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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995
COMMISSION FILE NUMBER 1-9085
MORGAN STANLEY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
1585 BROADWAY
NEW YORK, N.Y.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
13-2838811
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
10036
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 761-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $1 par value New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
9.36% Cumulative Preferred Stock, $25 stated value New York Stock Exchange
Depositary Shares, each representing 1/8 of a share of 8.88% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
Depositary Shares, each representing 1/8 of a share of 8 3/4% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
Depositary Shares, each representing 1/8 of a share of 7 3/8% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
7.82% Capital Units; 7.80% Capital Units; 9.00% Capital Units; New York Stock Exchange
8.40% Capital Units; 8.20% Capital Units*
AMEX Hong Kong 30 IndexSM Call Warrants Expiring November 4, 1996; American Stock Exchange
AMEX Hong Kong 30 IndexSM Call Warrants Expiring October 3, 1997+
Japan IndexSM Call Warrants Expiring May 28, 1996+ American Stock Exchange
Nikkei 225 Index Call Warrants Expiring August 15, 1997 American Stock Exchange
6 1/2% PERQSSM Due July 1, 1997; 6% PERQSSM Due October 1, 1997; American Stock Exchange
7% PERQSSM Due November 15, 1997; 6% PERQSSM Due February 16, 1999++
Exchangeable Notes Due September 30, 2000; Exchangeable New York Stock Exchange
Notes Due December 31, 2001+++
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* Each Capital Unit consists of (a) a $25 principal amount Subordinated
Debenture (of the same rate) of Morgan Stanley Finance plc guaranteed by the
Registrant and (b) a related purchase contract of the Registrant requiring
the holder to purchase one Depositary Share representing 1/8 of a share of
the Registrant's Cumulative Preferred Stock (of the same rate), $200 stated
value. The Capital Units and the Depositary Shares are registered on the New
York Stock Exchange.
+ The "AMEX Hong Kong 30 Index" and the "Japan Index" are service marks of the
American Stock Exchange.
++ "PERQS" and "Performance Equity-linked Redemption Quarterly-pay Securities"
are service marks of the Registrant. The issue price and amount payable at
maturity with respect to the PERQS are based on the share price of certain
non-affiliated companies.
+++ Notes which are exchangeable on a defined date for equity securities of
certain non-affiliated companies.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES /X/. NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at February 7, 1996 was approximately $5,409,071,114. For purposes of
this information, the outstanding shares of common stock owned by certain
Managing Directors and Principals of certain wholly-owned subsidiaries of the
Registrant, and subject to certain restrictions on voting and disposition, were
deemed to be shares of common stock held by affiliates.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
As of February 7, 1996, there were 154,087,313 shares of Common Stock, $1
par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Morgan Stanley Group Inc. 1995 Annual Report to
Stockholders -- Incorporated in part in Form 10-K, Parts I, II and IV.
(2) Morgan Stanley Group Inc. Proxy Statement for its 1996 Annual Meeting
of Stockholders -- Incorporated in part in Form 10-K, Parts I and III.
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PART I
ITEM 1. BUSINESS
Morgan Stanley Group Inc. (the "Company"*) is a holding
company that, through its subsidiaries, provides a wide range of financial
services on a global basis. Its businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring, real estate,
project finance and other corporate finance advisory activities; merchant
banking and other principal investment activities; brokerage and research
services; asset management; the trading of foreign exchange and commodities as
well as derivatives on a broad range of asset categories, rates and indices;
and global custody, securities clearance services and securities lending.
These services are provided to a large and diversified group of clients and
customers, including corporations, governments, financial institutions and
individual investors. The Company, which was formed in 1935, conducts business
from its head office in New York City, international offices in Beijing,
Bombay, Frankfurt, Geneva, Hong Kong, Johannesburg, London, Luxembourg, Madrid,
Melbourne, Milan, Montreal, Moscow, Osaka, Paris, Seoul, Shanghai, Singapore,
Sydney, Taipei, Tokyo, Toronto and Zurich, and United States ("U.S.") regional
offices in Chicago, Philadelphia, Los Angeles and San Francisco. At November
30, 1995, the Company employed 9,238 people.
The Company conducts its broker-dealer business principally in
the U.S. through Morgan Stanley & Co. Incorporated ("MS&Co."), in Europe
through Morgan Stanley & Co. International Limited ("MSIL"), in Japan through
Morgan Stanley Japan Limited ("MS Japan") and in the rest of Asia through
Morgan Stanley Asia Limited ("MS Asia"). Because of the increasing integration
of the international financial markets, the Company manages its principal
operating subsidiaries, including MS&Co., MSIL, MS Japan and MS Asia, on a
coordinated global basis with a view to the profitability of the enterprise as
a whole.
The Company's business activities are highly integrated and
constitute a single industry segment. Financial information concerning the
Company for each of the three periods ended November 30, 1995,** January 31,
1995 and January 31, 1994, including the amount of total revenue contributed by
classes of similar products or services that accounted for 10% or more of the
Company's consolidated revenue in any one of those periods and information with
respect to the Company's operations by geographic area, is set forth in the
Consolidated Financial Statements and the Notes thereto in the 1995 Annual
Report to Stockholders and is incorporated herein by reference.
__________________________________
* Unless the context otherwise requires, the term "Company" means Morgan
Stanley Group Inc. and includes the consolidated subsidiaries of Morgan
Stanley Group Inc. Please note that in the 1995 Annual Report to
Stockholders, which is incorporated by reference in part in this Form
10-K, the term "Morgan Stanley" is generally used to refer to the
Company. Except for the historical information contained in this Form
10-K, certain items herein, including (without limitation) certain
matters discussed under Part I, Item 3, "Legal Proceedings" and under
Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (incorporated herein by reference)
("MD&A"), are forward-looking statements. The matters referred to in
such statements could be affected by the risks and uncertainties
involved in the Company's business, including (without limitation) the
effect of economic and market conditions, the level and volatility of
interest rates and currency values, the impact of current or pending
legislation and regulation and the other risks and uncertainties
detailed in Part I, Item I, "Competition and Regulation" and "Risk
Management" and in the MD&A.
** The Company changed its fiscal year-end from January 31 to November 30
effective for November 30, 1995.
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INVESTMENT BANKING ACTIVITIES
The Company is a leading global investment banking firm which
provides advice to, and raises capital worldwide for, a broad group of domestic
and international clients. The Company manages and participates in public
offerings and private placements of debt, equity and other securities
denominated in U.S. dollars and other currencies in the U.S. and international
capital markets. The Company is a leading underwriter of common stock,
preferred stock, Preferred Equity Redemption Cumulative Stock ("PERCS(R)"),
Performance Equity-linked Redemption Quarterly-pay Securities ("PERQS(SM)"),
other equity-related securities, including American Depositary Receipts
("ADRs"), and taxable fixed income securities. The Company also underwrites
tax exempt securities. The Company underwrites mortgage-related securities,
including private pass-throughs and collateralized mortgage obligations
("CMOs"), and other asset-backed securities. The Company is active as an
underwriter and distributor of commercial paper and other short-term and
medium-term securities. The Company is also involved in tender offers,
repurchase programs, consent solicitations, rights offerings and exchange
offers on behalf of clients.
The Company provides domestic and international corporate and
institutional clients with a wide range of advisory services on key strategic
matters such as mergers, acquisitions, joint ventures, privatizations,
defenses, divestitures, spin-offs, restructurings, proxy mechanisms and
leveraged buyouts as well as long-range financial planning. Other such
services provided to clients include advice with respect to recapitalizations,
dividend policy, valuations, foreign exchange exposures and financial risk
management strategies. In addition, the Company provides advice and other
services relating to project financings, lease transactions and the purchase,
sale and financing of real estate. The Company may, from time to time, also
provide financing or financing commitments to companies in connection with its
investment banking activities. See also "Asset Management Activities --
Merchant Banking and Other Principal Investing."
SALES, TRADING AND MARKET-MAKING ACTIVITIES
SALES AND TRADING
The Company provides a broad range of sales and trading
services to investors worldwide and is an active dealer in fixed income,
equity, foreign exchange and commodity products, including derivatives. In the
U.S., the Company ranks as one of the largest dealers in equity and fixed
income securities. As a member of the major U.S. securities and commodities
exchanges, as well as the major foreign exchanges, including the London and
Tokyo Stock Exchanges, the Company conducts its sales and trading activities
both as principal and as agent on behalf of a wide range of domestic and
international institutional and, primarily through its Private Client Services
Department, certain individual investors. The Company trades for its own
account in equity and fixed income securities and instruments, foreign
currencies, commodities and associated derivative products. The Company also
provides financing to clients, including margin lending and other extensions of
credit.
The Company's equity sales, trading and market-making
activities cover domestic and foreign equity and equity-related securities
(both exchange traded and over-the-counter
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("OTC")), including ADRs, Optimised Portfolios as Listed Securities (OPALS(SM))
and restricted/control stock; convertible debt and preferred securities,
including PERCS(R), PERQS(SM) and warrants; equity index products and equity
swaps; and international index arbitrage, equity repurchases and program and
block trade execution. The Company borrows and lends equity securities. The
Company also engages in the risk arbitrage business, which involves investing
for the Company's own account in securities of companies involved in publicly
announced corporate transactions in which the Company is not at the time of
investment acting as adviser or agent.
The Company distributes and trades domestic and international
debt securities, particularly corporate debt instruments and preferred stock,
and offers investment strategies to institutional accounts, develops swap
strategies for customers and assists corporations in their repurchase of debt.
In addition, the Company trades a full range of money market instruments,
including certificates of deposit, domestic and foreign bankers' acceptances,
floating-rate certificates of deposit and floating-rate notes. The Company is
an active dealer and market-maker in a broad range of long-term and short-term
tax exempt securities. The Company is also involved in structuring debt
securities with multiple risk/return factors designed to suit investor
objectives and repackaged asset vehicles (RAVs) through which investors can
restructure asset portfolios to provide liquidity or recharacterize risk
profiles.
The Company is one of 37 primary dealers of U.S. government
securities currently recognized by the Federal Reserve Bank of New York. As
such, it is among the firms with which the Federal Reserve conducts its open
market operations and is required to submit bids in Treasury auctions, make
secondary markets in U.S. government securities, provide the Federal Reserve
Bank of New York with market information and maintain certain capital
standards. The Company is also a member of a number of selling groups
responsible for the distribution of various issues of U.S. agency and other
debt securities. As such, it is required to make secondary markets in these
securities and to provide market information to the U.S. agency and
instrumentality issuers. The Company is also a member of the primary syndicate
that issues German government bonds, a member of the Japanese government bond
syndicate and a primary dealer in Canadian, French and Italian government
bonds. The Company also makes secondary markets in various foreign government
bonds and other foreign currency denominated bonds issued in the Eurobond
market and in the U.S.
The Company's daily trading inventory positions in government,
agency and instrumentality securities are financed substantially through the
use of repurchase agreements. The Company also borrows and lends fixed income
securities. In addition, the Company acts as an intermediary between borrowers
and lenders of short-term funds utilizing repurchase and reverse repurchase
agreements. At any given point in time, the Company may hold large positions
in certain types of securities or commitments to purchase securities of a
single issuer, sovereign governments and other entities, issuers located in a
particular country or geographic area, public and private issuers involving
developing countries or issuers engaged in a particular industry. For example,
financial instruments owned by the Company include U.S. government and agency
securities and securities issued by non-U.S. governments (principally France,
Germany, Italy and Japan) which, in the aggregate, represented 18% of the
Company's total assets at November 30, 1995. In addition, a vast majority of
all of the collateral held by the Company for resale agreements or bonds
borrowed, which together represents 37% of the Company's total assets at
November 30,
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1995, consists of securities issued by the U.S. government, federal agencies or
non-U.S. governments.
The Company trades and distributes asset-backed securities.
The Company makes markets and trades in Government National Mortgage
Association ("GNMA") securities, Federal Home Loan Mortgage Corp. ("FHLMC")
participation certificates and Federal National Mortgage Association ("FNMA")
obligations. The Company enters into significant commitments, such as forward
contracts, standby arrangements and OTC options contracts, for GNMA, FHLMC and
FNMA securities. The Company also acts as an underwriter of and market-maker
in mortgage-backed securities, CMOs and related instruments, and a market-maker
in commercial, residential and real estate loan products. In this capacity,
the Company takes positions in market segments where liquidity can vary greatly
from time to time; the carrying value of such financial instruments currently
experiencing lower levels of liquidity approximated $1,169 million at November
30, 1995.
The Company also underwrites, trades, invests and makes
markets in high-yield debt securities and emerging market loans and securitized
instruments. "High-yield" refers to companies or sovereigns whose debt is rated
as non-investment grade. High-yield debt securities, emerging market loans and
securitized instruments held for sale by the Company are carried in the
Company's Consolidated Statement of Financial Condition at their fair values.
Trading gains and losses (inclusive of unrealized gains and losses) on
high-yield debt securities and emerging market loans and securitized instruments
are included as principal transaction revenues in the Company's Consolidated
Statement of Income. At November 30, 1995, the aggregate net market value of
high-yield debt securities and emerging market loans and securitized instruments
held in inventory, including the securities of issuers in which the Company has
made equity investments in connection with its merchant banking and other
principal investment activities (see "Asset Management Activities -- Merchant
Banking and Other Principal Investing"), was $1,264 million (a substantial
portion of which was subordinated debt), with not more than 7%, 12% and 9% of
all such securities, loans and instruments attributable to any one issuer,
industry or geographic region, respectively. For a discussion of the various
risks associated with the Company's high-yield debt and emerging market loan
activities and the Company's policies and procedures with respect to the
management and monitoring of these risks, see "Risk Management."
The Company also actively trades a number of foreign
currencies on a spot and forward basis with its customers, for its own account
and to hedge its securities positions or liabilities. In connection with its
market-making activities, the Company takes open positions in the foreign
exchange market for its own account. The Company, on a more limited basis,
enters into forward currency transactions as agent and principal for periods of
up to seven years. The Company is a leading participant in currency futures
trading at the International Monetary Market division of the Chicago Mercantile
Exchange and is a leading dealer in OTC and exchange traded currency options on
a worldwide basis. The Company also trades as principal in the spot, forward
and futures markets in a variety of commodities, including precious metals,
base metals, crude oil, oil products, natural gas and related energy products.
The Company is an active market-maker in swaps and OTC options on commodities
such as metals, crude oil, oil products, natural gas and electricity, and
offers a range of hedging programs relating to production, consumption and
reserve/inventory management. The Company is also an electricity power
marketer in the U.S.
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The Company actively offers to clients and trades for its own
account a variety of financial instruments described as "derivative products"
or "derivatives." These products, some of which may be complex in structure,
generally take the form of futures, forwards, options, swaps, caps, collars,
floors, swap options and similar instruments which derive their value from
underlying interest rates, foreign exchange rates or commodity or equity
instruments and indices.* All of the Company's trading related business units
use derivative products as an integral part of their respective trading
strategies, and such products are used extensively to manage the market
exposure that results from proprietary trading activities. In addition, as a
dealer in certain derivative products, most notably interest rate and currency
swaps, the Company enters into derivative contracts to meet a variety of risk
management and other financial needs of its clients. Through the Company's
triple-A rated subsidiary (Morgan Stanley Derivative Products Inc.), the
Company also enters into swap and related derivative transactions with certain
clients seeking a triple-A rated counterparty. For a detailed discussion of
the Company's use of derivatives, see 1995 Annual Report to Stockholders,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Derivative Financial Instruments" and "Notes to Consolidated
Financial Statements, Note 5."**
Derivatives used in the Company's trading or dealing
activities are recorded in its Consolidated Statement of Financial Condition at
fair value (based on listed market prices or, if listed market prices are not
available, based on other relevant factors, including dealer price quotations,
time value and yield curve or volatility factors underlying the positions and
price quotations for similar instruments traded in different markets),
representing the cost of replacing these instruments. Gains or losses
(realized and unrealized) on derivatives are generally included on a net basis
as principal transaction revenues in the Company's Consolidated Statement of
Income. The total notional value of derivative contracts outstanding as of
November 30, 1995 was $985 billion, which is an indication of the Company's
degree of use of derivatives for trading purposes but is not representative of
any market or credit exposure and may be more indicative of customer
utilization of derivatives. The Company's exposure to market risk relates to
changes in interest rates, foreign currency exchange rates, or the fair value
of the underlying financial instruments or commodities which may ultimately
result in cash settlements which differ from the amounts currently recognized in
the Company's Consolidated Statement of Financial Condition. The Company's
credit exposure at any point in time is represented by the fair value of such
instruments reported as assets, which at November 30, 1995 was $8.0 billion.
