PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 66 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 April 8, 1996
Rule 424(b)(3)
$ 10,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
EXCHANGEABLE NOTES DUE April 16, 2004
Exchangeable For Shares of Common Stock of
THE MCGRAW-HILL COMPANIES, INC.
The Exchangeable Notes due April 16, 2004 (the "Notes") are Medium-Term Notes,
Series C (Senior Fixed Rate Notes) of Morgan Stanley Group Inc. (the
"Company"), as further described below and in the Prospectus Supplement under
"Description of Notes - Fixed Rate Notes." The issue price of each Note will
be $980.20 (98.020% of the principal amount at maturity) (the "Issue Price"),
and there will be no periodic payments of interest. The Issue Price
represents a yield to maturity of 0.25% per annum computed on a semiannual
bond-equivalent basis based on the Issue Price calculated from the date of
issuance (the "Original Issue Date"). The Notes are issued in minimum
denominations of $1,000 per Note and will mature on April 16, 2004 (the
"Maturity Date"). The Notes will not be redeemable by the Company in whole or
in part prior to the Maturity Date.
On any Exchange Date (as defined herein), the holder of a Note will have the
right (the "Exchange Right"), subject to the completion by the holder and
delivery to the Company and the Calculation Agent of an Official Notice of
Exchange prior to 11:00 a.m. New York City time on such date, to exchange each
$1,000 principal amount of such Note for 11.2929 shares (the "Exchange Ratio")
of the common stock, par value $1.00 per share ("MHP Stock"), of the
McGraw-Hill Companies, Inc. ("McGraw-Hill"), subject to the Company's right to
pay cash in an amount equal to the Exchange Ratio times the Market Price (as
defined herein) of MHP Stock on the Exchange Date in lieu of such shares. The
Exchange Ratio will be adjusted for certain corporate events but will not be
adjusted for any original issue discount ("OID") on the Notes. See
"Adjustments to Exchange Ratio" in this Pricing Supplement. Upon exchange,
the holder will not receive any cash payment representing any accrued OID.
Such accrued OID will be deemed paid by the MHP Stock or cash received by the
holder upon exercise of the Exchange Right. An Exchange Date will be any NYSE
Trading Day (as defined herein) that falls during the period beginning April
15, 1997 and ending on the day prior to the Maturity Date.
McGraw-Hill is neither affiliated with the Company nor involved in this
offering of the Notes. The Market Price of the MHP Stock on the date of this
Pricing Supplement was $86 5/8 (the "Initial Market Price").
The Company will cause any adjustments to the Exchange Ratio to be determined
by the Calculation Agent for Chemical Bank, as Trustee under the Senior Debt
Indenture.
An investment in the Notes entails risks not associated with similar
investments in a conventional debt security, as described under "Risk Factors"
on PS-3 and PS-4 herein.
_______________
PRICE 98.020%
_______________
Agent's
Price to Public Commissions(1) Proceeds to Company
----------------- ---------------- ---------------------
Per Note... 98.020% 0.25% 97.77%
Total...... $9,802,000 $25,000 $9,777,000
_______________
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY & CO.
Incorporated
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount:.............. $10,000,000
Maturity Date:................. April 16, 2004
Specified Currency:............ U.S. Dollars
Issue Price:................... 98.020%
Original Issue Date
(Settlement Date):........... April 15, 1996
Book Entry Note or
Certificated Note:........... Book Entry
Senior Note or Subordinated
Note:........................ Senior
Minimum Denominations:......... $1,000
Trustee:....................... Chemical Bank
Exchange Right:................ On any Exchange Date, the holders of Notes
will be entitled upon (i) completion by the
holder and delivery to the Company and the
Calculation Agent of an Official Notice of
Exchange (in the form of Annex A attached
hereto) prior to 11:00 a.m. New York City time
on such date and (ii) delivery on such date
of such Notes to the Trustee, to exchange
each $1,000 principal amount of Notes for
11.2929 shares (the "Exchange Ratio") of MHP
Stock, subject to adjustment as described
under "Adjustments to the Exchange Ratio"
below. Upon any such exchange, the Company
may, at its sole option, deliver such shares
of MHP Stock or pay an amount in cash equal
to the Exchange Ratio times the Market Price
of MHP Stock on the Exchange Date, as
determined by the Calculation Agent, in lieu
of such shares. Such delivery or payment
will be made 3 Business Days after any
Exchange Date, subject to delivery of such
Notes to the Trustee on the Exchange Rate.
