PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 45 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 February 23, 1996
Rule 424(b)(3)
$ 10,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
EXCHANGEABLE NOTES DUE MARCH 1, 2004
Exchangeable For Shares of Common Stock of
CITICORP
The Exchangeable Notes due March 1, 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 $980.21 (98.021% 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 March 1, 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 11.7599 shares (the "Exchange Ratio")
of the common stock, par value $1.00 per share ("Citicorp Stock"), of
Citicorp, 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 Citicorp 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 Citicorp 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 September 1, 1997 and ending on
the day prior to the Maturity Date.
Citicorp is neither affiliated with the Company nor involved in this offering
of the Notes. The Market Price of the Citicorp Stock on the date of this
Pricing Supplement was $78 1/2 (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 through PS-5 herein.
PRICE 98.021%
Agent's
Price to Public Commissions(1) Proceeds to Company
----------------- ---------------- ---------------------
Per Note... 98.021% 0.25% 97.771%
Total...... $9,802,100 $25,000 $9,777,100
_______________
(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:................. March 1, 2004
Specified Currency:............ U.S. Dollars
Issue Price:................... 98.021%
Original Issue Date
(Settlement Date):........... March 1, 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 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 acknowledgment of
such notice by the Company and the
Calculation Agent and delivery on such
date of such Notes to the Trustee, to
exchange each $1,000 principal amount of
Notes for 11.7599 shares (the "Exchange
Ratio") of Citicorp 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
Citicorp Stock or pay an amount in cash
equal to the Exchange Ratio times the
Market Price of Citicorp 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
Citicorp 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 Citicorp Stock,
the Company will pay cash in lieu of issuing
fractional shares of Citicorp Stock in an
amount equal to the corresponding fractional
Market Price of Citicorp Stock on such
Exchange Date.
Exchange Ratio................. 11.7599, 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 September 1, 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 Citicorp 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 Citicorp 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
Citicorp 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 Citicorp
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
security" shall include a security
included in any successor to such system
and the term "OTC Bulletin Board Service"
shall include any successor service
thereto.
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 has not occurred.
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 Citicorp
and, although the Company as of the date of
this Pricing Supplement does not have any
material non-public information concerning
Citicorp, corporate events of Citicorp,
including those described below in
"Adjustments to the Exchange Ratio," are
beyond the Company's ability to control and
are difficult to predict.
Citicorp 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. Citicorp
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 Citicorp Stock, including, but not limited
to, the volatility of Citicorp Stock, the
dividend rate on Citicorp 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 Citicorp 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 Citicorp 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 accreted principal
amount thereof, if, at such time, the Market
Price of Citicorp Stock is below, equal to or
not sufficiently above the Initial Market
Price. The historical Market Prices of
Citicorp Stock should not be taken as an
indication of Citicorp 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.
Antidilution Adjustments:...... The Exchange Ratio will be adjusted as
follows:
1. If Citicorp 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
Citicorp Stock.
2. If Citicorp Stock is subject to a stock
dividend (issuance of additional shares of
Citicorp Stock) that is given ratably to all
holders of shares of Citicorp Stock, then
once the dividend has become effective and
Citicorp 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 Citicorp 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 Citicorp Stock other than distributions
described in paragraph 6 below and
Extraordinary Dividends as described
below. A cash dividend or other
distribution with respect to Citicorp
Stock will be deemed to be an
"Extraordinary Dividend" if such dividend
or other distribution exceeds the
immediately preceding non-Extraordinary
Dividend for Citicorp Stock by an amount
equal to at least 10% of the Market Price
of Citicorp 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 Citicorp Stock, the Exchange Ratio with
respect to Citicorp 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
Citicorp 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 Citicorp 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 Citicorp 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 Citicorp 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 Citicorp Stock so long as a Market Price
for Citicorp Stock is available. If a Market
Price is no longer available for Citicorp
Stock for whatever reason, including the
liquidation of Citicorp or the subjection of
Citicorp to a proceeding under any applicable
bankruptcy, insolvency or other similar law,
then the value of Citicorp Stock will equal
zero for so long as no Market Price is
available.
5. If there occurs any reclassification
or change of Citicorp Stock, or if
Citicorp 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 Citicorp as
an entirety or substantially as an
entirety, in each case as a result of
which the holders of Citicorp Stock shall
be entitled to receive stock, other
securities or other property or assets
(including cash) with respect to or in
exchange for such Citicorp 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 Citicorp Stock immediately prior
to any such corporate event. At such
time, no adjustment will be made to the
Exchange Ratio of Citicorp Stock.