For a discussion of the various risks associated with the Company's derivative
activities and the Company's policies and procedures with respect to the
management and monitoring of these risks, see "Risk Management."
__________________________________
* The Company does not include mortgage-backed securities in this
category in accordance with Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments."
** In addition, the Company also uses derivative products (primarily
interest rate and currency swaps) to assist in asset and liability
management and to reduce borrowing costs. Net revenues from
derivatives used in the Company's own asset and liability
management are recognized ratably over the term of the contract as
an adjustment to interest expense. See 1995 Annual Report to
Stockholders, "Notes to Consolidated Financial Statements, Note 3."
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From time to time, the Company has organized, advised and
managed certain funds that invest and trade in particular equity or debt
securities, foreign currencies or commodities and may continue to do so in the
future. In connection with such activities, the Company has made and may
continue to make investments for its own account in one or more of such funds.
RESEARCH
The Company is engaged in a wide range of research activities.
The Company analyzes worldwide economic trends covering a broad range of
industries and companies in the U.S. and internationally and produces
publications and studies on the economy, financial markets, portfolio strategy,
technical market analyses, industry developments and individual companies. The
Company also provides analyses and forecasts relating to economic and monetary
developments affecting matters such as interest rates, Federal Reserve open
market operations, foreign currencies and securities and economic trends.
Support for the sales and trading of fixed income securities is also provided
in the form of quantitative and credit analyses and the development of research
products that are distributed to the Company's clients. In addition, the
Company provides analytical support and publishes reports on mortgage-related
securities and the markets in which they are traded and does original research
on valuation techniques.
ASSET MANAGEMENT ACTIVITIES
ASSET MANAGEMENT
Through Morgan Stanley Asset Management ("MSAM"), the Company
provides global portfolio management to taxable and non-taxable institutions,
domestic and foreign governments, pension funds, international organizations,
mutual funds and individuals investing in domestic and international equities
and fixed income securities (including in emerging markets) and sponsors open-
and closed-end mutual funds. The Company also performs a broad range of
fiduciary and named fiduciary services for pension funds and trusts. Through
MSAM the Company had approximately $55 billion in assets under management at
November 30, 1995.
On January 3, 1996, a wholly owned subsidiary of Morgan
Stanley Asset Management Inc. ("MSAM Inc."), together with two of its
affiliates, completed the acquisition of Miller Anderson & Sherrerd, LLP
("MAS"), an institutional investment manager, for approximately $350 million,
payable in a combination of cash, stock of the Company and notes. On a pro
forma basis, the combination of MAS with MSAM will increase the Company's
assets under management at November 30, 1995 to approximately $90 billion.
MAS's activities have been included in the Company's consolidated results since
January 1996.
GLOBAL SECURITIES SERVICES
Through Morgan Stanley Services ("MS Services"), the Company
provides a full range of securities services and information, including global
custody, clearance, lending and settlement operations, foreign exchange,
valuation services, cash management and margin lending. The Company's
securities services operations support mutual funds, investment limited
partnerships, investment managers, investment funds, insurance companies,
banks, foundations, endowments, family trusts, government agencies, public and
private pension funds and broker-
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dealers. The Company acts as principal and agent in stock borrow and stock loan
transactions in support of the Company's domestic and international trading and
brokerage, asset management and clearing activities and as an intermediary
between broker-dealers. Through MS Services, the Company maintains a network of
agent banks in 64 countries. Morgan Stanley Capital International (MSCI(R)),
the Company's global equity index and company data business, provides the global
investment community with benchmark indices (including The World, EAFE(R) and
Emerging Market Indices), a 25-year historical database and price and
fundamental data covering 4,200 companies in 46 developed and emerging countries
through a variety of print, electronic and software vendor-supported products.
Through MS Services, the Company had approximately $111 billion in global assets
under custody at November 30, 1995.
MERCHANT BANKING AND OTHER PRINCIPAL INVESTING
The Company also uses its capital and capital from funds under
its management in a variety of activities that have been broadly described as
merchant banking. Such activities include, among other things, making
commitments to purchase, and making investments in, equity and debt securities
in merger, acquisition, restructuring, private investment and leveraged capital
transactions. Such activities also include investments in real estate assets,
portfolios and operating companies. The Company is generally the general
partner of, and an investor in, the funds which it sponsors.
In the merchant banking area, Morgan Stanley Capital Partners
III, L.P. ("MSCP III") was formed in 1994 with $1.9 billion in capital
commitments to invest primarily in private equity or equity-related securities
of companies. As of November 30, 1995, MSCP III had invested $545 million in
15 companies in the U.S., Europe and Asia. The Morgan Stanley Leveraged Equity
Fund II, L.P. was formed in 1987 to invest in and provide financing for
leveraged transactions and companies and invested $1.9 billion in the equity of
31 companies of which 19 companies representing $1.3 billion of cost basis
remain in its portfolio at November 30, 1995; this fund is no longer making new
investments, but is actively managing its existing investment portfolio. As of
November 30, 1995, the merchant banking portfolio consisted of 41 companies in
a wide range of industries.
In the venture capital area, Morgan Stanley Venture Capital
Fund II, L.P. ("MSVCF II") was formed in 1993 with $126 million in capital
commitments to invest primarily in private equity or equity-related securities
of U.S. emerging growth companies, principally in the healthcare and
information technology sectors. As of November 30, 1995, MSVCF II had invested
$86 million in 16 companies. Morgan Stanley Venture Capital Fund L.P. was
formed in 1986 and invested $84 million in the equity of 38 companies of which
12 companies representing $32 million of cost basis remain in its portfolio at
November 30, 1995; this fund is no longer making new investments, but is
actively managing its existing investment portfolio.
Princes Gate Investors, L.P. ("Princes Gate") was formed in
1992 with $300 million (subsequently increased to $750 million) in aggregate
investment capacity to invest in special situation opportunities.Princes Gate
generally makes minority equity and equity-related investments which are short-
to medium-term in duration and which arise out of the Company's worldwide
investment banking activities. As of November 30, 1995, Princes Gate had
invested
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$269 million in eight companies. Subsequent to November 30, 1995, Princes Gate
Investors II, L.P. was formed with $600 million in aggregate investment
capacity (including $50 million available from the Company) to continue the
investment strategy of Princes Gate. Princes Gate is no longer making new
investments, but is actively managing its existing investment portfolio.
In the real estate area, The Morgan Stanley Real Estate Fund
II, L.P. ("MSREF II") was formed in 1994 with approximately $1 billion in
capital commitments to invest in real estate assets. As of November 30, 1995,
MSREF II had invested or committed to invest $220 million in real estate
totaling $900 million (including third party financing) relating to four real
estate transactions. The Morgan Stanley Real Estate Fund, L.P. was formed in
1991 and has invested $490 million in real estate totaling $2.8 billion
(including third party financing) relating to 19 real estate transactions of
which 18 investments representing $1.5 billion of real estate (including third
party financing) remain in its portfolio at November 30, 1995; this fund is no
longer making new investments, but is actively managing its existing investment
portfolio.
From time to time the Company may sponsor additional funds and
commit to invest in such funds.
Equity securities purchased in merchant banking and principal
investment transactions ("investments") generally are held for appreciation,
are not readily marketable and do not provide dividend income. As of November
30, 1995, the aggregate carrying value of the Company's investments (directly
and indirectly through the above-referenced funds) in 79 privately held
companies was $156 million and in 18 publicly held companies was $242 million.
At November 30, 1995, the Company had aggregate commitments of approximately
$209 million to make future investments in connection with its merchant banking
and other principal investment activities. The Company's future commitments
extend until January 1999.
Investments made in connection with merchant banking and other
principal investment transactions initially are carried in the Company's
Consolidated Statement of Financial Condition at their original cost. The
carrying value of such equity securities is adjusted upward only when changes
in the underlying market values are readily ascertainable, generally as
evidenced by listed market prices or transactions which directly affect the
value of such equity securities. Downward adjustments in such equity securities
are made in the event that the Company determines that the eventual realizable
value is less than the carrying value.
It is not possible to determine whether or when the Company
will realize the value of the investments, including any appreciation,
dividends or other distributions thereon, since, among other things, such
investments are generally subject to restrictions on such realization relating
to the circumstances of particular transactions. Moreover, estimates of the
eventual realizable value of the investments fluctuate significantly over time
in light of business, market, economic and financial conditions generally or in
relation to specific transactions or other factors, including the financial
leverage involved in the underlying transactions. For a discussion of the
various risks associated with the Company's merchant banking and other
principal investment activities and the Company's policies and procedures with
respect to the management and monitoring of these risks, see "Risk Management."
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For purposes of financial statement classification, merchant
banking and other principal investment advice, underwriting, origination and
commitment fees are included as investment banking revenues in the Company's
Consolidated Statement of Income. Fees for funds under management by the
Company are included in asset management and administration revenues.
Investment gains and losses relating to, and distributions from, equity
investments are included in principal transactions/investment revenues.
The Company may also underwrite, trade, invest and make
markets, and publish research with respect to, the securities of issuers in
which the Company or the funds have an investment. Such securities may include
equity and high-yield debt securities of such issuers. In addition, the
Company may provide financial advisory services to, and have securities and
commodity trading relationships with, these issuers.
From time to time, the Company provides loans, financing
commitments or other extensions of credit, including on a subordinated and
interim basis, to companies (which may otherwise be leveraged) associated with
its merchant banking and other principal investment activities. Loans made in
connection with such activities are carried at unpaid principal balances plus
accrued interest less reserves, if deemed necessary, for estimated losses.
Subsequent to November 30, 1995, the Company formed Morgan
Stanley Bridge Fund, L.L.C. ("MSBF"), a bridge facility with $600 million in
aggregate investment capacity (including $150 million available from the
Company) that will provide financing consisting primarily of subordinated loans
or debt financing to clients that require commitments on a timely basis,
generally in connection with strategic and financial acquisitions, leveraged
buyouts, recapitalizations and other special situations. Such financing will
generally be provided in connection with the Company's investment banking and
merchant banking activities. MSBF will have an investment period ending in
January 1999 (subject to earlier termination in certain instances), which may
be extended for an additional year by agreement of the members.
The Company also has plans to become active in the senior
syndicated lending area in connection with its investment banking activities.
FINANCE, ADMINISTRATION AND OPERATIONS
The Company's finance, administration and operations
departments include Controllers, Credit, Corporate Services, Corporate
Treasury, Facilities, General Services, Information Technology, Internal Audit,
Market Risk, Legal and Compliance, Tax, Office of Development, Operations and
Security. These departments support the Company's diverse global businesses
through the processing of securities, foreign exchange and commodities
transactions; receipt and delivery of funds and securities; safeguarding of
customers' securities; internal financial controls, including management of
global expenses, capital structure and funding; and ensuring compliance with
regulatory and legal requirements. In addition, the Company has integrated
recruitment, staffing, compensation and benefits, and career development and
training initiatives to ensure that its human resources are aligned with
strategic objectives. Certain of these areas also assist in the management and
monitoring of the risks associated with the Company's business activities (see
"Risk Management").
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<PAGE> 11
COMPETITION AND REGULATION
The Company encounters intense competition in all aspects of
the financial services business and competes worldwide directly with other
firms, both domestic and international, a significant number of which have
greater capital and other resources. Among the principal competitive factors
affecting the Company's business are the Company's general reputation, the
overall quality of its professionals, its ability to maintain existing client
relationships and develop new ones and its capability in originating and
marketing innovative products and services. Moreover, the Company's ability to
commit capital is an important competitive factor in relation to not only
generating potentially higher sales and trading revenues but also attracting
business opportunities involving the facilitation of major transactions by
clients. In addition to competition from firms traditionally engaged in the
securities business, there has been increased competition from other sources,
such as commercial banks, insurance companies and other companies offering
financial services. As a result of pending legislative and regulatory
initiatives in the U.S. to remove or relieve certain restrictions on commercial
banks, it is anticipated that competition in some markets currently dominated
by investment banks may increase in the near future. Such competition, among
other things, affects the Company's ability to attract and retain highly
skilled individuals. In addition, the two complementary trends in the
financial services industry of consolidation and globalization present, among
other things, technological and other infrastructure challenges that will
require effective resource allocation in order for the Company to remain
competitive.
The Company's business is, and the securities, commodities and
financial services industries generally are, subject to extensive regulation in
the U.S. at both the Federal and state levels and internationally. Various
regulatory bodies are charged with safeguarding the integrity of the securities
and other financial markets and with protecting the interests of customers
participating in those markets. MS&Co. is registered as a broker-dealer with
the Securities and Exchange Commission ("SEC") and in all 50 states, the
District of Columbia and Puerto Rico and is a member of the National Association
of Securities Dealers, Inc. ("NASD") and the New York Stock Exchange, Inc.
("NYSE"). The Company and certain other subsidiaries, including MS&Co. and MSAM
Inc., are registered as investment advisers with the SEC and in certain states.
Broker-dealers are subject to regulation by state securities administrators in
those states in which they conduct business. Broker-dealers are also subject to
regulations that cover all aspects of the securities business, including sales
and trading practices, use and safekeeping of customers' funds and securities,
capital structure, record-keeping and the conduct of directors, officers and
employees. The SEC, other governmental regulatory authorities, including state
securities commissions, and self-regulatory organizations may institute
administrative proceedings, which may result in censure, fine, the issuance of
cease-and-desist orders, the suspension or expulsion of a broker-dealer or
member, its officers or employees or other similar consequences. Additional
legislation and regulations, including those relating to the activities of
affiliates of broker-dealers, changes in rules promulgated by the SEC or other
governmental regulatory and self-regulatory authorities (such as changes to the
U.S. Internal Revenue Code and related regulations or rules promulgated by the
Financial Accounting Standards Board) or changes in the interpretation or
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<PAGE> 12
enforcement of existing laws and rules may directly affect the manner of
operation and profitability of the Company.*
As a futures commission merchant, MS&Co. is registered with
the Commodity Futures Trading Commission ("CFTC") and its activities in the
futures and options-on-futures markets are subject to regulation by the CFTC
and various domestic boards of trade and other commodity exchanges. Certain
subsidiaries of the Company are registered as commodity trading advisers and/or
commodity pool operators with the CFTC. The Company's futures and
options-on-futures business is also regulated by the National Futures
Association ("NFA"), a not-for-profit membership corporation, which has been
designated a registered futures association by the CFTC and of which MS&Co. is
a member.
As a broker-dealer, MS&Co. is subject to the SEC's temporary
risk assessment rules which require, among other things, that a broker-dealer
maintain and preserve certain information, describe risk management policies
and procedures and report on the financial condition of certain affiliates
whose financial and securities activities are reasonably likely to have a
material impact on the financial and operational condition of the
broker-dealer. As a futures commission merchant, MS&Co. is also subject to the
CFTC's risk assessment rules which have certain requirements similar to the
SEC's rules and also require the reporting of certain "trigger events" when net
capital is reduced by substantial amounts.
With respect to OTC derivatives, the Company is an active
member of the International Swaps and Derivatives Association (ISDA), the Group
of 30 and the Derivatives Policy Group, a group of securities firms formed at
the request of the SEC and CFTC to address concerns regarding the OTC
derivatives activities of U.S. broker-dealer affiliates not subject to
direct regulatory oversight. In March 1995, the Derivatives Policy Group
agreed to adhere to a voluntary oversight framework relating to reporting,
capital, management controls and counterparty relationships.
Margin lending by certain subsidiaries of the Company is
subject to the margin rules of the Board of Governors of the Federal Reserve
System and the NYSE. Morgan Stanley Trust Company, the Company's principal
subsidiary that engages in custodial activities, is subject to regulation by
the New York State Banking Department.
Certain of the Company's government securities activities are
conducted through Morgan Stanley Market Products Inc. which is a member of the
NASD and is registered as a government securities broker-dealer with the SEC
and in certain states. The Department of the Treasury has promulgated
regulations concerning, among other things, capital adequacy, custody and use
of government securities and transfers and control of government securities
subject to repurchase transactions. The rules of the Municipal Securities
Rulemaking Board, which are enforced by the NASD, govern the municipal
securities activities of the Company.