The Company shall, or shall cause the
Calculation Agent to, deliver such shares of
MHP Stock or cash to the Trustee for delivery
to the holders.
No Fractional Shares........... If upon any exchange of the Notes the Company
chooses to deliver shares of MHP Stock, the
Company will pay cash in lieu of delivering
fractional shares of MHP Stock in an amount
equal to the corresponding fractional Market
Price of MHP Stock on such Exchange Date.
Exchange Ratio................. 11.2929, subject to adjustment for certain
corporate events. See "Adjustments to
Exchange Ratio" below.
Exchange Date.................. Any NYSE Trading Day that falls during the
period beginning April 15, 1997 and ending on
the day prior to the Maturity Date.
NYSE Trading Day:.............. A day on which trading is generally conducted
in the over-the-counter market for equity
securities in the United States and on the
New York Stock Exchange, as determined by the
Calculation Agent, and on which a Market
Disruption Event (as defined below) has not
occurred.
Market Price:.................. If MHP Stock (or any other security for which
a Market Price must be determined) is listed
on a national securities exchange, is a
security of The Nasdaq National Market
("NASDAQ NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of
Securities Dealers, Inc. (the "NASD"), the
Market Price for one share of MHP Stock (or
one unit of any such other security) on any
NYSE Trading Day means (i) the last reported
sale price, regular way, on such day on the
principal United States securities exchange
registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on
which MHP Stock is listed or admitted to
trading or (ii) if not listed or admitted to
trading on any such securities exchange or if
such last reported sale price is not
obtainable, the last reported sale price on
the over-the-counter market as reported on
the NASDAQ NMS or OTC Bulletin Board on such
day. If the last reported sale price is not
available pursuant to clause (i) or (ii) of
the preceding sentence, the Market Price for
any NYSE Trading Day shall be the mean, as
determined by the Calculation Agent, of the
bid prices for MHP Stock obtained from as
many dealers in such stock, but not exceeding
three, as will make such bid prices available
to the Calculation Agent. The term "NASDAQ
NMS" shall include any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
Calculation Agent:............. Morgan Stanley & Co. Incorporated ("MS & Co.")
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in making adjustments to the Exchange Ratio
or determining the Market Price or whether a
Market Disruption Event has occurred. See
"Adjustment to the Exchange Ratio" and
"Market Disruption Event" below. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good faith
and using its reasonable judgment.
Risk Factors:.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional debt security,
including the following:
The Notes do not pay interest and the yield
to maturity is less than would be payable on
a non-exchangeable debt security issued with
OID if the Company were to issue such a
security at the same time it issues the Notes.
The Company is not affiliated with
McGraw-Hill and, although the Company as of
the date of this Pricing Supplement does not
have any material non-public information
concerning McGraw-Hill, corporate events of
McGraw-Hill, including those described below
in "Adjustments to the Exchange Ratio," are
beyond the Company's ability to control and
are difficult to predict.
McGraw-Hill is not involved in the offering
of the Notes and has no obligations with
respect to the Notes, including any
obligation to take the interests of the
Company or of holders of Notes into
consideration for any reason. McGraw-Hill
will not receive any of the proceeds of the
offering of the Notes made hereby and is not
responsible for, and has not participated in,
the determination of the timing of, prices
for or quantities of, the Notes offered
hereby.
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. The
market value for the Notes will be affected
by a number of factors independent of the
creditworthiness of the Company and the value
of MHP Stock, including, but not limited to,
the volatility of MHP Stock, the dividend
rate on MHP Stock, market interest and yield
rates and the time remaining to the first
Exchange Date or the maturity of the Notes.
In addition, the value of MHP Stock depends
on a number of interrelated factors,
including economic, financial and political
events, over which the Company has no
control. The market value of the Notes is
expected to depend primarily on the extent of
the appreciation, if any, of the Market Price
of MHP Stock above the Initial Market Price.