6. If Citicorp issues to all of its
shareholders equity securities of an
issuer other than Citicorp (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 Citicorp 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 Citicorp 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 Citicorp 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 Citicorp Stock:
(i) a suspension, absence or material
limitation of trading of Citicorp Stock on
the primary market for Citicorp 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 Citicorp 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 Citicorp
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
Citicorp Stock and (5) an "absence of
trading" on the primary securities market
on which options contracts related to
Citicorp Stock are traded will not include
any time when such securities market is
itself closed for trading under ordinary
circumstances.
Citicorp Stock; Public
Information.................. Citicorp 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 Citicorp 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 CITICORP STOCK OR OTHER
SECURITIES OF CITICORP. ALL DISCLOSURES
CONTAINED IN THIS PRICING SUPPLEMENT
REGARDING CITICORP 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
CITICORP. NEITHER THE COMPANY NOR THE
AGENT MAKES ANY REPRESENTATION THAT SUCH
PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER
PUBLICLY AVAILABLE INFORMATION REGARDING
CITICORP 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 CITICORP STOCK
(AND THEREFORE THE INITIAL PRICE AND THE
EXCHANGE RATE) HAVE BEEN PUBLICLY
DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY
SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING CITICORP 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 MAKE ANY REPRESENTATION TO ANY
PURCHASER OF NOTES AS TO THE PERFORMANCE
OF CITICORP STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
Citicorp including extending loans to, or
making equity investments in, Citicorp or
providing advisory services to Citicorp,
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
Citicorp and, in addition, one or more
affiliates of the Company may publish
research reports with respect to Citicorp.
The Company does not make any representation
to any purchaser of Notes with respect to any
matters whatsoever relating to Citicorp. Any
prospective purchaser of a Note should
undertake an independent investigation of
Citicorp as in its judgment is appropriate to
make an informed decision with respect to an
investment in Citicorp Stock.
Historical Information......... The following table sets forth the high and
low Market Price during 1993, 1994, 1995, and
during 1996 through February 23, 1996.(1)
The Market Price on February 23, 1996 was $78
1/2. The Market Prices listed below have
been derived from publicly disseminated
information that the Company believes to be
accurate. Neither the Company nor the Agent
makes any representation as to the accuracy
of such information. The historical prices
of Citicorp Stock should not be taken as an
indication of future performance, and no
assurance can be given that the price of
Citicorp 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
Citicorp High Low Per Share
- --------------------------- -------- -------- -----------
(CUSIP #17303410)
[S] [C] [C] [C]
1993:
First Quarter.............. 29 5/8 20 7/8 -
Second Quarter............. 30 3/8 25 3/4 -
Third Quarter.............. 38 1/8 30 1/8 -
Fourth Quarter............. 39 5/8 33 7/8 -
1994:
First Quarter.............. 43 3/4 36 5/8 -
Second Quarter............. 41 7/8 36 3/4 .15
Third Quarter.............. 45 40 .15
Fourth Quarter............. 47 3/4 40 .15
1995:
First Quarter.............. 45 38 7/8 .30
Second Quarter............. 59 3/4 42 7/8 .30
Third Quarter.............. 71 7/8 58 3/8 .30
Fourth Quarter............. 73 3/8 63 5/8 .30
1996:
First Quarter
Through February
23, 1996................. 78 1/2 62 1/2 .45
- -----------------
(1) Source: Bloomberg Financial Markets.
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 Citicorp Stock. Such purchase
activity could potentially have increased the
price of Citicorp Stock, and therefore
effectively increased the level to which
Citicorp Stock must rise before a holder of a
Note would receive more than the accreted
principal amount on any Exchange Date.
Although the Company has no reason to believe
that its hedging activity had a material
impact on the price of Citicorp Stock, there
can be no assurance that the Company did not
affect such price as a result of its hedging
activities. The Company, through its
subsidiaries, is likely to modify its hedge
position throughout the life of the Notes by
purchasing and selling Citicorp Stock, taking
positions in options contracts on Citicorp
Stock listed on major securities markets or
taking positions in any other available
securities and instruments.
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. 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 federal income tax consequences of the
Notes are discussed in the accompanying
Prospectus Supplement. 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."
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 Citicorp 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 Citicorp Stock will
have a basis in the Citicorp 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 payment of the
principal amount at maturity or 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 September 1, 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 March 1, 2004 (Exchangeable for Shares of Common Stock of
Citicorp) 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 March 1, 2004), the Exchange Right as described in Pricing
Supplement No. 45 dated February 23, 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 Citicorp 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:
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[Title]
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[Fax No.]
$
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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:
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Title:
Date and time of acknowledgement
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