__________________________________
* For a discussion of two recent accounting proposals that could have a
material impact on the Company's future financial condition, see 1995
Annual Report to Stockholders, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Potential Impact of
Financial Accounting Standards Board Exposure Drafts on the Company's
Financial Statements."
11
<PAGE> 13
Companies in the merchant banking portfolio that are in
certain regulated industries (e.g., insurance, public utilities or
broadcasting) could subject the Company to additional regulation by virtue of
the Company's affiliation with the funds that own equity interests in such
companies or otherwise. For example, one merchant banking portfolio company
owns several insurance companies which subjects the Company to certain state
insurance holding company regulations that require the Company, among other
things, to register with certain state regulatory authorities. These state
insurance regulations also generally prohibit the acquisition of a controlling
interest in the Company (which may be deemed to occur upon the acquisition of
10% or more of the outstanding voting stock of the Company) without the prior
approval of the relevant state commissioners of insurance.
The Company's business is also subject to extensive regulation
by various non-U.S. governments, securities exchanges, central banks and
regulatory bodies, especially in those jurisdictions in which the Company
maintains an office. For example, the Company's business in the United Kingdom
is regulated by The Securities and Futures Authority Limited, the Bank of
England and the Investment Management Regulatory Organisation, and a number of
exchanges, including the London Stock Exchange and the London International
Financial Futures and Options Exchange. The Bundesbank, the Bundesaufsichtsamt
fur das Kreditwesen (the Federal German Banking Authority), the
Bundesaufsichtsamt fur das Wertpapierhandel (the Federal German Securities
Agency), the Frankfurt Stock Exchange and the Deutsche Terminboerse (the German
Futures Exchange) regulate the Company's activities in the Federal Republic of
Germany. The Company's business in Japan is subject to Japanese law applicable
to foreign securities firms and related regulations of the Japanese Ministry of
Finance and to the rules of the Bank of Japan and several Japanese securities
and futures exchanges, including the Tokyo Stock Exchange, the Osaka Securities
Exchange and the Tokyo International Financial Futures Exchange. The Monetary
Authority of Singapore and the Singapore International Monetary Exchange
regulate the Company's business in Singapore; and the Company's operations in
Hong Kong are regulated by the Securities and Futures Commission of Hong Kong,
the Stock Exchange of Hong Kong Ltd., the Hong Kong Futures Exchange and the
Hong Kong Monetary Authority.
As registered broker-dealers and member firms of the NYSE,
certain subsidiaries of the Company, including MS&Co., are subject to the SEC's
net capital rule, and as a futures commission merchant MS&Co. is subject to the
net capital requirements of the CFTC and various commodity exchanges. Many
non-U.S. securities exchanges and regulatory authorities also either have
imposed or are considering imposing rules relating to capital requirements that
apply to subsidiaries of the Company (such as rules that have been or will be
promulgated in connection with the European Union Capital Adequacy Directive),
including certain European subsidiaries that are considered banking
organizations under local law. These rules, which specify minimum capital
requirements, are designed to measure general financial integrity and liquidity
and require that at least a minimum amount of assets be kept in relatively
liquid form. Compliance with the capital requirements may limit those
operations of the Company that require the intensive use of capital, such as
underwriting, merchant banking and trading activities, and the financing of
customer account balances, and also restricts the Company's ability to withdraw
capital from its subsidiaries, which in turn may limit the Company's ability to
pay dividends, repay debt or redeem or purchase shares of its outstanding
capital stock. A change in such rules, or the imposition of new rules,
affecting the scope, coverage, calculation or amount of capital requirements,
or a significant
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<PAGE> 14
operating loss or any unusually large charge against capital would adversely
affect the ability of the Company to pay dividends or to expand or even maintain
present levels of business.
RISK MANAGEMENT *
Risk is an inherent part of the Company's businesses and
activities. The financial services business and its profitability are affected
by many factors of a national and international nature, including economic and
market conditions, broad trends in business and finance, legislation and
regulation affecting the national and international financial communities,
inflation, the availability of capital, the availability of credit and the
level and volatility of interest rates and currency values. The extent to which
the Company properly and effectively identifies, assesses, monitors and manages
each of the various types of risks involved in its activities is critical to
its soundness and profitability. The Company's broad-based portfolio of
business activities helps reduce the impact that volatility in any particular
area or related areas may have on its net revenues as a whole. From an
operational perspective, the Company seeks to identify, assess, monitor and
manage, in accordance with defined policies and procedures, the following
principal risks involved in each area of business activity: market risk, credit
risk, operational risk and legal risk.
Risk management at the Company is an integrated process with
independent oversight which requires constant communication, judgment and
knowledge of specialized products and markets. The Company's senior management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in the identification, assessment and control of various risks. The
Company has developed a control infrastructure to manage and monitor each type
of risk on a global basis throughout the Company. In addition, the Company has
developed particular risk management policies and procedures for certain
business activities, including merchant banking and other principal investment
activities, high-yield securities and derivative products. In recognition of
the increasingly varied and complex nature of the financial services business,
the Company's risk management policies and procedures are evolutionary in nature
and are subject to ongoing review, modification and revision.
The Company has developed a multi-tiered approach for
monitoring and managing its risks. The Finance and Risk Committee, authorized
by the Company's Board of Directors, is chaired by the Company's Chief
Financial Officer and composed of senior officers with familiarity and
expertise in dealing with risk management principles. It establishes the
overall risk management policies of the Company, reviews the Company's
performance relative to these policies, allocates capital among business
activities of the Company, monitors the availability of sources of financing,
reviews the foreign exchange risk of the Company, and oversees liquidity and
interest rate sensitivity of the Company's asset and liability position. The
Firm Risk Manager heads the Firm Risk Management Group (described below) and
assists senior management and the Finance and Risk Committee in establishing,
monitoring and controlling the Company's overall
__________________________________
* For a further discussion of the Company's risk management policies and
procedures, see 1995 Annual Report to Stockholders, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Management" and "Notes to Consolidated Financial
Statements, Note 5."
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<PAGE> 15
risk profile. With respect to the Company's major trading divisions (fixed
income, equity, commodities and foreign exchange), division risk managers manage
and monitor positions and set the overall division risk profile on a worldwide
basis within established market risk limits, review major trading positions and
strategies, and report unusual market and position events. Desk risk managers
perform similar functions with respect to a product area or particular product
at the business unit and trading desk level.
The Firm Risk Management Group has operational responsibility
for identifying, monitoring and reporting to senior management on the Company's
exposure to risk. The Firm Risk Management Group consists of three departments
that are all independent of the Company's business areas: the Market Risk
Department monitors the Company's market risk profile on a worldwide basis,
which includes all divisional, geographic and product-line market risks; the
Credit Department manages and monitors counterparty exposure limits on a
worldwide basis; and the Internal Audit Department, which also reports to the
Audit Committee of the Board of Directors, assesses the Company's operations
and control environment through periodic examinations of business and
operational areas. Other departments within the Company, which are independent
of the Company's business areas, that are also actively involved in monitoring
the Company's risk profile include: Controllers, Corporate Treasury,
Information Technology, Legal and Compliance, Tax and Operations. In addition,
the Company has certain commitment committees, composed of a cross-section of
the Company's senior officers from various disciplines, that are involved in
managing and monitoring the risks associated with the Company's diverse
businesses. The High-Yield Commitment Committee and Equity Commitment Committee
determine whether the Company should participate in a transaction involving the
underwriting or placement of high-yield or equity securities, respectively,
where the Company's capital and reputation may be at risk, and evaluate the
potential revenues and risks involved with respect to a particular transaction.
The Company's control structure and various control mechanisms are subject to
periodic review in connection with examinations by the Company's external
auditors, as well as interactions with various regulatory authorities. The
Company continues to be committed to employing qualified personnel with
appropriate expertise in each of its various administrative and
business areas to implement effectively the Company's risk management and
monitoring systems and processes.
Market risk refers to the risk that a change in the level of
one or more market prices, rates, indices, volatilities, correlations or other
market factors, such as liquidity, will result in losses for a specified
position or portfolio. The Company manages the market risk associated with its
trading activities Company-wide, on a divisional level worldwide and on an
individual product basis. Specific market risk guidelines and limits have been
approved for the Company and each trading division of the Company worldwide by
the Finance and Risk Committee. Discrete market risk limits are assigned to
business units and trading desks within trading areas which are compatible with
the trading division limits. Division risk managers, desk risk managers and
the Market Risk Department all monitor market risk measures against limits.
The Company may use measures, such as rate sensitivity, convexity, volatility
and time decay measurements, to estimate market risk and to assess the
sensitivity of positions to changes in market conditions. Trading divisions
generally make use of valuation and risk models. Stress testing, which
measures the impact on the value of existing portfolios of specified changes in
market factors, for certain products is performed periodically and reviewed by
division risk managers and the Market Risk
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<PAGE> 16
Department. The Company also regularly uses a variety of measures to help
reduce and control the market risk associated with its market-making and
proprietary trading activities.
The Company's exposure to credit risk arises from the
possibility that a counterparty to a transaction might fail to perform under its
contractual commitment, resulting in the Company incurring losses. The Finance
and Risk Committee has approved Company-wide credit guidelines which limit the
Company's credit exposure to any one counterparty. Specific credit risk limits
based on the credit guidelines have also been approved by the Finance and Risk
Committee for each type of counterparty (by rating category) as well as certain
inventories of high-yield and emerging market debt. In addition, the Finance
and Risk Committee has approved separate settlement risk limits. The Credit
Department administers the credit limits among trading divisions on a worldwide
basis. The Credit Department also has procedures to monitor credit exposures,
and all counterparties of the Company are reviewed periodically to assess
financial soundness. In addition to monitoring credit limits, the Company
manages the credit exposure relating to its trading activities by entering into
master netting agreements and collateral arrangements with counterparties in
appropriate circumstances, and limiting the duration of exposure. In certain
cases, the Company may also close out transactions or assign them to other
counterparties to mitigate credit risk.
Operational risk refers to the risk of human error and
malfeasance or deficiencies in the Company's operating systems. There is
considerable fluctuation within each year and from year to year in the volume
of business that the Company must process, clear and settle with the trend
toward increased transaction volume. The Company is exposed to operational
risk from processing and settlement problems which may be especially acute in
some non-U.S. markets, particularly emerging markets, and during periods of
heavy trading volume in certain U.S. markets. The Company has developed and
continues to enhance specific policies and procedures that are designed to
provide, among other things, that: (1) all transactions are accurately recorded
and properly reflected in the Company's books and records and confirmed on a
timely basis; (2) cash disbursements/deliveries and receipts/deliveries of
securities are authorized, controlled and reconciled; (3) position valuations
are subject to periodic independent review procedures; (4) profit and loss
information reported to management, reflected in the Company's books and
records, and reported to tax authorities incorporates all activity; (5)
collateral and adequate documentation (e.g., master agreements) are obtained
from counterparties in appropriate circumstances; (6) valuation and risk models
are periodically reviewed as appropriate; and (7) information systems function
as intended and are utilized appropriately by authorized personnel.
Legal risk includes the risk of non-compliance with
applicable legal and regulatory requirements and the risk that a counterparty's
performance obligations will be unenforceable. The Company is generally
subject to extensive regulation in the different jurisdictions in which it
conducts its business (see "Competition and Regulation"). The Company has
established legal standards and procedures on a worldwide basis that are
designed to ensure compliance with all applicable statutory and regulatory
requirements. The Company, principally through the Legal and Compliance
Department, has also established procedures, such as the Company's Code of
Conduct, that are designed to ensure that senior management's policies relating
to conduct, ethics and business practices are followed globally. The Company
also conducts on a regular basis education and training programs that emphasize
protection of client interests and maintenance of the
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<PAGE> 17
Company's reputation and global business franchise. In connection with its
business, the Company has various procedures addressing a variety of issues,
such as regulatory capital requirements, sales and trading practices, new
products, use and safekeeping of customer funds and securities, money-laundering
and record-keeping. The Company has also established certain procedures to
mitigate the risk that a counterparty's performance obligations will be
unenforceable. In particular, the Company has adopted procedures, which are
generally product-specific and vary in accordance with risk profile and market
practice, to consider counterparty legal authority and capacity, adequacy of
legal documentation, the permissibility of the transaction under local law and
whether applicable bankruptcy or insolvency laws limit or alter contractual
remedies.
Positions and commitments taken by the Company in connection
with its merchant banking and other principal investment activities often may
involve substantial amounts of capital and subject the Company to, among other
things, risk due to significant exposure to one issuer, industry or business.
Additionally, the equity securities owned by the Company and the funds
sponsored by the Company in connection with the Company's principal investment
activities are generally not highly liquid. All proposed investments made by
the Company and the funds sponsored by the Company are reviewed and approved by
senior professionals in the departments of the Company responsible for
identifying and making such investments, and any proposed loans, financing
commitments or other extensions of credit made by the Company in connection
with its merchant banking and investment banking activities are reviewed and
approved by senior management. The Company analyzes projected cash flows and
returns of the prospective investment and sensitivities to changes in economic
assumptions, and reviews, among other things, the prospective portfolio
company's industry and its relative position in such industry as well as its
future prospects. The Company, which is generally the general partner of the
investment funds which it sponsors, in the case of equity investments negotiates
with the portfolio company's other equity holders certain rights related to the
strategic direction of the business, significant portfolio company transactions
and exit strategy. With respect to any loans, financing commitments or other
extensions of credit, the Company carefully reviews the creditworthiness of the
counterparty, the availability to the counterparty of financing generally, the
likely overall financial return and the Company's available capital and funding
sources. After any investment or loan, financing commitment or other extension
of credit is made, the Company regularly monitors the investment or counterparty
by, among other things, reviewing related business plans, financial performance
and industry trends.
The Company's trading and underwriting of high-yield debt
securities and emerging market loans and securitized instruments also subject
the Company to market and credit risks. For example, securities held by the
Company in connection with its high-yield trading activities typically rank
subordinate to bank debt of the issuer and may rank subordinate to other debt
of the issuer. The market for these securities has been, and may in the future
be, characterized by periods of illiquidity. The liquidity of any particular
issue may be significantly better or worse than the overall liquidity of the
high-yield market at any time, depending on the quality of the issuer, and
during certain periods market quotations may not represent firm bids of dealers
or prices of actual sales. In addition, the Company through its market-making
and trading activities may be the sole or principal source of liquidity in
certain issues and, as a result, may substantially affect the prices at which
such issues trade. To mitigate the potential impact on the Company's operating
results of the greater risk inherent in high-yield debt securities and emerging
market loans and securitized
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<PAGE> 18
instruments, the Company has policies to control total inventory positions in
these securities and instruments. Additionally, as indicated above, the Company
has credit policies to control exposures to individual high-yield issuers and
emerging market counterparties.
Derivatives facilitate risk transfer and enhance liquidity in
the marketplace, and the origination and trading of derivatives have expanded
significantly over the past decade. Derivative instruments have been utilized
as efficient and cost effective tools that enable users to adjust risk
profiles, such as interest rate or currency risk, or to take proprietary
trading positions. Widespread acceptance of derivatives has contributed to the
development of more complex OTC products structured for particular clients to
address specific financing and risk management needs.* Derivative transactions
may have both on- and off-balance sheet implications, depending on the nature
of the contract, and the Company's use of derivative products may subject the
Company to various risks.** In times of market stress, liquidity in certain
derivatives positions, as well as in underlying cash instruments, may be
reduced. Credit risk in the context of OTC derivative transactions relates to
the potential for a counterparty to default on its contract and is represented
by the replacement cost of all contracts in a gain position (after considering
the effects of master netting agreements where applicable) rather than by the
gross notional or contractual values. The risks associated with derivative
products, including credit and market risks, are managed in a manner consistent
with the Company's overall risk management policies. The Company's exposure to
changes in interest rates, foreign currencies and other factors is managed on
an individual product basis, generally by entering into offsetting or other
positions in a variety of financial instruments and derivative products. The
Company manages its credit exposure to derivative products by entering into
master netting agreements when feasible, monitoring the creditworthiness
of counterparties on an ongoing basis and requesting initial and/or additional
collateral when deemed necessary, diversifying and limiting exposure to
individual counterparties, and limiting the duration of exposure. In addition,
with respect to certain exchange-listed derivatives, the Company has agreements
with customers that permit the Company to close out positions or require
additional collateral (and in many cases require excess collateral) if certain
events occur. In certain instances, the Company may also limit the types of
derivative products that may be traded in a particular account.