The price at which a holder will be able to
sell Notes prior to maturity may be at a
discount, which could be substantial, from
the principal amount thereof, if, at such
time, the Market Price of MHP Stock is below,
equal to or not sufficiently above the
Initial Market Price. The historical Market
Prices of MHP Stock should not be taken as an
indication of MHP Stock's future performance
during the term of any Note.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in making adjustments to the Exchange Ratio
or determining the Market Price or whether a
Market Disruption Event has occurred that may
influence the determination of the amount of
stock or cash receivable upon exercise of the
Exchange Right. See "Adjustments to the
Exchange Ratio" and "Market Disruption
Event."
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.
Adustments to the Exchange
Ratio:....................... The Exchange Ratio will be adjusted as
follows:
1. If MHP Stock is subject to a stock split
or reverse stock split, then once such split
has become effective, the Exchange Ratio will
be adjusted to equal the product of the prior
Exchange Ratio and the number of shares
issued in such stock split or reverse stock
split with respect to one share of MHP Stock.
2. If MHP Stock is subject to a stock
dividend (issuance of additional shares of
MHP Stock) that is given ratably to all
holders of shares of MHP Stock, then once the
dividend has become effective and MHP Stock
is trading ex-dividend, the Exchange Ratio
will be adjusted so that the new Exchange
Ratio shall equal the prior Exchange Ratio
plus the product of (i) the number of shares
issued with respect to one share of MHP Stock
and (ii) the prior Exchange Ratio.
3. There will be no adjustments to the
Exchange Ratio to reflect cash dividends or
other distributions paid with respect to MHP
Stock other than distributions described in
paragraph 6 below and Extraordinary Dividends
as described below. A cash dividend or other
distribution with respect to MHP Stock will
be deemed to be an "Extraordinary Dividend"
if such dividend or other distribution
exceeds the immediately preceding
non-Extraordinary Dividend for MHP Stock by
an amount equal to at least 10% of the Market
Price of MHP Stock on the NYSE Trading Day
preceding the ex-dividend date for the
payment of such Extraordinary Dividend (the
"ex-dividend date"). If an Extraordinary
Dividend occurs with respect to MHP Stock,
the Exchange Ratio with respect to MHP Stock
will be adjusted on the ex-dividend date with
respect to such Extraordinary Dividend so
that the new Exchange Ratio will equal the
product of (i) the then current Exchange
Ratio and (ii) a fraction, the numerator of
which is the Market Price on the NYSE Trading
Day preceding the ex-dividend date, and the
denominator of which is the amount by which
the Market Price on the NYSE Trading Day
preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with respect
to an Extraordinary Dividend for MHP Stock
will equal (i) in the case of cash dividends
or other distributions that constitute
quarterly dividends, the amount per share of
such Extraordinary Dividend minus the amount
per share of the immediately preceding
non-Extraordinary Dividend for MHP Stock or
(ii) in the case of cash dividends or other
distributions that do not constitute
quarterly dividends, the amount per share of
such Extraordinary Dividend. To the extent
an Extraordinary Dividend is not paid in
cash, the value of the non-cash component
will be determined by the Calculation Agent,
whose determination shall be conclusive. A
distribution on the MHP Stock described in
paragraph 6 below that also constitutes an
Extraordinary Dividend shall only cause an
adjustment to the Exchange Ratio pursuant to
paragraph 6.
4. If McGraw-Hill is being liquidated or is
subject to a proceeding under any applicable
bankruptcy, insolvency or other similar law,
the Notes will continue to be exchangeable
into MHP Stock so long as a Market Price for
MHP Stock is available. If a Market Price is
no longer available for MHP Stock for
whatever reason, including the liquidation of
McGraw-Hill or the subjection of McGraw-Hill
to a proceeding under any applicable
bankruptcy, insolvency or other similar law,
then the value of MHP Stock will equal zero
for so long as no Market Price is available.
