3604

NEW ZEALAND GAZETTE

No. 153

Notice of Product Ruling

1. This is a notice of a product ruling made under section 91F of the Tax Administration Act 1994.

2. Product ruling No. 97/79 was issued on 17 October 1997. It relates to the establishment of a unit trust and the treatment of distributions it will make, and the application of sections CF 2 (1) (i) and CF 3 (1) (b) of the Income Tax Act 1994.

3. A copy of the ruling may be obtained by writing to the Assistant General Manager (Adjudication & Rulings), National Office, Inland Revenue, P.O. Box 2198, Wellington.

JEFFREY TYLER, Assistant General Manager (Adjudication & Rulings).

go7566

Notice of Product Ruling

1. This is a notice of a product ruling made under section 91F of the Tax Administration Act 1994.

2. Product ruling No. 97/80 was issued on 17 October 1997. It relates to the establishment of a unit trust and the treatment of distributions it will make, and the application of sections CF 2 (1) (i) and CF 3 (1) (b) of the Income Tax Act 1994.

3. A copy of the ruling may be obtained by writing to the Assistant General Manager (Adjudication & Rulings), National Office, Inland Revenue, P.O. Box 2198, Wellington.

JEFFREY TYLER, Assistant General Manager (Adjudication & Rulings).

go7567

Determination S7: Morgan Stanley OPALS—Financial Arrangement Income or Expenditure from Morgan Stanley OPALS

This Determination may be cited as “Determination S7: Morgan Stanley OPALS—Financial Arrangement Income or Expenditure from Morgan Stanley OPALS.”

1. Explanation (which does not form part of this determination).

(1) This Determination applies to Optimised Portfolios as Listed Securities (“OPALS”) issued by Morgan Stanley Capital (Cayman Islands) Limited (“MSC”).

(2) OPALS is a financial arrangement in which the holder of the OPALS provides money to MSC and the obligation is discharged at a future date by the issue of shares (or stock) in any company or companies. The holder is also entitled to an Income Stream which is based on the dividends derived from the shares and income earned by the party which holds the shares prior to the shares being transferred to the holder.

(3) Pursuant to section EH 2 of the Income Tax Act 1994, the amount of the gross income deemed to be derived or the expenditure deemed to be incurred by a person in respect of a financial arrangement under the qualified accruals rules shall not include the amount of any income, gain or loss, or expenditure that is solely attributable to an excepted financial arrangement.

(4) As a share is an excepted financial arrangement under section OB 1 of the Income Tax Act 1994, only the Income Stream and amount attributed to those payments by this Determination are regarded as income or expenditure for the purposes of calculating accrual income or expenditure.

(5) This Determination prescribes the method to be used when calculating for accrual purposes the income derived or expenditure incurred in respect of OPALS. It also details which amounts are to be included for this calculation, and which are attributable to an excepted financial arrangement.

(6) This Determination does not provide for, negate or vary the application of the Foreign Investment Fund regime to the excepted financial arrangement component of an OPALS, in respect of those series of OPALS which relate to shares in countries not listed in Part A of Schedule 3 of the Income Tax Act 1994.

2. Reference

This Determination is made pursuant to sections 90 (1) (c) and (g) of the Tax Administration Act 1994.

3. Scope of Determination

(1) This Determination shall apply to the issue, as more particularly set out in the relevant Offering Circular and Pricing Supplement, by Morgan Stanley Capital (Cayman Islands) Limited, of series of an investment product called OPALS.

(2) OPALS are hybrid securities issued by a special purpose Cayman Island’s company (Morgan Stanley Capital (Cayman Islands) Limited, the “Issuer”), and listed on the Luxembourg Stock Exchange. OPALS are not shares in the Issuer. They are unsecured obligations ranking pari passu with all other unsecured obligations of the Issuer.

(3) OPALS provide investors with a return which tracks within agreed parameters the movement in a specified equity index (such as the S&P 500). This return is provided as follows. The issue proceeds from OPALS are indirectly invested in shares of companies making up the relevant index. The dividends received on these share baskets (net of any applicable withholding taxes) plus a percentage of any fees generated from the lending of the shares are paid to the OPALS holder as an annual coupon. Similarly any gains made through adjusting the composition of the share baskets are paid out as a component of this coupon. These adjustments are made without the intention of attempting to outperform the relevant index.

(4) OPALS have a stated maturity of between one and seven years. Redemption is effected by the delivery to the investor of the physical shares then comprising the basket. In certain circumstances investors with a prescribed minimum holding of OPALS can elect to redeem early, but redemption is always by delivery of shares and never by cash.

(5) The actual hedging mechanism involves the holding of the share baskets in a Morgan Stanley group company resident in Luxembourg (“Counterparty”). The Counterparty issues an equity linked note to the Issuer thus hedging the Issuer’s position. Therefore, the balance sheet of the Issuer is composed of Counterparty notes on the asset side and the OPALS on the liability side balanced by share capital. The notes issued by the Counterparty are redeemable in cash or through the delivery of shares.

(6) Except where its application is specifically excluded in another determination, this Determination applies to every OPALS which:

(a) Are acquired in the 1998 or later income years; and

(b) Meet the following criteria:

(i) Are issued at a price which is between 95% and 105% of the market value of the Underlying Shares. Any discrepancy between the price and the market value of the Underlying Shares will be due to transactional costs relating to the acquisition of the Underlying Shares, e.g. stamp duty and brokerage; and