__________________________________
* As previously indicated, the Company also uses derivative products
(primarily interest rate and currency swaps) to assist in asset and
liability management and to reduce borrowing costs. The risks
associated with derivatives activities in this context are managed in
a manner consistent with the Company's overall risk management
policies.
** It should be noted, however, that in many cases derivatives serve to
reduce, rather than increase, the Company's exposure to losses from
market, credit and other risks.
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<PAGE> 19
ITEM 2. PROPERTIES
The Company's executive offices are located at 1585 Broadway,
New York, New York, where the Company occupies approximately 980,500 square
feet as its New York headquarters. The Company also occupies approximately
342,000 square feet at 750 Seventh Avenue, New York, New York. Both the 1585
Broadway and 750 Seventh Avenue buildings are owned by the Company.* The
Company also leases space at various other locations in Manhattan under leases
expiring between 1996 and 2002 and aggregating approximately 974,680 square
feet. In addition, the Company leases space in Brooklyn, New York aggregating
approximately 383,112 square feet under a lease expiring in 2013.
The Company's London headquarters are located at 25 Cabot
Square, Canary Wharf (approximately three miles east of the City of London)
and occupy approximately 475,000 square feet of a 500,000 square foot building
(the "Building") constructed by the Company. The Company owns the ground lease
obligation and the freehold interest in the land and the Building. The Company
also leases approximately 350,000 square feet at 20 Cabot Square, Canary Wharf,
under a lease arrangement expiring in 2020.
During fiscal 1995 the Company entered into a lease
arrangement covering approximately 121,000 square feet in the Yebisu GPT,
Ebisu, Shibuya-ku, Tokyo expiring in 1998, but renewable at the Company's
option in two year increments. The Company will relocate its Tokyo office to
this leased space during the first quarter of fiscal 1996.
Most of the Company's other offices are located in leased
premises, the leases for which expire at various dates through 2011.
Facilities owned or occupied by the Company and its subsidiaries are believed
to be adequate for the purposes for which they are currently used and are well
maintained.
ITEM 3. LEGAL PROCEEDINGS
(a) The Company is involved in the following litigation
matters.
I. State of West Virginia v. Morgan Stanley & Co. Incorporated.
On October 24, 1989, the State of West Virginia (the "State") commenced an
action in the Circuit Court of Kanawha County, West Virginia against MS&Co.,
County NatWest Government Securities, Inc., County NatWest, Inc., Salomon
Brothers Inc, Greenwich Capital Markets, Inc. and Goldman, Sachs & Co.,
alleging that the defendants had induced the State, through its Board of
Investments and the office of the State Treasurer, to engage in unsuitable and
speculative investment activity in the State's Consolidated Fund. The
complaint alleged that, as a result of this activity, the
__________________________________
* For a discussion of the charge taken in fiscal 1994 in connection with
the Company's move to its New York facilities and to its new leased
office space in Tokyo, see 1995 Annual Report to Stockholders, "Notes
to Consolidated Financial Statements, Note 4." At November 30, 1995
the Company had commitments of an estimated $80 million in the
aggregate for fit-out and related costs associated with its buildings
in New York City and leased space in Tokyo.
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Consolidated Fund suffered significant losses. As against MS&Co., the
complaint alleged damages in excess of $79 million. All of the other
defendants settled with the State.
On March 15, 1992, the court orally granted partial summary
judgment for the State on certain of its claims. The trial began on March 30,
1992 and concluded on May 8, 1992. On May 6, 1992, the court directed a
verdict of approximately $32.6 million against MS&Co. on the State's ultra
vires claim. On May 8, 1992, the jury awarded approximately $4.9 million in
damages against MS&Co. on the State's constructive fraud claim, but found that
MS&Co. had not engaged in actual fraud. On October 13, 1993, the court entered
a judgment in the action awarding the State the total amount of $56.8 million,
inclusive of pre-judgment interest, and ordering that post-judgment interest
accrue on that sum at the statutory rate of 10% per annum until the judgment is
paid. On January 12, 1994, the court denied MS&Co.'s motion for judgment
notwithstanding the verdict or, alternatively, for a new trial. On June 5,
1995, the Supreme Court of Appeals of West Virginia reversed the judgment and
remanded the matter for a new trial. On August 21, 1995, MS&Co. filed a motion
to recuse the Circuit Court judge who had theretofore presided over the
litigation. On September 6, 1995, the Supreme Court of Appeals, having been
advised that the judge would not voluntarily recuse himself, ordered that the
motion be heard by a designated judge in a different judicial district. The
motion to recuse is pending.
II. Lundy, et al. v. Morgan Stanley & Co. Inc. On September 28,
1990, a purported class action complaint was filed in the United States
District Court for the Northern District of California, purportedly on behalf
of all persons who purchased 12.40% Debentures due 1997 (the "Debentures") of
Imperial Corporation of America ("ICA") between January 9, 1987 and July 1,
1990. MS&Co. and Drexel Burnham Lambert Incorporated ("Drexel") were the
underwriters for the initial offering of $100 million of the Debentures. On
February 28, 1990, ICA filed for protection under Chapter 11 of the Federal
Bankruptcy Code, and on July 1, 1990 defaulted on the payment of interest on
the Debentures. The complaint alleged that the Debentures were issued in order
to facilitate ICA's continuing investment in high yield junk bonds through
Drexel, and that, with MS&Co.'s knowledge, the prospectus issued in connection
with the Debentures was materially false and omitted to state material
information. The complaint asserted claims under section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and rule 10b-5
promulgated thereunder, and for fraud, negligence, negligent misrepresentation
and false advertising, and sought rescission, compensatory and punitive damages
in unspecified amounts, disgorgement of profits and compensation, costs and
attorneys' fees. On February 25, 1991, the court certified the plaintiff class.
On January 25, 1993, MS&Co. filed a motion for summary judgment. On October 21,
1993, the court entered a preliminary order approving an agreement, subject to
certain contingencies, to settle the action.
III. Atwood, et al. v. Burlington Industries Equity, Inc., et al.
On June 3, 1992, a purported class action complaint was filed against
Burlington Industries Equity, Inc. ("Burlington"), the Company, and seven
officers and/or directors of Burlington, two of whom are MS&Co. employees.
NationsBank Trust Company was subsequently added as a defendant. The plaintiff
class purportedly consists of all participants in and beneficiaries of
Burlington's Employee Stock Ownership Plan ("ESOP"). The complaint alleged
that defendants violated the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and breached various fiduciary duties purportedly owed to
plaintiffs in connection with the ESOP's August 1989 purchase of certain
Burlington voting stock at $37.80 per share. The complaint alleged that
defendants
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<PAGE> 21
thereafter caused Burlington to engage in a series of transactions which
decreased significantly the value of the ESOP's investment in Burlington stock.
The complaint sought compensatory and punitive damages in unspecified amounts,
rescission of the ESOP's August 1989 purchase of Burlington stock, removal of
all defendants as ESOP fiduciaries under the ERISA statute, pre- and
post-judgment interest, costs and attorneys' fees. The action is pending in
the United States District Court for the Middle District of North Carolina. On
August 3, 1994, the court granted in part and denied in part defendants' motion
to dismiss the action. On February 13, 1995, the court granted plaintiffs'
motion for class certification. On December 15, 1995, defendants filed motions
for summary judgment.
IV. Hedged-Investments Litigation. On August 6, 1993, a purported
class action complaint captioned Bruce W. Higley, D.D.S., M.S., P.A. Defined
Benefit Annuity Plan v. Donahue, et al. was filed in the District Court for the
City and County of Denver, Colorado purportedly on behalf of all persons and
entities who invested, directly or indirectly, in certain investment
partnerships or entities organized and/or managed by James D. Donahue
("Donahue"). Donahue was the founder and president of Hedged-Investments
Associates, Inc. ("HIA"), through which Donahue conducted the options trading
at issue in the action. HIA, in turn, was allegedly the general partner of
several limited partnerships. The trading at issue occurred through accounts
held at MS&Co., Kidder, Peabody & Co. Incorporated ("Kidder"), and Prudential
Securities Incorporated ("Prudential"). The action was brought against
Donahue, MS&Co., Kidder, Prudential, and individual employees at each of those
firms. The complaint alleged that despite representations made to investors
that the trading would be based on a "scientific" approach, would be fully
hedged, and would yield a predictable return, Donahue, in conspiracy with and
aided and abetted by the other defendants, in reality engaged in risky trading
strategies while operating a "Ponzi scheme," which caused investors to suffer
substantial losses. As against the brokerage firms, the complaint asserted
state law causes of action for violating and aiding and abetting violations of
state securities laws, fraud and aiding and abetting fraud, aiding and abetting
Donahue's breach of fiduciary duty, theft by deception, civil conspiracy, and
aiding and abetting conversion. The complaint also asserted causes of action
under the Colorado Organized Crime Control Act. The complaint sought rescissory
and compensatory damages in unspecified amounts, treble damages, costs and
attorneys' fees.
Related litigation against MS&Co. and the other defendants was
filed in the same court. That litigation included an action by the bankruptcy
trustee for HIA and certain related partnerships and a competing class action
brought on behalf of essentially the same class of investors alleged to be
represented in Higley. On March 10, 1994, the court certified a plaintiff class
in Higley and the competing class action. The court denied various motions to
dismiss.
An agreement was thereafter reached to settle Higley and the
competing class action. Following a fairness hearing on April 28, 1995, the
court entered a final order and judgment approving a settlement of Higley and
the competing class action. On June 5, 1995, the court denied a request made by
one class member to intervene for purposes of appealing both a court-approved
plan for allocation of the settlement proceeds and the final order and judgment.
On June 12, 1995, the class member filed a notice of appeal to the Colorado
Court of Appeals, appealing the plan of allocation, the final order and
judgment, and the order denying intervention. Oral argument on the motion was
heard on January 30, 1996.
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<PAGE> 22
The action filed by the bankruptcy trustee for HIA and certain
related partnerships is captioned Sender v. Kidder, Peabody & Co. Incorporated,
et al. On November 1, 1995, the court in Sender granted defendants' motion for
summary judgment. On December 11, 1995, final judgment was entered in favor of
defendants. The bankruptcy trustee has appealed.
V. The National Commercial Bank v. Morgan Stanley Asset
Management Inc., et al. On May 2, 1994, a complaint was filed in the United
States District Court for the Southern District of New York by The National
Commercial Bank ("NCB") against MSAM Inc. and three present and former MSAM Inc.
employees. The complaint alleged that NCB established a managed account at MSAM
Inc. in or about February 1993 to trade United States Treasury securities and
that in August 1993 that account suffered substantial losses. The complaint
alleged violations of sections 10(b) and 20(a) of the Exchange Act and rule
10b-5 promulgated thereunder, common law fraud, common law constructive fraud,
breach of fiduciary duty, breach of contract, negligence and negligent
misrepresentation, and sought compensatory damages in excess of $39 million,
punitive damages in an unspecified amount, costs, attorneys' fees and interest.
On June 28, 1994, defendants filed answers to the complaint. On July 11, 1994,
defendants filed third-party complaints against two employees of NCB, asserting
claims over and for contribution and indemnity in the event defendants are
determined to be liable to NCB. The complaint, answers and third-party
complaints were thereafter amended. The claims against MSAM Inc.'s two present
employees have been dismissed without prejudice as have their claims against the
two employees of NCB. Discovery is proceeding.
VI. NASDAQ Antitrust Litigation. On December 16, 1994, a
consolidated amended complaint was filed in the United States District Court
for the Southern District of New York against a total of 33 defendants,
including MS&Co. The consolidated amended complaint alleged that MS&Co. and
other participants and market makers on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") engaged in a conspiracy to fix the
"spread" between bid and asked prices for securities traded on the NASDAQ in
violation of Section 1 of the Sherman Act. The plaintiff class was alleged to
include persons throughout the United States who are customers of the defendants
or their affiliates and who purchased or sold securities on the NASDAQ during
the period from May 1, 1989 through May 27, 1994. Plaintiffs were alleged to
have been damaged in that they paid more for securities purchased on the NASDAQ,
or received less for securities sold, than they would have but for the alleged
conspiracy. The consolidated amended complaint sought compensatory damages,
treble damages, declaratory and injunctive relief, attorneys' fees and costs.
Judgment against each of the defendants was sought on a joint and several basis.
On February 2, 1995, MS&Co. and the other named defendants filed a motion to
dismiss, which was granted on August 10, 1995 with leave to replead. On August
22, 1995, plaintiffs filed a Refiled Consolidated Complaint which is identical
in substance to the dismissed pleading except that it lists by name the stocks
that plaintiffs contend were the subject of the alleged conspiracy. On December
18, 1995, MS&Co. filed its answer. Discovery is proceeding.
VII. MGN Pension Trustees Ltd., et al. v. Morgan Stanley Trust
Company. On October 20, 1995, a complaint was filed against Morgan Stanley Trust
Company ("MSTC") in the United States District Court for the Eastern District of
New York by MGN Pension Trustees Ltd. (as trustee of the Mirror Group Pension
Scheme) and The Law Debenture Trust Corporation plc (as trustee of the Maxwell
Communication Pension Plan). The complaint alleges that MSTC breached a variety
of duties purportedly owed to certain pension plans whose assets were
21
<PAGE> 23
managed by an entity controlled by the late Robert Maxwell. The complaint
asserts claims for breach of contract, breach of fiduciary duty, aiding and
abetting a breach of fiduciary duty,participation in a breach of fiduciary
duty, fraud and aiding and abetting a fraud, and seeks between $21.5 million
and $142.3 million in compensatory damages, punitive damages in an unspecified
amount, return of commissions, interest, costs and attorneys' fees. On December
18, 1995, MSTC filed a motion to dismiss the action.
VIII. Global Opportunity Fund Litigation. On December 19, 1995,
20 investors in a Cayman Islands investment fund named The Global Opportunity
Fund (the "Fund") brought an action against Morgan Stanley Bank Luxembourg, S.A.
("MSBL") in Luxembourg Commercial Court seeking damages in the amount of $44
million and costs. The apparent core of plaintiffs' complaint is that MSBL was
responsible for providing certain net asset valuations to the Fund and performed
that function in a negligent manner.
IX. Other. In addition to the matters described above, the
Company, including MS&Co., has been named from time to time as a defendant in
various legal actions, including arbitrations, arising in connection with its
activities as a global diversified financial services institution, certain of
which include large claims for punitive damages. The Company, including MS&Co.,
is also involved, from time to time, in investigations and proceedings by
governmental and self-regulatory agencies.
In view of the inherent difficulty of predicting the outcome
of such matters, particularly in cases such as some of those described above in
which substantial damages are sought, the Company cannot state what the eventual
outcome of pending matters will be. The Company is contesting the allegations
made in each pending matter and believes, based on current knowledge and after
consultation with counsel, that the outcome of such matters will not have a
material adverse effect on the Company's Consolidated Financial Statements
incorporated by reference herein.
(b) The following litigation matters were terminated during
the quarter ended November 30, 1995.
I. Taxable Municipal Bond Litigation. Between April and
October 1990, 16 purported class action complaints were filed in various federal
and state courts alleging claims relating to eight offerings of taxable
municipal bonds by eight different issuers in 1986. On November 27, 1990, the
federal Judicial Panel on Multidistrict Litigation transferred all of the
actions to the United States District Court for the Eastern District of
Louisiana for consolidated pretrial proceedings.