5. If there occurs any reclassification or
change of MHP Stock, or if McGraw-Hill has
been subject to a merger, combination or
consolidation and is not the surviving
entity, or if there occurs a sale or
conveyance to another corporation of the
property and assets of McGraw-Hill as an
entirety or substantially as an entirety, in
each case as a result of which the holders of
MHP Stock shall be entitled to receive stock,
other securities or other property or assets
(including cash) with respect to or in
exchange for such MHP Stock, then the holders
of the Notes then outstanding will be entitled
thereafter to exchange such Notes into the
kind and amount of shares of stock, other
securities or other property or assets that
they would have owned or been entitled to
receive upon such reclassification, change,
merger, combination, consolidation, sale or
conveyance had such holders exchanged such
Notes for MHP Stock immediately prior to any
such corporate event. References herein to
MHP Stock will be deemed to include such
shares of stock, other securities or other
property or assets. At such time, no
adjustment will be made to the Exchange Ratio
of MHP Stock.
6. If McGraw-Hill issues to all of its
shareholders equity securities of an issuer
other than McGraw-Hill (other than in a
transaction described in paragraph 5 above),
then the holders of the Notes then
outstanding will be entitled to receive such
new equity securities upon exchange of such
Notes. The Exchange Ratio for such new
equity securities will equal the product of
the Exchange Ratio in effect for MHP Stock at
the time of the issuance of such new equity
securities times the number of shares of the
new equity securities issued with respect to
one share of MHP Stock.
No adjustments to the Exchange Ratio will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Ratio then in effect. The Exchange Ratio
resulting from any of the adjustments
specified above will be rounded to the
nearest one thousandth with five
ten-thousandths being rounded upward.
No adjustments to the Exchange Ratio will be
made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the MHP Stock.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Ratio and of any related determinations and
calculations with respect to any
distributions of stock, other securities or
other property or assets (including cash) in
connection with any corporate event described
in paragraph 5 or 6 above, and its
determinations and calculations with respect
thereto shall be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Ratio upon written request by any
holder of the Notes.
Market Disruption Event:....... "Market Disruption Event" means, with respect
to MHP Stock:
(i) a suspension, absence or material
limitation of trading of MHP Stock on the
primary market for MHP Stock 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 or material
limitation on the primary market for trading
in options contracts related to MHP Stock, if
available, during the one-half hour period
preceding the close of trading in the
applicable market, in each case as determined
by the Calculation Agent in its sole
discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that the event
described in clause (i) above materially
interfered with the ability of the Company or
any of its affiliates to unwind all or a
material portion of the hedge with respect to
the Notes.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to New York Stock
Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the New
York Stock Exchange, any other self-regulatory
organization or the Securities and Exchange
Commission of similar scope as determined by
the Calculation Agent) on trading during
significant market fluctuations shall
constitute a Market Disruption Event, (4) a
suspension of trading in an options contract
on MHP Stock by the primary securities market
trading in such options, if available, by
reason of (x) a price change exceeding limits
set by such securities 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 options contracts
related to MHP Stock and (5) an "absence of
trading" on the primary securities market on
which options contracts related to MHP Stock
are traded will not include any time when
such securities market is itself closed for
trading under ordinary circumstances.
MHP Stock; Public Information.. MHP Stock is registered under the Exchange
Act. Companies with securities registered
under the Exchange Act are required to file
periodically certain financial and other
information specified by the Securities and
Exchange Commission (the "Commission").
Information provided to or filed with the
Commission is available at the offices of the
Commission specified under "Available
Information" in the accompanying Prospectus.
In addition, information regarding
McGraw-Hill may be obtained from other
sources including, but not limited to, press
releases, newspaper articles and other
publicly disseminated documents. The Company
makes no representation or warranty as to the
accuracy or completeness of such reports.
THIS PRICING SUPPLEMENT RELATES ONLY TO THE
NOTES OFFERED HEREBY AND DOES NOT RELATE TO
MHP STOCK OR OTHER SECURITIES OF MCGRAW-HILL.
ALL DISCLOSURES CONTAINED IN THIS PRICING
SUPPLEMENT REGARDING MCGRAW-HILL ARE DERIVED
FROM THE PUBLICLY AVAILABLE DOCUMENTS
DESCRIBED IN THE PRECEDING PARAGRAPH. NEITHER
THE COMPANY NOR THE AGENT HAS PARTICIPATED IN
THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY
DUE DILIGENCE INQUIRY WITH RESPECT TO
MCGRAW-HILL. NEITHER THE COMPANY NOR THE
AGENT MAKES ANY REPRESENTATION THAT SUCH
PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER
PUBLICLY AVAILABLE INFORMATION REGARDING
MCGRAW-HILL ARE ACCURATE OR COMPLETE.
