458,662
SCHEME EQUITY AT 1 JANUARY 20,754,520 15,926,485 10,467,823
---------- ---------- ----------
SCHEME EQUITY AT 31 DECEMBER 39,247,486 20,754,520 15,926,485
========== ========== ==========
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 1997 AND 1996
SCHEME DESCRIPTION
On 12 November 1987 the Morgan Stanley International Profit Sharing
Scheme was established in the United Kingdom by a trust deed made between
Morgan Stanley Group Inc., its subsidiary Morgan Stanley International
and Noble Lowndes Settlement Trustees Limited. The scheme allows
employees of Morgan Stanley International to accumulate pre-tax profit
share contributions in the form of shares of Morgan Stanley, Dean Witter,
Discover & Co. common stock. An updated deed was entered into on 3rd
November 1997.
ELIGIBILITY
Full time employees of Morgan Stanley International with at least one
year of service, commencing from the first of the month after the date of
joining, are eligible to participate in the scheme. Employees may elect
to participate in the scheme for the full amount of their profit share,
up to a maximum of the lesser of 10% of UK base salary or (pound)8,000.
FUNDING POLICY
Amounts invested by employees are invested by Noble Lowndes Settlement
Trustees Limited, as trustee, in Morgan Stanley, Dean Witter, Discover &
Co. shares which are held by the trustee in their name on the employee's
behalf. Shares in respect of the previous qualifying period are
appropriated to employees within two weeks of 31 December (the qualifying
date). The Trustee's fees and brokerage commissions are borne by Morgan
Stanley International, the employer.
During the first two years after allocation (the Retention Period)
certain statutory restrictions apply limiting members' ability to deal in
or withdraw their shares. After the Retention Period, members may
withdraw their shares or instruct the trustees to sell their shares and
withdraw the cash proceeds. The cost of withdrawals from the scheme is
determined on a first in first out basis within the relevant employee
allocation.
TAXATION
The United Kingdom Board of Inland Revenue has approved the scheme under
Schedule 9, Income & Corporation Taxes Act 1988 and the Scheme is thus
exempt from taxation.
Employee contributions to the scheme are not liable to income tax if
shares are held by the Trustees for at least five years after
appropriation. If employees' shares are sold prior to the end of the
three year period, some or all of the income tax benefits are lost.
1. ACCOUNTING POLICIES
FOREIGN CURRENCIES
Monetary assets and liabilities denominated in foreign currencies are
translated at the rate of exchange ruling at the balance sheet date
except for employee contributions receivable, which are translated at the
rate ruling at the time of share purchase, which occurs shortly after
balance sheet date. Transactions in foreign currencies are translated at
the approximate rate of exchange ruling at the date of the transaction.
VALUATION OF INVESTMENTS
The investments are recorded at market value based on the closing market
prices on the New York Stock Exchange.
DIVIDEND INCOME
Dividend income is recorded when the applicable dividends are declared.
Dividends are received net of US withholding tax and are allocated to
participants according to their shareholdings.
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 1997 AND 1996
2. CHANGES IN HOLDINGS OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO. COMMON
STOCK
On 31 May 1997, Morgan Stanley Group Inc. ("Morgan Stanley") merged with
and into Dean Witter, Discover & Co. ("Dean Witter Discover") (the
"Merger"). At that time Dean Witter, Discover & Co. changed its corporate
name to Morgan Stanley, Dean Witter, Discover & Co. (the "Company"). In
conjunction with the Merger, the Company issued 260,861,078 shares of its
common stock, as each share of Morgan Stanley common stock then
outstanding was converted into 1.65 shares of the Company's common stock.
Each stock purchase was made in one transaction representing more than 5%
of the current value of the scheme at the beginning of the year.
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 1997 AND 1996
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 1997 AND 1996
2. CHANGES IN HOLDINGS OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
Common Stock (contd.)
Cost has been determined on a first out basis within the relevant
employee allocation.
The above analysis has been restated to reflect a correction of the value
attributable to transfer in previous years and related adjustments to
unrealised appreciation and gain on sales/transfers. These figures have
been amended by the following amounts:
Year ended 30 November 1996 - $310,997
Year ended 30 November 1995 - $62,061
3. CHANGE IN UNREALISED APPRECIATION OF INVESTMENTS
At 31 December 1997 the closing price on the New York Stock Exchange for
Morgan Stanley, Dean Witter, Discover & Co. common stock was $59.125 per
share.
NUMBER
OF SHARES TOTAL
$
Market value at 31 December 1997 547,337 32,361,300
Average cost at 31 December 1997 547,337 10,704,860
----------
Unrealised appreciation at 31
December 1997 21,656,440
Unrealised appreciation at 1
January 1997 9,152,594
----------
Increase in unrealised appreciation 12,503,846
==========
Market value at 31 December 1996 339,148 19,373,829
Average cost at 31 December 1996 339,148 10,221,235
----------
Unrealised appreciation at 31
December 1997 9,152,594
Unrealised appreciation at 1
January 1996 4,678,901
----------
Increase in unrealised appreciation 4,473,693
==========
Market value at 31 December 1995 163,586 13,189,120
Average cost at 31 December 1995 163,586 8,510,219
----------
Unrealised appreciation at 31
December 1995 4,678,901
Unrealised appreciation at 1
January 1995 1,582,022
----------
Increase in unrealised appreciation 3,096,879
==========
MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED 31 DECEMBER 1997 AND 1996
4. NUMBER OF PARTICIPANTS
There were 1,083 participants as of 31 December 1997, 878 as of 31
December 1996, 543 as of 31 December 1995.