On May 3, 1991, eight amended and consolidated complaints (the
"Amended and Consolidated Complaints") were filed in connection with the
proceedings arising out of eight different bond offerings (the "Eight
Offerings"). In addition, a single Racketeer Influenced and Corrupt
Organizations Act ("RICO") complaint was filed on May 3, 1991, which addressed
all of the Eight Offerings. The Amended and Consolidated Complaints and the RICO
complaint, like the previously filed complaints, alleged that the defendants
fraudulently informed investors that the proceeds of the Eight Offerings would
be used to fund low cost, public interest loans. According to the Amended and
Consolidated Complaints, the money was instead invested in guaranteed
22
<PAGE> 24
investment contracts ("GICs") issued by Executive Life Insurance Company
("Executive Life") as part of a purported scheme on the part of Drexel and
Executive Life to use the underwriting ofmunicipal bonds to permit Executive
Life to invest in high risk junk bonds through Drexel. (Due to its bankruptcy
filing, Drexel was not named as a defendant in any of the Amended and
Consolidated Complaints.) Following the deterioration of the high yield bond
market, the ratings of Executive Life and the GIC-backed bonds were downgraded,
and the resulting decline in the value of the bonds was alleged to have caused
losses to the members of the purported plaintiff classes. The plaintiff class
in each of the actions purportedly consisted of all persons who purchased the
bonds at issue prior to and including April 9, 1990. The Amended and
Consolidated Complaints generally alleged violations of section 10(b) of the
Exchange Act and rule 10b-5 promulgated thereunder, section 80a of the
Investment Company Act of 1940 (the "Investment Company Act"), section 80b-3 of
the Investment Advisers Act of 1940 (the "Advisers Act") and common law and/or
statutory fraud, and sought actual and punitive damages in unspecified amounts,
rescission, declaratory relief, interest, costs and attorneys' fees. The RICO
complaint alleged violations of section 1962(c) and (d) of Title 18 and sought
compensatory and treble damages in unspecified amounts, injunctive relief,
disgorgement, interest, costs, and attorneys' fees. MS&Co. was named as a
defendant in seven of the eight Amended and Consolidated Complaints and in the
RICO complaint. The master caption of the multi-district proceeding is In re
Taxable Municipal Bond Securities Litigation. The seven actions naming MS&Co.
as a defendant are: Farm Bureau Federation, et al. v. The Board of County
Commissioners of Adams County, Colorado, et al.; Washington National Life
Insurance Company of New York, et al. v. Morgan Stanley & Co. Incorporated, et
al.; First National Bank, et al. v. Louisiana Housing Finance Agency, et al.;
Associated Kellogg Bank, et al. v. Louisiana Agricultural Finance Authority, et
al.; Bloomfield State Bank, et al. v. Louisiana Agricultural Finance Authority,
et al.; Virgin, et al. v. Health, Educational and Housing Facility Board of the
City of Memphis, Tennessee, et al.; and Farm Bureau Town & Country Insurance
Company of Missouri, et al. v. El Paso Housing Finance Corporation, et al.
On June 3, 1992, the court dismissed plaintiffs' claims under
the Investment Company Act and the Advisers Act. On November 1, 1993, certain of
the defendants in the various actions filed cross-claims to preserve their
various claims for contribution, credit or offset. In connection with the RICO
action, all of the plaintiffs except Washington National Life Insurance Company
and Washington National Life Insurance Company of New York withdrew their RICO
claims without prejudice. Thereafter, on December 13, 1993, the court granted
defendants' motion for summary judgment on the Washington National plaintiffs'
RICO claims, and denied the Washington National plaintiffs' motion for leave to
file an amended RICO complaint. On February 2, 1994, the court entered an order
imposing sanctions on counsel for the Washington National plaintiffs.
The parties thereafter agreed to settle the various actions in
which MS&Co. was named as a defendant (excluding the Washington National
action), and the settlement was preliminarily approved by the court on February
1, 1995. Following a fairness hearing on July 31, 1995, the magistrate filed a
report which recommended approval of the settlement. On October 10, 1995, the
settlement received final court approval. On November 1, 1995, the court entered
an order suggesting that the Washington National action be transferred back to
the United States District Court in Nebraska; subsequently, the court
reconsidered its decision and entered another order suggesting remand of the
case to New York.
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<PAGE> 25
II. Katell, et al. v. Morgan Stanley Group Inc., et al. On
November 6, 1991, a complaint was filed in the Court of Chancery of the State of
Delaware for New Castle County against the Company, MS&Co., two MS&Co.
employees, Morgan Stanley Leveraged Capital Fund, Inc., Morgan Stanley Leveraged
Equity Fund, L.P. ("MSLEF"), CIGNA Corp., CIGNA Capital Advisors, Inc., CIGNA
Leveraged Capital Fund, Inc., SIBV/MS Holdings, Inc., Jefferson Smurfit Corp.,
Container Corporation of America ("CCA"), Silgan Holdings Inc. and Silgan
Corporation ("Silgan"). The complaint, filed on behalf of two limited partners
in MSLEF, alleged breaches of fiduciary duties, willful misconduct, gross
negligence and breach of contract in connection with the purchase and sale of
MSLEF's interests in CCA and Silgan. The complaint alleged damages in excess of
$32.9 million and sought compensatory damages in an unspecified amount, together
with interest. On February 17, 1992, plaintiffs filed an amended complaint,
adding derivative claims and seeking an accounting. On January 14, 1993, the
court dismissed plaintiffs' individual claims, co-investor claims, right of
first refusal claims and aiding and abetting claims, but did not dismiss
plaintiffs' derivative claims regarding the CCA and Silgan sale prices. On
September 27, 1993, the court granted defendants' motion to stay the action
pending a report by a special litigation committee. On April 15, 1994, the
special litigation committee filed its report together with a motion to dismiss
the action. On June 15, 1995, the court granted the special litigation
committee's motion to dismiss the action. On August 15, 1995, a notice of appeal
was filed on behalf of one of the two plaintiffs. The parties thereafter agreed
to settle the action.
A related action, captioned Desert Equities, Inc. v. Morgan
Stanley Leveraged Equity Fund II, L.P., et al., was commenced on February 18,
1992 in the Court of Chancery of the State of Delaware for New Castle County
against Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), Morgan
Stanley Leveraged Equity Fund II, Inc. and the Company. The complaint alleged
that plaintiff, a limited partner in MSLEF II, was improperly excluded from
MSLEF II investment opportunities in retaliation for its participation in the
Katell litigation described above. The complaint asserted claims for breach of
fiduciary duty, breach of the MSLEF II Partnership Agreement and breach of an
implied covenant of good faith and fair dealing. The complaint sought damages in
an unspecified amount, interest, injunctive relief, specific performance of the
Partnership Agreement and an accounting. On July 28, 1992, the court granted
defendants' motion for judgment on the pleadings. On June 1, 1993, the Delaware
Supreme Court reversed and remanded the action for further proceedings. The
parties thereafter agreed to settle the action.
III. First Tokyo Index Trust Limited v. Morgan Stanley Trust
Company and Morgan Stanley International. On September 30, 1993, First Tokyo
Index Trust Limited ("First Tokyo") commenced an action in the High Court of
Justice, Chancery Division, London, against MSTC and Morgan Stanley
International ("MSI"). MSTC was the custodian for First Tokyo's assets, and MSI
engaged in certain transactions concerning those assets. First Tokyo asserted
claims for breach of contract, negligence, breach of trust, breach of fiduciary
duty, conversion and constructive trust, and sought the return of certain assets
remaining in the First Tokyo custodial account with MSTC, compensatory damages
in an unspecified amount, interest, costs and an accounting.
On December 31, 1993, MSTC and MSI filed their defenses, as
well as claims for contribution and/or indemnity against various individuals and
entities. The parties subsequently amended their respective pleadings. On May
12, 1994, the court granted in part and denied in part plaintiff's motion to
strike certain of the defenses asserted by the defendants. On November 10,
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<PAGE> 26
1994, the court granted MSTC and MSI's application to add Coopers & Lybrand as
a third-party defendant, and to assert claims for contribution and/or indemnity
against Coopers & Lybrand. First Tokyo thereafter amended its Statement of
Claim to assert various claims against Coopers & Lybrand. On July 3, 1995, the
court directed that this action be consolidated with a related action filed by
Swiss Bank Corporation against Coopers & Lybrand. The parties thereafter agreed
to settle the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the quarter ended November 30, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about each of
the Registrant's executive officers on November 30, 1995:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard B. Fisher 59 Chairman of the Board of Directors,
Managing Director and director of the
Registrant and MS&Co.
John J. Mack 51 President, Managing Director and
director of the Registrant and MS&Co.
Barton M. Biggs 63 Managing Director and director of the
Registrant and MS&Co.
Peter F. Karches 44 Managing Director and director of the
Registrant and MS&Co.
Sir David A. Walker 56 Managing Director and director of the
Registrant and MS&Co. and director
and Executive Chairman of Morgan
Stanley Group (Europe) Plc
Jonathan M. Clark 58 General Counsel and Secretary of the
Registrant and MS&Co. and Managing
Director and director of MS&Co.
Philip N. Duff 38 Chief Financial Officer and Managing
Director of the Registrant and MS&Co.
and director of MS&Co.
Charles B. Hintz 46 Treasurer of the Registrant and MS&Co.
and Managing Director of MS&Co.
</TABLE>
25
<PAGE> 27
All directors hold office until the next annual meeting of
stockholders and until their respective successors have been duly elected and
qualified. Officers serve at the discretion of the Board of Directors. There are
no family relationships among any directors or executive officers.
Mr. Fisher has served as Chairman of the Board of Directors of the
Registrant and MS&Co. from January 1991. From January 1984 through December
1990, he served as President of the Registrant and MS&Co. He has been a director
and a Managing Director of the Registrant from July 1975 and a director and a
Managing Director of MS&Co. from July 1970. He has also been a member of the
Registrant's Executive Committee from March 1986 and its Chairman from May
1991. He was a partner of Morgan Stanley & Co. from July 1970 through June 1975.
Mr. Mack has been President of the Registrant and MS&Co. from June
1993. He has been a director and a Managing Director of the Registrant from
December 1987 and was a director and a Managing Director of the Registrant from
January 1979 until March 1986. Mr. Mack has been a director and a Managing
Director of MS&Co. from January 1979. He has also been a member of the
Registrant's Executive Committee from December 1987.
Mr. Biggs has been a director and a Managing Director of the
Registrant from May 1991 and a director and Managing Director of MS&Co. from
July 1973. He was a director and a Managing Director of the Registrant from July
1975 to March 1986. He has also been a member of the Registrant's Executive
Committee from May 1991. He was a partner of Morgan Stanley & Co. from June 1973
through June 1975.
Mr. Karches has been a director and a Managing Director of the
Registrant from February 1994 and a director and a Managing Director of MS&Co.
from January 1985. He has also been a member of the Registrant's Executive
Committee from February 1994.
Sir David Walker has been a director of the Registrant from
November 1994, a Managing Director of the Registrant from May 1995, a director
of MS&Co. from February 1995 and a Managing Director of MS&Co. from November
1994. He has been a director and the Executive Chairman of Morgan Stanley Group
(Europe) Plc from December 1994. He has also been a member of the Registrant's
Executive Committee from November 1994. Before joining the Company, Sir David
was a Deputy Chairman of Lloyds Bank in England. From 1988 to 1992 he was
Chairman of the Securities and Investments Board, the British authority that
regulates the securities markets.
Mr. Clark has been the General Counsel and Secretary of the
Registrant and MS&Co. from February 1993. From February 1993 he has been a
director and a Managing Director of MS&Co. Before joining the Company, Mr. Clark
was a partner of Davis Polk & Wardwell, a New York law firm.
Mr. Duff has been the Chief Financial Officer of the Registrant
and MS&Co. from February 1994 and a Managing Director of the Registrant from
November 1995. He has been a director of MS&Co. from November 1995 and a
Managing Director of MS&Co. from February 1993. From January 1991 to February
1993 he was a Principal of MS&Co. and from January 1989 to January 1991 he was a
Vice President of MS&Co.
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<PAGE> 28
Mr. Hintz has been the Treasurer of the Registrant and MS&Co. from
January 1992. He has been a Managing Director of MS&Co. from February 1993. From
January 1989 to February 1993 he was a Principal of MS&Co. and from October 1986
to January 1989 he was a Vice President of MS&Co.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information relating to the principal market in which the
Registrant's Common Stock is traded, the high and low sales prices per share for
each full quarterly period within the two most recent fiscal years, the
approximate number of holders of record of Common Stock and the frequency and
amount of any cash dividends declared for the two most recent fiscal years is
set forth under the caption "Quarterly Results" on page 76 of the Registrant's
1995 Annual Report to Stockholders and such information is hereby incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Registrant and its subsidiaries
for each of the last five fiscal years is set forth under the same caption on
the inner cover of the 1995 Annual Report to Stockholders. Such information
(other than the information contained in the column entitled "Fiscal Period
Ended November 30, 1995 Annualized (Unaudited)") is hereby incorporated herein
by reference and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto contained on pages 44 to 76 of such Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is set forth under the same caption on pages 26 to 42 of
the 1995 Annual Report to Stockholders. Such information is hereby incorporated
herein by reference and should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto contained on pages 44 to 76 of such
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and its
subsidiaries, together with the Notes thereto and the Report of Independent
Auditors thereon, are contained in the 1995 Annual Report to Stockholders on
pages 43 to 76, and such information is hereby incorporated herein by reference,
including the information appearing under the caption "Quarterly Results" on
page 76 of such Annual Report.
The Statement of Financial Condition at December 31, 1995 and 1994
for the Morgan Stanley U.K. Group Profit Sharing Scheme (the "Plan"), the
Statement of Changes in Plan Equity
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<PAGE> 29
for the Years Ended December 31, 1995, 1994 and 1993 together with the Notes
thereon and the Report of Independent Chartered Accountants appear as Exhibit
99.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Nominees of the Registrant
is set forth under the caption "Election of Directors" on pages 3 and 4 of the
Proxy Statement of the Registrant for its 1996 Annual Meeting of Stockholders
and such information is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under
the captions "Board of Directors Meetings, Committees and Fees" on page 5,
"Compensation of Executive Officers" on pages 10 to 13 and "Compensation
Committee Interlocks and Insider Participation" on page 18 of the Proxy
Statement of the Registrant for its 1996 Annual Meeting of Stockholders and such
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of management and
certain beneficial owners is set forth under the captions "Stock Ownership of
Management" and "Principal Stockholders" on pages 6 and 7, respectively, of the
Proxy Statement of the Registrant for its 1996 Annual Meeting of Stockholders
and such information is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is set forth under the caption "Interest of Management in Certain
Transactions" on page 9 of the Proxy Statement of the Registrant for its 1996
Annual Meeting of Stockholders and such information is hereby incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1 Financial Statements
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<PAGE> 30
The financial statements required to be filed hereunder are listed
on page F-1 hereof.
2 Financial Statement Schedules
The financial statement schedules required to be filed hereunder
are listed on page F-1 hereof.
3 Exhibits
Certain of the following exhibits, as indicated parenthetically,
were previously filed as exhibits to registration statements filed
by the Registrant under the Securities Act of 1933 or to reports
or registration statements filed by the Registrant under the
Exchange Act, respectively, and are hereby incorporated by
reference to such statements or reports.
3.1* Restated Certificate of Incorporation of the
Company, as amended to date.
3.2 By-Laws of the Company, as amended to date (Annual
Report on Form 10-k for the fiscal year ended
January 31, 1995).
4.1 Restated Certificate of Incorporation of the
Company, as amended to date (see Exhibit 3.1).
4.2 Stockholders' Agreement dated February 14, 1986, as
amended to date (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.3* Form of Consent and Amendment dated as of January
31, 1996 between the Company and certain signatories
to the Stockholders' Agreement referred to in
Exhibit 4.2.
4.4 Subordinated Indenture dated as of April 15, 1989
between the Company and The First National Bank of
Chicago, as trustee (Annual Report on Form 10-K for
the fiscal year ended January 31, 1993).
4.5 First Supplemental Subordinated Indenture dated as
of May 15, 1991 between the Company and The First
National Bank of Chicago, as trustee (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
- -----------------------
* Filed herewith.
29
<PAGE> 31
4.6 Senior Indenture dated as of April 15, 1989 between
the Company and Chemical Bank, as trustee (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
4.7 First Supplemental Senior Indenture dated as of May
15, 1991 between the Company and Chemical Bank, as
trustee (Annual Report on Form 10-K for the fiscal
year ended January 31, 1993).
4.8 Subordinated Indenture dated as of November 15, 1993
among Morgan Stanley Finance plc, the Company, as
guarantor, and
Chemical Bank, as trustee (Current
Report on Form 8-K dated December 1, 1993).