FURTHERMORE, THERE CAN BE NO ASSURANCE THAT
ALL EVENTS OCCURRING PRIOR TO THE DATE HEREOF
(INCLUDING EVENTS THAT WOULD AFFECT THE
ACCURACY OR COMPLETENESS OF THE PUBLICLY
AVAILABLE DOCUMENTS DESCRIBED IN THE
PRECEDING PARAGRAPH) THAT WOULD AFFECT THE
TRADING PRICE OF MHP STOCK (AND THEREFORE THE
INITIAL PRICE AND THE EXCHANGE RATIO) HAVE
BEEN PUBLICLY DISCLOSED. SUBSEQUENT
DISCLOSURE OF ANY SUCH EVENTS OR THE
DISCLOSURE OF OR FAILURE TO DISCLOSE MATERIAL
FUTURE EVENTS CONCERNING MCGRAW-HILL COULD
AFFECT THE VALUE RECEIVED ON ANY EXCHANGE
DATE WITH RESPECT TO THE NOTES AND THEREFORE
THE TRADING PRICES OF THE NOTES.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES
MAKES ANY REPRESENTATION TO ANY PURCHASER OF
NOTES AS TO THE PERFORMANCE OF MCGRAW-HILL
STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
McGraw-Hill including extending loans to, or
making equity investments in, McGraw-Hill or
providing advisory services to McGraw-Hill,
including merger and acquisition advisory
services. In the course of such business,
the Company or its affiliates may acquire
non-public information with respect to
McGraw-Hill and, in addition, one or more
affiliates of the Company may publish
research reports with respect to McGraw-Hill.
The Company does not make any representation
to any purchaser of Notes with respect to any
matters whatsoever relating to McGraw-Hill.
Any prospective purchaser of a Note should
undertake an independent investigation of
McGraw-Hill as in its judgment is appropriate
to make an informed decision with respect to
an investment in McGraw-Hill Stock.
Historical Information......... The following table sets forth the high and
low Market Price during 1993, 1994, 1995 and
during 1996 through April 8, 1996. The
Market Price on April 8, 1996 was $86 5/8.
The Market Prices and Dividends per Share
listed below were obtained from Bloomberg
Financial Markets and the Company believes
such information to be accurate. However,
neither the Company nor the Agent makes any
representation as to the accuracy of such
information. The historical prices of MHP
Stock should not be taken as an indication of
future performance, and no assurance can be
given that the price of MHP Stock will
increase sufficiently to cause the beneficial
owners of the Notes to receive an amount in
excess of the principal amount on any
Exchange Date.
Dividends
McGraw-Hill High Low Per Share
- ----------- ----- ----- ---------
(CUSIP #58064510)
1993:
First Quarter........... 63 1/2 58 1/4 .57
Second Quarter.......... 63 7/8 55 1/4 .57
Third Quarter........... 69 5/8 58 3/8 .57
Fourth Quarter.......... 74 7/8 66 1/8 .57
1994:
First Quarter........... 73 65 3/8 .58
Second Quarter.......... 69 3/4 63 3/8 .58
Third Quarter........... 76 1/2 66 3/4 .58
Fourth Quarter.......... 74 3/4 64 3/4 .58
1995:
First Quarter........... 72 5/8 64 .60
Second Quarter.......... 77 1/8 71 1/2 .60
Third Quarter........... 83 3/8 75 3/4 .60
Fourth Quarter.......... 87 1/8 79 5/8 .60
1996:
First Quarter(1)....... 91 1/4 86 .66
Second Quarter
Through April
8, 1996................ 87 3/4 86 5/8 ___
_______________
(1) McGraw-Hill declared a 2-for-1 split of its common stock on January
30, 1996, further specifying a record date of March 28, 1996, a date
on which the split would be payable of April 26, 1996 and an
ex-dividend date of April 29, 1996.
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. See
also "Use of Proceeds" in the accompanying
Prospectus.
