Subject to Completion, Pricing Supplement dated February 16, 1996
PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 45 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 February , 1996
Rule 424(b)(3)
$ 10,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
EXCHANGEABLE NOTES DUE FEBRUARY 27, 2004
Exchangeable For Shares of Common Stock of
CITICORP
The Exchangeable Notes due February 27, 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 $ ( % 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 % 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 February 27, 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 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 18 months after the Original
Issue Date 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 $ (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-4 and PS-5 herein.
--------------------
PRICE %
--------------------
Agent's
Price to Public Commissions(1) Proceeds to Company
----------------- ---------------- ---------------------
Per Note... % % %
Total...... $ $ $
_______________
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY & CO.
Incorporated
Information contained in this preliminary pricing supplement is subject to
completion or amendment. These securities may not be delivered prior to
the time a final pricing supplement is delivered. This pricing supplement
and the accompanying prospectus and prospectus supplement shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount:.............. $10,000,000
Maturity Date:................. February 27, 2004
Specified Currency:............ U.S. Dollars
Issue Price:................... %
Original Issue Date
(Settlement Date):........... , 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
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................. , 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 18 months after the Original
Issue Date 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.
Total Amount of OID:........... per $1,000 principal amount of Notes
Original Yield to Maturity:.... % per annum computed on a semiannual
bond-equivalent basis based on the Issue
Price calculated from the Original Issue Date.
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 15, 1996.(1)
The Market Price on February 15, 1996 was $75
7/8. 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.
<TABLE>
<CAPTION>
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
15, 1996................. 76 1/2 62 1/2
------------
<FN>
(1) Source: Bloomberg Financial Markets.
</TABLE>
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.
On the date of this Pricing Supplement, the
Company, through its subsidiaries and others,
may hedge its anticipated exposure in
connection with the Notes by taking positions
in Citicorp Stock, in options contracts on
Citicorp Stock listed on major securities
markets or positions in any other instruments
that it may wish to use in connection with
such hedging. Purchase activity could
potentially increase the price of Citicorp
Stock, and therefore effectively increase 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
will have a material impact on the price of
Citicorp Stock or such options, there can be
no assurance that the Company will 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 the securities and
instruments listed above and 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 Notes will be issued with original issue
discount ("OID") equal to the difference
between the Note's Issue Price and its "stated
redemption price at maturity." For this
purpose, the stated redemption price at
maturity of the Notes is equal to the
principal amount. The federal income tax
consequences of Notes issued with OID, as
well as other tax considerations relevant to
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.
The Notes will be treated as debt for United
States federal income tax purposes. 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 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.
Plan of Distribution........... The Notes may be offered to investors outside
the United States. The Agent has agreed that
any offers and sales made outside the United
States will be made in compliance with any
selling restrictions applicable in the
jurisdictions where such offers and sales are
made.
ANNEX A
OFFICIAL NOTICE OF EXCHANGE
Dated:[At least 18 months after the Original Issue Date]
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 February 27, 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 February 27, 2004), the Exchange Right as
described in Pricing Supplement No. dated February , 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 Citicorp Company 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___________