4.9 Voting Agreement dated March 5, 1991 among the
Company, State Street Bank and Trust Company and
Other Persons Signing Similar Voting Agreements
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
4.10 Instruments defining the Rights of Security Holders,
Including Indentures - In addition to Exhibits 4.1
through 4.9 herein, pursuant to paragraph
(b)(4)(iii)(A) of Item 601 of Regulation S-K, the
Registrant hereby undertakes to furnish to the
Securities and Exchange Commission upon request
copies of the instruments defining the rights of
holders of long-term debt securities of the
Registrant and its subsidiaries, none of which
instruments authorizes the issuance of an amount of
securities that exceeds 10% of the total assets of
the Registrant and its subsidiaries on a
consolidated basis.
10.1+ Form of Agreement under the Morgan Stanley & Co.
Incorporated Owners' and Select Earners' Plan
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.2+ Form of Agreement under the Morgan Stanley Group
Inc. Officers' and Select Earners' Plan (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.3+ Morgan Stanley & Co. Incorporated Excess Benefit
Plan, as amended and restated to date (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
10.4+ Morgan Stanley & Co. Incorporated Supplemental
Executive Retirement Plan, as amended (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
- ------------------------------------
+ Management Contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K pursuant to Item
14(c).
30
<PAGE> 32
10.5+ Morgan Stanley Group Inc. 1986 Stock Option Plan, as
amended and restated to date (Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
10.6+ Morgan Stanley Group Inc. Performance Unit Plan, as
amended and restated to date (Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
10.7+ Morgan Stanley Group Inc. Deferred Compensation Plan
for Outside Directors, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.8+ Morgan Stanley Group Inc. 1988 Equity Incentive
Compensation Plan, as amended to date (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
10.9+ Morgan Stanley Group Inc. 1988 Capital Accumulation
Plan, as amended to date (Annual Report on Form 10-K
for the fiscal year ended January 31, 1993).
10.10+ Form of Deferred Compensation Agreement under the
Pre- Tax Incentive Program (Annual Report on Form
10-K for the fiscal year ended January 31, 1994).
10.11 Trust Agreement dated March 5, 1991 between the
Company and State Street Bank and Trust Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.12 Agreement of Lease dated May 13, 1986 between Morgan
Stanley & Co. Incorporated and Forest City
Pierrepont Associates, as amended (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
10.13 Agreement of Sublease between McGraw Hill, Inc. and
Morgan Stanley & Co. Incorporated, as amended to
date (Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.14 Lease dated January 22, 1993 between Rock-McGraw,
Inc. and Morgan Stanley & Co. Incorporated (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
- ----------------------------
+ Management Contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
* Filed herewith.
31
<PAGE> 33
10.15 Agreement of Lease dated February 10, 1995 among
Canary Wharf Limited, Morgan Stanley UK Group and
the Company (Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
11* Statement Re: Computation of Earnings Per Share.
12* Statement Re: Computation of Ratio of Earnings to
Fixed Charges and Computation of Ratio of Earnings
to Fixed Charges and Preferred Stock Dividends.
13* The following portions of the Company's 1995 Annual
Report to Stockholders, which are incorporated by
reference in this Annual Report on Form 10-K, are
filed as an Exhibit:
13.1 "Quarterly Results" (page 76).
13.2 "Selected Financial Data" (other than the
information contained in the column entitled
"Fiscal Period Ended November 30, 1995
Annualized (Unaudited)") (Inner Cover).
13.3 "Management's Discussion and Analysis of
Financial Condition and Results of
Operations" (pages 26 to 42).
13.4 Consolidated Financial Statements of the
Company and its subsidiaries, together with
the Notes thereto and the Report of
Independent Auditors thereon (pages 43 to
76).
21* Subsidiaries of the Company.
23.1* Consent of Ernst & Young.
23.2* Consent of Ernst & Young with respect to the
Financial Statements for the fiscal year ended
December 31, 1995 for the Morgan Stanley U.K. Group
Profit Sharing Scheme.
24 Powers of Attorney (included on signature page).
27* Financial Data Schedule.
99* Financial Statements for the fiscal year ended
December 31, 1995 for the Morgan Stanley U.K. Group
Profit Sharing Scheme.
- --------------------
* Filed herewith.
32
<PAGE> 34
(b) A Current Report on 8-K, dated September 26, 1995, was filed with
the Securities and Exchange Commission in connection with the
announcement of the Company's financial results for the period
ended August 31, 1995 and the declaration of a quarterly cash
dividend.
A Current Report on 8-K, dated October 18, 1995, was filed with
the Securities and Exchange Commission to file a Capital Unit
Agreement dated October 18, 1995 among the Company, Morgan Stanley
Finance Plc ("MS Plc") and Chemical Bank as Agent and Book Entry
Unit Depositary, and the holders from time to time of the 8.20%
Capital Units, each consisting of (i) an 8.20% Subordinated
Debenture of MS Plc due November 30, 2015 in the principal amount
of $25.00 guaranteed by the Company and (ii) a related Purchase
Contract issued by the Company requiring the holder, at the
Company's option after November 30, 1996, to purchase one
Depositary Share representing ownership of 1/8 interest in a share
of the Company's 8.20% Cumulative Preferred Stock, stated value
$200 per share.
33
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 26, 1996.
MORGAN STANLEY GROUP INC.
By/s/ Richard B. Fisher
--------------------------------------
Richard B. Fisher
Chairman of the Board of Directors
POWER OF ATTORNEY
We, the undersigned directors and executive officers of Morgan Stanley
Group Inc., hereby severally constitute Jonathan M. Clark, Philip N. Duff and
Ralph L. Pellecchio, and each of them singly, our true and lawful attorneys with
full power to them and each of them to sign for us, and in our names in the
capacities indicated below, any and all amendments to the Annual Report on Form
10-K filed with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys to any and
all amendments to said Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 26th of February, 1996.
Signature Title
--------- -----
/s/ Richard B. Fisher Chairman, Managing Director
- ---------------------------- and Director
(Richard B. Fisher)
/s/ John J. Mack President, Managing Director
- ---------------------------- and Director
(John J. Mack)
/s/ Barton M. Biggs Managing Director and Director
- ----------------------------
(Barton M. Biggs)
/s/ Peter F. Karches Managing Director and Director
- ----------------------------
(Peter F. Karches)
/s/ Sir David A. Walker Managing Director and Director
- ----------------------------
(Sir David A. Walker)
34
<PAGE> 36
Signature Title
--------- -----
/s/ Philip N. Duff Chief Financial Officer and
- ---------------------------- Managing Director
(Philip N. Duff)
/s/ Eileen K. Murray Chief Accounting Officer
- ---------------------------- and Controller
(Eileen K. Murray)
/s/ Daniel B. Burke Director
- ----------------------------
(Daniel B. Burke)
/s/ S. Parker Gilbert Director
- ----------------------------
(S. Parker Gilbert)
/s/ Allen E. Murray Director
- ----------------------------
(Allen E. Murray)
/s/ Paul J. Rizzo Director
- ----------------------------
(Paul J. Rizzo)
35
<PAGE> 37
MORGAN STANLEY GROUP INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS (14)(a)(1) AND (14)(a)(2)
<TABLE>
<CAPTION>
PAGE
----
FINANCIAL STATEMENTS FORM 10-K ANNUAL REPORT
- -------------------- --------- -------------
<S> <C> <C>
Report of Independent Auditors 43
Consolidated Statement of Financial 44
Condition at November 30, 1995
and January 31, 1995
Consolidated Statement of Income for 46
the Fiscal Period Ended November 30, 1995
and the Fiscal Years Ended January 31, 1995
and January 31, 1994
Consolidated Statement of Cash Flows 47
for the Fiscal Period Ended November 30, 1995
and the Fiscal Years Ended January 31, 1995
and January 31, 1994
Consolidated Statement of Changes 48
in Stockholders' Equity for the
Fiscal Period Ended November 30, 1995
and the Fiscal Years Ended January 31,
1995 and January 31, 1994
Notes to Consolidated Financial 50
Statements
FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial F-2 - F-5
Information of Registrant Morgan
Stanley Group Inc. (Parent Company
Only) - Condensed Financial Statements
for the Fiscal Period Ended November 30, 1995
and the Fiscal Years Ended January 31, 1995
and January 31, 1994
</TABLE>
F-1
<PAGE> 38
SCHEDULE I
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF FINANCIAL CONDITION
NOVEMBER 30, 1995 AND JANUARY 31, 1995
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
November 30, January 31,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS:
Cash and interest-bearing equivalents $ 57,994 $ 78,304
Financial instruments owned 543,073 587,906
Advances to subsidiaries 26,201,837 19,090,690
Investment in subsidiaries, at equity 4,871,122 4,310,812
Other assets 589,155 232,372
------------ -----------
Total assets $32,263,181 $24,300,084
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term borrowings $10,173,519 $ 7,298,237
Payables to subsidiaries 8,037,076 4,517,882
Other liabilities and accrued expenses 590,534 316,281
Long-term borrowings 8,287,688 7,612,838
------------ ------------
27,088,817 19,745,238
------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock 817,523 818,667
Common stock, $1.00 par value; authorized 300,000,000 shares;
issued 162,838,920 shares at November 30, 1995 and
159,548,556 shares at January 31, 1995* 162,839 159,548
Paid-in capital* 730,356 626,712
Retained earnings 3,815,224 3,338,028
Cumulative translation adjustments (8,984) (10,099)
------------ ------------
Subtotal 5,516,958 4,932,856
Less:
Note receivable related to sale of preferred stock to ESOP 88,559 99,624
Common stock held in treasury, at cost
(7,635,174 shares at November 30, 1995
and 8,954,990 shares at January 31, 1995)* 254,035 278,386
------------ -----------
Total stockholders' equity 5,174,364 4,554,846
------------ -----------
Total liabilities and stockholders' equity $32,263,181 $24,300,084
============ ===========
</TABLE>
* All amounts have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend,
which became effective on January 26, 1996.
See Notes to Condensed Financial Statements.
F-2
<PAGE> 39
SCHEDULE I
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR THE FISCAL PERIOD ENDED NOVEMBER 30, 1995, AND THE FISCAL YEARS ENDED
JANUARY 31, 1995 AND JANUARY 31, 1994
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Fiscal Period Ended Fiscal Year Ended Fiscal Year Ended
REVENUES: November 30, January 31, January 31,
1995 1995 1994
------------------- ----------------- -----------------
<S> <C> <C> <C>
Interest and dividends $ 1,490,239 $ 1,312,628 $ 773,222
Principal transactions 22,090 11,875 (47,274)
Fiduciary fees 15,137 12,683 15,105
Other 370 (93) 242
-------------- --------------- ---------------
Total revenues 1,527,836 1,337,093 741,295
Interest expense 1,540,677 1,263,495 761,543
Expenses excluding interest 8,231 10,312 17,064
-------------- --------------- ---------------
(Loss) income before income tax (benefit) provision
and equity in earnings of subsidiaries (21,072) 63,286 (37,312)
Income tax (benefit) provision (17,544) 29,296 (14,056)
-------------- --------------- ---------------
(Loss) income before equity in earnings of subsidiaries (3,528) 33,990 (23,256)
Equity in earnings of subsidiaries, net of tax 603,665 360,884 809,308
-------------- --------------- ---------------
Net income $ 600,137 $ 394,874 $ 786,052
============== =============== ===============
Preferred stock dividend requirements $ 54,155 $ 64,723 $ 55,489
============== =============== ===============
Earnings applicable to common shares (1) $ 545,982 $ 330,151 $ 730,563
============== =============== ===============
Average common and common equivalent
shares outstanding (1) (2) 156,912,678 157,793,216 152,416,576
============== =============== ===============
Primary earnings per share (2) $ 3.48 $ 2.09 $ 4.80
============== =============== ===============
Fully diluted earnings per share (2) $ 3.33 $ 2.02 $ 4.58
============== =============== ===============
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
(2) All amounts have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend,
which became effective on January 26, 1996.
See Notes to Condensed Financial Statements.
F-3
<PAGE> 40
SCHEDULE I
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE FISCAL PERIOD ENDED NOVEMBER 30, 1995, AND THE FISCAL YEARS ENDED
JANUARY 31, 1995 AND JANUARY 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Period Ended Fiscal Year Ended Fiscal Year Ended
November 30, January 31, January 31,
1995 1995 1994
------------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 600,137 $ 394,874 $ 786,052
Adjustments to reconcile net income to net cash
used for operating activities:
Non-cash charges (credits) included in net income:
Deferred income taxes (9,966) 19,747 (7,902)
Compensation payable in common or preferred stock 165,420 116,481 407,573
Equity in subsidiaries' earnings, net of dividends 818,544 79,878 (514,019)
(Increase) decrease in assets:
Financial instruments owned 44,833 48,955 244,359
Investment in and advances to subsidiaries, at equity (8,490,001) (5,700,470) (5,755,573)
Other assets (380,582) (110,979) (59,855)
Increase (decrease) in liabilities:
Payables to subsidiaries 3,519,194 3,885,791 137,174
Other liabilities and accrued expenses, net of deferred
taxes 280,467 (139,983) 42,551
-------------- -------------- --------------
Net cash used for operating activities (3,451,954) (1,405,706) (4,719,640)
Cash flows from financing activities:
Net proceeds from short-term borrowings 2,875,282 822,433 2,143,962
Proceeds from:
Issuance of preferred stock - - 194,436
Issuance of common stock 78,513 20,477 27,196
Issuance of long-term borrowings 1,899,417 2,153,858 3,444,793
Payments for:
Repurchase of common stock (103,126) (287,123) (245,444)
Repayments of long-term borrowings (1,195,501) (1,201,955) (636,160)
Cash dividends (122,941) (151,297) (133,974)
-------------- -------------- --------------
Net cash provided by financing activities 3,431,644 1,356,393 4,794,809
-------------- -------------- --------------
Net (decrease) increase in cash and interest-bearing equivalents (20,310) (49,313) 75,169
Cash and interest-bearing equivalents, at beginning of year 78,304 127,617 52,448
-------------- -------------- --------------
Cash and interest-bearing equivalents, at end of year $ 57,994 $ 78,304 $ 127,617
============== ============== ==============
</TABLE>
See Notes to Condensed Financial Statements.
F-4
<PAGE> 41
SCHEDULE I
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. General
The condensed financial statements of Morgan Stanley Group Inc. (the
"Company") should be read in conjunction with the consolidated financial
statements of Morgan Stanley Group Inc. and Subsidiaries and the notes
thereto. Certain amounts in the condensed financial statements for prior
years have been reclassified to conform with fiscal 1995 presentation.
2. Transactions with subsidiaries
The Company has transactions with its subsidiaries determined on an
agreed-upon basis and has guaranteed certain unsecured lines of credit and
contractual obligations of its subsidiaries.
3. Change in Fiscal Year-End
On February 28, 1995, the Board of Directors approved a change in the
Company's fiscal year-end from January 31 to November 30. This change
became effective for the fiscal period ended November 30, 1995, and
accordingly this report includes the results for the 10-month period from
February 1, 1995 through November 30, 1995 ("fiscal 1995"), as well as
those for the fiscal years ended January 31, 1995 and January 31, 1994
("fiscal 1994" and "fiscal 1993", respectively).
F-5
<PAGE> 42
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1* Restated Certificate of Incorporation of the
Company, as amended to date.
3.2 By-Laws of the Company, as amended to date (Annual
Report on Form 10-k for the fiscal year ended
January 31, 1995).
4.1 Restated Certificate of Incorporation of the
Company, as amended to date (see Exhibit 3.1).
4.2 Stockholders' Agreement dated February 14, 1986, as
amended to date (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.3* Form of Consent and Amendment dated as of January
31, 1996 between the Company and certain signatories
to the Stockholders' Agreement referred to in
Exhibit 4.2.
4.4 Subordinated Indenture dated as of April 15, 1989
between the Company and The First National Bank of
Chicago, as trustee (Annual Report on Form 10-K for
the fiscal year ended January 31, 1993).
4.5 First Supplemental Subordinated Indenture dated as
of May 15, 1991 between the Company and The First
National Bank of Chicago, as trustee (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
4.6 Senior Indenture dated as of April 15, 1989 between
the Company and Chemical Bank, as trustee (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
4.7 First Supplemental Senior Indenture dated as of May
15, 1991 between the Company and Chemical Bank, as
trustee (Annual Report on Form 10-K for the fiscal
year ended January 31, 1993).