Prior to and on the date of this Pricing
Supplement, the Company, through its
subsidiaries, hedged its anticipated exposure
in connection with the Notes by taking
positions in MHP Stock. Such hedging was
carried out in a manner designed to minimize
any impact on MHP Stock. Purchase activity
could potentially have increased the price of
MHP Stock, and therefore effectively have
increased the level to which MHP Stock must
rise before a holder of a Note would receive
more than the principal amount on any
Exchange Date. The Company, through its
subsidiaries, is likely to modify its hedge
position throughout the life of the Notes by
purchasing and selling MHP Stock, options
contracts on MHP Stock listed on major
securities markets or positions in any other
instruments that it may wish to use in
connection with such hedging. Although the
Company has no reason to believe that its
hedging activity had or will have a material
impact on the price of MHP Stock, there can
be no assurance that the Company did not or
will not affect such price as a result of its
hedging activities.
United States Federal Taxation: The following discussion is based on the
opinion of Davis Polk & Wardwell, special tax
counsel to the Company. This 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. In addition, this discussion
addresses only initial holders purchasing at
the issue price of the Notes and that do not
hold the Notes as part of a hedging
transaction or "straddle." Because of the
absence of authority on point, there are
substantial uncertainties regarding the U.S.
federal income tax consequences of an
investment in the Notes.
The Notes will be treated as debt for United
States federal income tax purposes. The
Notes will not be treated as issued with
original issue discount for tax purposes
because the amount of discount at issue is
within the de minimis range under applicable
Treasury regulations.
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 exercise of the Exchange
Right, a United States Holder will recognize
gain or loss equal to the difference between
the amount realized (which, if the Company
delivers MHP Stock, will be the fair market
value of such stock at the time of the
exchange, plus any cash received in lieu of
fractional shares) on the exchange and such
Holder's tax basis in the Note. A United
States Holder receiving MHP Stock will have a
basis in the MHP Stock equal to its fair
market value at the time of the exchange and
a holding period in such stock beginning the
day after the date of the exchange. Any loss
recognized on any exchange will be treated as
capital loss. It is unclear, however, under
existing law whether gain recognized on any
exchange will be treated as ordinary or
capital in character. Subject to further
guidance from the Internal Revenue Service,
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 upon exercise of
the Exchange Right.
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 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 Note in the manner
prescribed in withdrawn Treasury regulation
Section 1.1275-4. The Internal Revenue
Service, however, would not be required to
accept such method as correct.
Any gain or loss recognized on the sale or
other taxable disposition 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.
ANNEX A
OFFICIAL NOTICE OF EXCHANGE
Dated: [On or after April 15, 1997]
Morgan Stanley Group Inc.
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. Incorporated, as
Calculation Agent
1585 Broadway
New York, New York 10036
(Attn: Richard P. Sandulli)
Fax: 212-761-0028
Dear Sirs:
The undersigned holder of the Medium Term Notes, Series C, Senior
Fixed Rate Notes due April 16, 2004 (Exchangeable for Shares of Common Stock
of The McGraw-Hill Companies, Inc.) of Morgan Stanley Group Inc. (the "Notes")
hereby irrevocably elects to exercise with respect to the principal amount of
the Notes indicated below, as of the date hereof (or, if this letter is
received after 11:00 a.m. on any NYSE Trading Day, as of the next NYSE Trading
Day, provided that such day is prior to April 16, 2004), the Exchange Right as
described in Pricing Supplement No. 66 dated April 8, 1996 (the "Pricing
Supplement") to the Prospectus Supplement dated March 29, 1995 and the
Prospectus dated March 29, 1995 related to Registration Statement No.
33-57833. Capitalized terms not defined herein have the meanings given to
such terms in the Pricing Supplement. Please date and acknowledge receipt of
this notice in the place provided below on the date of receipt, and fax a copy
to the fax number indicated, whereupon the Company will deliver, at its sole
option, shares of the Common Stock of The McGraw-Hill Companies, Inc. or cash
3 Business Days after the Exchange Date in accordance with the terms of the
Notes, as described in the Pricing Supplement.
Very truly yours,
________________________________
[Name of Holder]
By:_____________________________
[Title]
________________________________
[Fax No.]
$_______________________________
Principal Amount of Notes
surrendered for exchange
Receipt of the above Official
Notice of Exchange is hereby acknowledged
MORGAN STANLEY GROUP INC., as Issuer
MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By:____________________________________
Title:
Date and time of acknowledgement_______