4.8 Subordinated Indenture dated as of November 15, 1993
among Morgan Stanley Finance plc, the Company, as
guarantor, and
- -----------------------
* Filed herewith.
<PAGE> 43
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
------- -----------
4.9 Voting Agreement dated March 5, 1991 among the
Company, State Street Bank and Trust Company and
Other Persons Signing Similar Voting Agreements
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
4.10 Instruments defining the Rights of Security Holders,
Including Indentures - In addition to Exhibits 4.1
through 4.9 herein, pursuant to paragraph
(b)(4)(iii)(A) of Item 601 of Regulation S-K, the
Registrant hereby undertakes to furnish to the
Securities and Exchange Commission upon request
copies of the instruments defining the rights of
holders of long-term debt securities of the
Registrant and its subsidiaries, none of which
instruments authorizes the issuance of an amount of
securities that exceeds 10% of the total assets of
the Registrant and its subsidiaries on a
consolidated basis.
10.1+ Form of Agreement under the Morgan Stanley & Co.
Incorporated Owners' and Select Earners' Plan
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.2+ Form of Agreement under the Morgan Stanley Group
Inc. Officers' and Select Earners' Plan (Annual on
Form 10-K for the fiscal year ended January 31,
1993).
10.3+ Morgan Stanley & Co. Incorporated Excess Benefit
Plan, as amended and restated to date (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
10.4+ Morgan Stanley & Co. Incorporated Supplemental
Executive Retirement Plan, as amended (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
10.5+ Morgan Stanley Group Inc. 1986 Stock Option Plan, as
amended and restated to date (Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
10.6+ Morgan Stanley Group Inc. Performance Unit Plan, as
amended and restated to date (Annual Report on Form
10-K for the fiscal year ended January 31, 1993).
- ------------------------------------
+ Management Contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE> 44
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.7+ Morgan Stanley Group Inc. Deferred Compensation Plan
for Outside Directors, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.8+ Morgan Stanley Group Inc. 1988 Equity Incentive
Compensation Plan, as amended to date (Annual Report
on Form 10-K for the fiscal year ended January 31,
1993).
10.9+ Morgan Stanley Group Inc. 1988 Capital Accumulation
Plan, as amended to date (Annual Report on Form 10-K
for the fiscal year ended January 31, 1993).
10.10+ Form of Deferred Compensation Agreement under the
Pre- Tax Incentive Program (Annual Report on Form
10-K for the fiscal year ended January 31, 1994).
10.11 Trust Agreement dated March 5, 1991 between the
Company and State Street Bank and Trust Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.12 Agreement of Lease dated May 13, 1986 between Morgan
Stanley & Co. Incorporated and Forest City
Pierrepont Associates, as amended (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
10.13 Agreement of Sublease between McGraw Hill, Inc. and
Morgan Stanley & Co. Incorporated, as amended to
date (Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.14 Lease dated January 22, 1993 between Rock-McGraw,
Inc. and Morgan Stanley & Co. Incorporated (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.15 Agreement of Lease dated February 10, 1995 among
Canary Wharf Limited, Morgan Stanley UK Group and
the Company (Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
11* Statement Re: Computation of Earnings Per Share.
- ----------------------------
+ Management Contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
* Filed herewith.
<PAGE> 45
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
12* Statement Re: Computation of Ratio of Earnings to
Fixed Charges and Computation of Ratio of Earnings
to Fixed Charges and Preferred Stock Dividends.
13* The following portions of the Company's 1995 Annual
Report to Stockholders, which are incorporated by
reference in this Annual Report on Form 10-K, are
filed as an Exhibit:
13.1 "Quarterly Results" (page 76).
13.2 "Selected Financial Data" (other than the
information contained in the column entitled
"Fiscal Period Ended November 30, 1995
Annualized (Unaudited)") (Inner Cover).
13.3 "Management's Discussion and Analysis of
Financial Condition and Results of
Operations" (pages 26 to 42).
13.4 Consolidated Financial Statements of the
Company and its subsidiaries, together with
the Notes thereto and the Report of
Independent Auditors thereon (pages 43 to
76).
21* Subsidiaries of the Company.
23.1* Consent of Ernst & Young.
23.2* Consent of Ernst & Young with respect to the
Financial Statements for the fiscal year ended
December 31, 1995 for the Morgan Stanley U.K. Group
Profit Sharing Scheme.
24 Powers of Attorney (included on signature page).
27* Financial Data Schedule.
99* Financial Statements for the fiscal year ended
December 31, 1995 for the Morgan Stanley U.K. Group
Profit Sharing Scheme.
- --------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
MORGAN STANLEY GROUP INC.
Pursuant to Section 245 of the
General Corporation Law of the State of Delaware
Morgan Stanley Group Inc., a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation") and originally incorporated in the State of Delaware on
July 10, 1975 under the name Morgan Stanley Holdings Incorporated, does
hereby certify as follows:
FIRST: That the Certificate of Incorporation of the
Corporation was filed in the office of the Secretary of State of the State of
Delaware, and a certified copy thereof was recorded in the office of the
Recorder of Kent County, Delaware, on the 10th day of July, 1975.
SECOND: That the Restated Certificate of Incorporation was
filed in the office of the Secretary of State of the State of Delaware, and a
certified copy thereof was recorded in the office of the Recorder of Kent
County, Delaware, on the 30th day of October, 1989.
THIRD: That Certificates of Amendment to the Restated
Certificate of Incorporation were filed in the office of the Secretary of State
of the State of Delaware, and certified copies thereof were recorded in the
office of the Recorder of Kent County, Delaware, on the 8th day of May, 1991,
and the 21st day of May, 1992.
FOURTH: That Certificates of Stock Designation were filed in
the office of the Secretary of State of the State of Delaware, and certified
copies thereof were recorded in the office of the Recorder of Kent County,
Delaware, on the 19th day of September, 1990, the 24th day of May, 1991, the
29th day of August, 1991, the 15th day of November, 1991, the 20th day of
March, 1992, and the 6th day of May, 1992.
FIFTH: That a Certificate of Retirement of Stock was filed in
the office of the Secretary of State of the State of Delaware and a certified
copy thereof was recorded in the office of the Recorder of Kent County,
Delaware, on the 20th day of June, 1992.
<PAGE> 2
2
SIXTH: That this Restated Certificate of Incorporation
restates and integrates and does not further amend the provisions of the
Corporation's Restated Certificate of Incorporation as heretofore amended or
supplemented, and that there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation, and that the Restated
Certificate of Incorporation is hereby restated to read in its entirety as
follows:
ARTICLE I
NAME
The name of the Corporation is:
MORGAN STANLEY GROUP INC.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of
Delaware is located at 32 Loockerman Sq., Ste. L-100, City of Dover, County of
Kent. The name of the registered agent of the Corporation at such address is
United States Corporation Company.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may now or hereafter be organized under the
General Corporation Law of Delaware.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Shares and Classes Authorized. The total number
of shares of all classes of capital stock which the Corporation shall have
authority to issue is 330,000,000 shares, which shall include:
(a) 30,000,000 shares of preferred stock of no par value
each (hereinafter referred to as "Preferred Stock"); and
<PAGE> 3
3
(b) 300,000,000 shares of common stock of the par value
of $1.00 each (hereinafter referred to as "Common Stock");
such classes of Preferred Stock and Common Stock being sometimes hereinafter
collectively referred to as "capital stock".
SECTION 2. Preferences, Rights, Limitations and Restrictions
of Capital Stock. The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, in respect of the
classes of the capital stock, and the authority with respect thereto expressly
vested in the Board of Directors of the Corporation, are as follows:
PART I -- PREFERRED STOCK (a) The Preferred Stock may be
issued either as a class without series or, if so determined by the Board of
Directors of the Corporation, from time to time in one or more series and with
such designation for such class or each such series as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
class or each such series adopted by the Board of Directors. The Board of
Directors in any such resolution or resolutions is expressly authorized to
state and express for such class or each such series:
(i) Voting rights, if any, including, without limitation, the
authority to confer multiple votes per share, voting rights as to
specified matters or issues or, subject to the provisions of this
Restated Certificate of Incorporation, voting rights to be exercised
either together with holders of Common Stock as a single class, or
independently as a separate class;
(ii) The rate per annum and the times at and conditions upon
which the holders of shares of such class or series shall be entitled
to receive dividends, the conditions and dates upon which such
dividends shall be payable and whether such dividends shall be
cumulative or noncumulative, and, if cumulative, the terms upon which
such dividends shall be cumulative;
(iii) Redemption, repurchase, retirement and sinking fund
rights, preferences and limitations, if any, the amount payable on
shares of such class or series in the event of such redemption,
repurchase or retirement, the terms and conditions of any sinking
fund, the manner of creating such fund or funds and whether any of the
foregoing shall be cumulative or noncumulative;
<PAGE> 4
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(iv) The rights to which the holders of the shares of such
class or series shall be entitled upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(v) The terms, if any, upon which the shares of such class or
series shall be convertible into, or exchangeable for, shares of stock
of any other class or classes or of any other series of the same or
any other class or classes, including the price or prices or the rate
or rates of conversion or exchange and the terms of adjustment, if
any; and
(vi) Any other designations, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof so far as they are not
inconsistent with the provisions of this Restated Certificate of
Incorporation and to the full extent now or hereafter permitted by the
laws of the State of Delaware.
(b) All shares of the Preferred Stock, if issued as a
class without series, or all shares of the Preferred Stock of any one series,
if issued in series, shall be identical to each other in all respects and shall
entitle the holders thereof to the same rights and privileges, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereon, if cumulative, shall be cumulative.
<PAGE> 5
5
Subpart A: ESOP Convertible Preferred Stock*
1. Designation and Issuance.
(A) The shares of such series shall be designated ESOP
CONVERTIBLE PREFERRED STOCK (hereinafter referred to as the "ESOP Preferred
Stock") and such series shall consist of 3,902,438 shares. Such number of
shares may be increased or decreased from time to time by resolution of the
Pricing Committee of this Board of Directors (the "Pricing Committee"), but no
such increase shall result in such series consisting of more than 4,000,000
shares, and no decrease shall reduce the number of shares of ESOP Preferred
Stock to a number less than that of shares of ESOP Preferred Stock then
outstanding plus the number of shares issuable upon exercise of any rights,
options or warrants or upon conversion of outstanding securities issued by the
Corporation relating to such shares. Any shares of ESOP Preferred Stock
redeemed or purchased by the Corporation shall remain issued and outstanding
for all purposes (except that as long as such shares are held by the
Corporation or its nominee, no dividends shall be paid on such shares and they
shall neither be entitled to vote nor counted for quorum purposes) and may
thereafter be transferred by the Corporation from time to time to a trustee or
trustees referred to in paragraph (B) of this Section 1 (whereupon the voting
and dividend rights of such shares shall be restored); provided that the
Corporation may provide at the time of or at any time after such redemption or
purchase that any such shares then held by the Corporation or its nominee shall
be retired, and such shares shall then be restored to the status of authorized
but unissued shares of preferred stock of the Corporation.
(B) Shares of ESOP Preferred Stock shall be issued only to a
trustee or trustees acting on behalf of an employee stock ownership trust or
plan or other employee benefit plan (a "Plan") of the Corporation. In the
event of any sale, transfer or other disposition (hereinafter a "transfer") of
shares of ESOP Preferred Stock to any person (including, without limitation,
any participant in the Plan) other than (x) any trustee or trustees of the Plan
or (y) any pledgee of such shares acquiring such shares as security for any
loan or
- --------------------
* Terms defined in this Subpart A are so defined for purposes of this
Subpart alone.
<PAGE> 6
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loans made to the Plan or to any trustee or trustees acting on behalf of the
Plan, the shares of ESOP Preferred Stock so transferred, upon such transfer and
without any further action by the Corporation or the holder, shall be
automatically converted into shares of Common Stock at the Conversion Price (as
hereinafter defined) and on the terms otherwise provided for the conversion of
shares of ESOP Preferred Stock into shares of Common Stock pursuant to Section
5 hereof and no such transferee shall have any of the voting powers,
preferences and relative, participating, optional or special rights ascribed to
shares of ESOP Preferred Stock hereunder, but, rather, only the powers and
rights pertaining to the Common Stock into which such shares of ESOP Preferred
Stock shall be so converted; provided, however, that in the event of a
foreclosure or other realization upon shares of ESOP Preferred Stock pledged as
security for any loan or loans made to the Plan or to the trustee or the
trustees acting on behalf of the Plan, the pledged shares so foreclosed or
otherwise realized upon shall be converted automatically into shares of Common
Stock at the Conversion Price and on the terms otherwise provided for
conversions of shares of ESOP Preferred Stock into shares of Common Stock
pursuant to Section 5 hereof. In the event of such a conversion, such
transferee shall be treated for all purposes as the record holder of the shares
of Common Stock into which the ESOP Preferred Stock shall have been converted
as of the date of such conversion. Certificates representing shares of ESOP
Preferred Stock shall be legended to reflect such restrictions on transfer.
Notwithstanding the foregoing provisions of this Section 1, shares of ESOP
Preferred Stock (i) may be converted into shares of Common Stock as provided by
Section 5 hereof and the shares of Common Stock issued upon such conversion may
be transferred by the holder thereof as permitted by law and (ii) shall be
redeemable by the Corporation upon the terms and conditions provided by
Sections 6, 7 and 8 hereof.
2. Dividends and Distributions.
(A) (1) Subject to the provisions for adjustment
hereinafter set forth, the holders of shares of ESOP Preferred Stock (other
than the Corporation or its nominee) shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor,
cash dividends ("Preferred Dividends") payable in accordance with either of the
following elections, as the Board of Directors shall elect from time to time in
its absolute discretion:
<PAGE> 7
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(i) in an amount per share initially equal to $2.78 per
share per annum, and no more (such amount, as adjusted from time to
time pursuant to the terms hereof, including during any period in
which a Semiannual Payment Election (as defined below) shall be in
effect, the "Annual Dividend Rate"), payable annually in arrears on
December 31 (or such later date not more than four business days
thereafter as the Board of Directors may from time to time elect in
its absolute discretion; such date, the "Annual Payment Date") of each
year (such election, the "Annual Payment Election") beginning on the
Annual Payment Date occurring immediately after the effective date of
such Annual Payment Election; or
(ii) in an amount per share initially equal to $2.78 per share
per annum, and no more (such amount, as adjusted from time to time
pursuant to the terms hereof, including during any period in which an
Annual Payment Election is in effect, the "Semiannual Dividend Rate";
and the Semiannual Dividend Rate and the Annual Dividend Rate, as in
effect at any time, are each hereinafter referred to as the "Preferred
Dividend Rate"), semiannually in arrears, one-half on each June 30 and
December 31 (or, in either case, such later date not more than four
business days after either of such dates as the Board of Directors may
from time to time elect in its absolute discretion; such dates, the
"Semiannual Payment Dates") of each year (such election, the
"Semiannual Payment Election"), beginning on the Semiannual Payment
Date occurring immediately after the effective date of such Semiannual
Payment Election;
provided that any Semiannual Payment Election shall be made effective only
during the period beginning on January 5 and ending on June 29 in each year.
The Board of Directors shall give prompt notice to the holders of the ESOP
Preferred Stock of any Semiannual Payment Election or Annual Payment Election
and any election to alter any Dividend Payment Date pursuant to this Section
2(A)(1). Each Annual Payment Date or Semiannual Payment Date, as applicable,
is hereinafter referred to as a "Dividend Payment Date", and each payment of a
Preferred Dividend shall be made to holders of record at the opening of
business on such Dividend Payment Date.
(2) Preferred Dividends shall begin to accrue on
outstanding shares of ESOP Preferred Stock from the date of issuance of such
shares, except that with respect to any shares of ESOP Preferred Stock redeemed
or purchased by the Corporation and then reissued, Preferred Dividends shall
<PAGE> 8
8
accrue on such shares from their date of reissuance. Preferred Dividends shall
accrue on a daily basis, whether or not the Corporation shall then have
earnings or surplus (computed on the basis of a 360-day year of twelve 30-day
months in case of any period less than one year) based on the Preferred
Dividend Rate in effect on such date; provided that if a Semiannual Payment
Election or an Annual Payment Election becomes effective on or after such date
and before the immediately succeeding Dividend Payment Date, payments in
respect of dividends on the ESOP Preferred Stock made on or after the effective
date of such Semiannual Payment Election or Annual Payment Election and on or
before such Dividend Payment Date shall be computed using the Preferred
Dividend Rate in effect on the date of such payment. Accrued but unpaid
Preferred Dividends shall cumulate as of the Dividend Payment Date on which
they first become payable, but no interest shall accrue on accumulated but
unpaid Preferred Dividends.
(B) So long as any shares of ESOP Preferred Stock shall be
outstanding, no dividend shall be declared or paid or set apart for payment on
any other series of stock ranking on a parity with the ESOP Preferred Stock as
to dividends, unless there shall also be or have been declared and paid or set
apart for payment on the ESOP Preferred Stock, like dividends for all dividend
payment periods of the ESOP Preferred Stock ending on or before the dividend
payment date of such parity stock, ratably in proportion to the respective
amounts of dividends (1) accumulated and unpaid or payable on such parity
stock, on the one hand, and (2) accumulated and unpaid through the dividend
payment period or periods of the ESOP Preferred Stock next preceding such
dividend payment date, on the other hand. If full cumulative dividends on the
ESOP Preferred Stock have not been declared and paid or set apart for payment
when due, the Corporation shall not declare or pay or set apart for payment any
dividends or make any other distributions on, or make any payment on account of
the purchase, redemption or other retirement of, any other class of stock or
series thereof of the Corporation ranking, as to dividends or upon dissolution,
junior to the ESOP Preferred Stock until full cumulative dividends on the ESOP
Preferred Stock shall have been paid or declared and set apart; provided,
however, that the foregoing shall not apply to (i) any dividend or distribution
payable solely in any shares of, or options, warrants or rights to subscribe
for or purchase shares of, any stock ranking, as to dividends and upon
dissolution, junior to the ESOP Preferred Stock or (ii) the acquisition of
shares of any stock ranking, as to dividends and upon dissolution, junior to
the ESOP Preferred Stock in
<PAGE> 9
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exchange solely for or by conversion solely into shares of any other stock
ranking junior to the ESOP Preferred Stock as to dividends and upon
dissolution.
(C) Any dividend payment made on shares of ESOP Preferred
Stock shall first be credited against the earliest accumulated but unpaid
dividend due with respect to such shares.
3. Liquidation Preference.
(A) In the event of any dissolution or liquidation of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of any series or class or classes
of stock of the Corporation ranking junior to ESOP Preferred Stock upon
dissolution or liquidation, the holders of ESOP Preferred Stock (other than the
Corporation or its nominee) shall be entitled to receive the Liquidation Price
(as hereinafter defined) per share in effect at the time of dissolution or
liquidation plus an amount equal to all dividends accrued (whether or not
accumulated) and unpaid on the ESOP Preferred Stock to the date of final
distribution to such holders; but such holders shall not be entitled to and
shall not otherwise receive any further payments. The Liquidation Price per
share that holders of ESOP Preferred Stock shall receive upon dissolution or
liquidation shall be $35.875, subject to adjustment as hereinafter provided.
If, upon any dissolution or liquidation of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of ESOP
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares ranking, as to
dissolution or liquidation, on a parity with ESOP Preferred Stock, then such
assets, or the proceeds thereof, shall be distributed among the holders of ESOP
Preferred Stock and any such other shares ratably in accordance with the
respective amounts that would be payable on such shares of ESOP Preferred Stock
and any such other shares if all amounts payable thereon were paid in full.
For the purposes of this Section 3, neither a consolidation or merger of the
Corporation with or into one or more corporations, nor the sale, transfer,
lease or exchange (for cash, shares of equity stock, securities or other
consideration) of all or substantially all of the assets of the Corporation,
nor the distribution to the stockholders of the Corporation of all or
substantially all of the consideration for such sale, unless such consideration
(apart from assumption of liabilities) or the net proceeds
<PAGE> 10
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thereof consists substantially entirely of cash, shall be deemed to be a
dissolution or liquidation, voluntary or involuntary.
(B) Subject to the rights of the holders of shares of any
series or class or classes of stock ranking on a parity with or senior to ESOP
Preferred Stock upon dissolution or liquidation, upon any dissolution or
liquidation of the Corporation, after payment shall have been made in full to
the holders of ESOP Preferred Stock as provided in this Section 3, but not
prior thereto, any other series or class or classes of stock ranking junior to
ESOP Preferred Stock upon dissolution or liquidation shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets of the Corporation remaining to be paid or
distributed, and the holders of ESOP Preferred Stock shall not be entitled to
share therein.
4. Ranking and Voting of Shares.
(A) The Corporation's 9.36% Cumulative Preferred Stock, with
a liquidation value of $25.00 per share, the Corporation's 8.88% Cumulative
Preferred Stock, with a liquidation value of $200.00 per share, and the
Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, shall rank on a parity with ESOP Preferred Stock as to
dividends and as to distribution of assets upon dissolution or liquidation.
Unless otherwise provided in the Restated Certificate of
Incorporation of the Corporation, as the same may be amended, or in a
Certificate of Designation of Rights and Preferences relating to any subsequent
series of preferred stock, the ESOP Preferred Stock shall rank on a parity with
all series of the Corporation's preferred stock as to dividends and as to the
distribution of assets upon dissolution or liquidation.
(B) The holders of shares of ESOP Preferred Stock (other
than the Corporation or its nominee) shall have the following voting rights:
(1) The holders of ESOP Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the stockholders of the
Corporation, voting together with the holders of Common Stock as one class.
The holder of each share of ESOP Preferred Stock shall be entitled to a number
of votes equal to 1.35 times the number of shares of Common
<PAGE> 11
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Stock into which such share of ESOP Preferred Stock could be converted on the
record date for determining the stockholders entitled to vote; it being
understood that whenever the "Conversion Price" (as defined in Section 5
hereof) is adjusted as provided in Section 9 hereof, the number of votes of the
ESOP Preferred Stock shall also be correspondingly adjusted. Notwithstanding
the immediately preceding sentence, if the governing body of the New York Stock
Exchange or any other securities listing service or exchange (each, an
"Exchange") or any relevant governmental or regulatory entity (each such
entity, and each governing body of an Exchange, a "Regulating Entity") shall
have disapproved of such voting power or taken or threatened any action against
the Corporation or in respect of any of its securities in accordance with Rule
19c-4 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any other rule or listing standard of any Regulating Entity regarding
the voting power of securities, or if the Board of Directors determines in its
sole judgment that any Regulating Entity may so disapprove or take or threaten
any such action, the holder of each share of ESOP Preferred Stock shall be
entitled to a maximum number of votes permissible (consistent with continued
listing of the Corporation's securities on any such Exchange) in accordance
with the interpretations of any such rule or listing standard by such
Regulating Entity, as determined by the Board of Directors.
(2) Except as otherwise required by law or set forth herein,
holders of ESOP Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action, including the issuance of any preferred stock now or
hereafter authorized; provided, however, that the vote of at least 66-2/3% of
the outstanding shares of ESOP Preferred Stock, voting separately as a series,
shall be necessary to approve any alteration, amendment or repeal of any
provision of the Restated Certificate of Incorporation or any alteration,
amendment or repeal of any provision of the resolutions relating to the
designation, preferences and rights of ESOP Preferred Stock (including any such
alteration, amendment or repeal effected by any merger or consolidation in
which the Corporation is the surviving or resulting corporation, but not
including any alteration or amendment of rights expressly provided for in
Section (B)(1) above or in Section 2(A)(1)), if such amendment, alteration or
repeal would alter or change the powers, preferences, or special rights of the
ESOP Preferred Stock so as to affect them adversely.
<PAGE> 12
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5. Conversion into Common Stock.
(A) A holder of shares of ESOP Preferred Stock shall be
entitled, at any time prior to the close of business on the date fixed for
redemption of such shares pursuant to Section 6, 7 or 8 hereof, to cause any or
all of such shares to be converted into shares of Common Stock. The number of
shares of Common Stock into which each share of the ESOP Preferred Stock may be
converted shall be determined by dividing the Liquidation Price in effect at
the time of conversion by the Conversion Price (as hereinafter defined) in
effect at the time of conversion. The initial Conversion Price per share at
which shares of Common Stock shall be issuable upon conversion of any shares of
ESOP Preferred Stock shall be $35.875, subject to adjustment as hereinafter
provided; that is, a conversion rate initially equivalent to one share of
Common Stock for each share of ESOP Preferred Stock, which is subject to
adjustment as hereinafter provided.
(B) Any holder of shares of ESOP Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender, if
certificated, the certificate or certificates representing the shares of ESOP
Preferred Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), or
if uncertificated, a duly executed stock power relating thereto, at the
principal executive office of the Corporation or the offices of the transfer
agent for the ESOP Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be designated
by notice to the holders of the ESOP Preferred Stock by the Corporation or the
transfer agent for the ESOP Preferred Stock, accompanied by written notice of
conversion. Such notice of conversion shall specify (i) the number of shares
of ESOP Preferred Stock to be converted and the name or names in which such
holder wishes the Common Stock and any shares of ESOP Preferred Stock not to be
so converted to be issued, and (ii) the address to which such holder wishes
delivery to be made of a confirmation of such conversion, if uncertificated, or
any new certificates which may be issued upon such conversion, if certificated.
(C) Upon surrender, if certificated, of a certificate
representing a share or shares of ESOP Preferred Stock for conversion, or if
uncertificated, of a duly executed stock power relating thereto, the
Corporation shall issue and send by hand delivery (with receipt to be
acknowledged) or by first class mail, postage prepaid, to the
<PAGE> 13
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holder thereof or to such holder's designee, at the address designated by such
holder, if certificated, a certificate or certificates for, or if
uncertificated, confirmation of, the number of shares of Common Stock to which
such holder shall be entitled upon conversion. If there shall have been
surrendered shares of ESOP Preferred Stock only part of which are to be
converted, the Corporation shall issue and deliver to such holder or such
holder's designee, if certificated, a new certificate or certificates
representing the number of shares of ESOP Preferred Stock that shall not have
been converted, or if uncertificated, confirmation of the number of shares of
ESOP Preferred Stock that shall not have been converted.
(D) The issuance by the Corporation of shares of Common
Stock upon a conversion of shares of ESOP Preferred Stock into shares of Common
Stock made at the option of the holder thereof shall be effective as of the
earlier of (i) the delivery to such holder or such holder's designee of the
certificates representing the shares of Common Stock issued upon conversion
thereof, if certificated, or confirmation, if uncertificated, and (ii) the
commencement of business on the second business day after the surrender of the
certificate or certificates, if certificated, or a duly executed stock power,
if uncertificated, for the shares of ESOP Preferred Stock to be converted. On
and after the effective date of conversion, the person or persons entitled to
receive Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, and no
allowance or adjustment shall be made in respect of dividends payable to
holders of Common Stock of record on any date prior to such effective date.
The Corporation shall not be obligated to pay any dividend that may have
accrued or have been declared but that is not payable to holders of shares of
ESOP Preferred Stock if the Dividend Payment Date for such dividend is on or
subsequent to the effective date of conversion of such shares.
(E) The Corporation shall not be obligated to deliver to
holders of ESOP Preferred Stock any fractional share or shares of Common Stock
issuable upon any conversion of such shares of ESOP Preferred Stock, but in
lieu thereof may make a cash payment in respect thereof in any manner permitted
by law.
(F) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Common Stock or treasury Common
Stock, solely for issuance upon the conversion of shares of ESOP Preferred
Stock as herein
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provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of ESOP Preferred Stock then
outstanding.
6. Redemption at the Option of the Corporation.
(A) The ESOP Preferred Stock shall be redeemable, in whole or in
part, at the option of the Corporation at any time after September 19, 2000,
out of funds legally available therefor, at a redemption price per share equal
to 100% of the Liquidation Price plus an amount equal to all accrued (whether
or not accumulated) and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation
in cash or shares of Common Stock, or a combination thereof, as permitted by
paragraph (E) of this Section 6. From and after the date fixed for redemption,
dividends on shares of ESOP Preferred Stock called for redemption will cease to
accrue and all rights of the holder in respect of such shares shall cease,
except the right to receive the redemption price. Upon payment of the
redemption price, such shares shall be deemed to have been transferred to the
Corporation, to be held as treasury shares or to be retired, in either case as
provided in Section 1(A). If less than all of the outstanding shares of ESOP
Preferred Stock are to be redeemed, the Corporation shall either redeem a
portion of the shares of each holder determined pro rata based on the number of
shares held by each holder or shall select the shares to be redeemed by lot, as
may be determined by the Board of Directors of the Corporation.
(B) Notice of redemption will be sent to the holders of ESOP
Preferred Stock at the address shown on the books of the Corporation or any
transfer agent for ESOP Preferred Stock by first class mail, postage prepaid,
mailed not less than twenty (20) days nor more than sixty (60) days prior to the
redemption date or in any other manner provided by law. Each notice shall
state: (i) the redemption date; (ii) the total number of shares of ESOP
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the redemption price; (iv) the place or places where
certificates, if certificated, for such shares are to be surrendered for
payment of the redemption price; (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date; (vi) whether such
redemption price should be paid in cash or in shares of Common Stock; and (vii)
the conversion rights of the shares to be redeemed, the period within which
conversion
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rights may be exercised and the Conversion Price and number of shares of Common
Stock issuable upon conversion of a share of ESOP Preferred Stock at the time.
Upon surrender of the certificates, if certificated, for any shares so called
for redemption, or upon the date fixed for redemption, if uncertificated, such
shares, if not previously converted, shall be redeemed by the Corporation as of
the close of business on the date fixed for redemption and at the redemption
price set forth in this Section 6.
(C) The Corporation may, in its sole discretion and
notwithstanding anything to the contrary in paragraph (A) of this Section 6, at
any time within one year after either of the following events:
(i) there shall be a change in the federal tax law or
regulations of the United States of America or of an interpretation or
application of such law or regulations or of a determination by a
court of competent jurisdiction that in any case has the effect of
precluding the Corporation from claiming (other than for purposes of
calculating any alternative minimum tax) any of the tax deductions for
dividends paid on the ESOP Preferred Stock when such dividends are
used as provided under Section 404(k)(2) of the Internal Revenue Code
of 1986, as amended (the "Code"), as in effect on the date shares of
ESOP Preferred Stock are initially issued, or
(ii) the Corporation shall certify to the holders of the ESOP
Preferred Stock that the Corporation has determined in good faith that
the Plan either is not qualified as a "stock bonus plan" within the
meaning of Section 401(a) of the Code or is not an "employee stock
ownership plan" within the meaning of Section 4975(e)(7) of the Code,
elect either to (a) redeem, out of funds legally available therefor, any or all
of such ESOP Preferred Stock for cash or, if the Corporation so elects, in
shares of Common Stock, or a combination of such shares of Common Stock and
cash, as permitted by paragraph (E) of this Section 6, at a redemption price
equal to (x) if the relevant event is as provided in clause (i) above, the
Liquidation Price per share on the date fixed for redemption, plus an amount
equal to accrued (whether or not accumulated) and unpaid dividends thereon to
the date fixed for redemption or (y) if the relevant event is as provided in
clause (ii) above, an amount calculated on the basis of the redemption prices
provided in paragraph (D) of this Section 6 on the date fixed for redemption or
(b)
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exchange any or all of such shares of ESOP Preferred Stock for securities of at
least equal value (as determined by an independent appraiser) that constitute
"qualifying employer securities" with respect to a holder of ESOP Preferred
Stock within the meaning of Section 409(1) of the Code and Section 407(d)(5) of
the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), or
any successor provisions of law. If the Corporation elects to redeem any or
all of the ESOP Preferred Stock pursuant to clause (a) of the preceding
sentence, notice of such redemption shall be given as required in paragraph (B)
of this Section 6, and if the Corporation elects to exchange any or all of the
ESOP Preferred Stock for securities of at least equal value pursuant to clause
(b) of the preceding sentence, it will cause notice of such election to be sent
to the holders of ESOP Preferred Stock at the address shown on the books of the
Corporation or any transfer agent for ESOP Preferred Stock by first class mail,
postage prepaid, mailed not less than twenty (20) days nor more than sixty (60)
days prior to the date of exchange or in any other manner required by law.
Each notice shall state: (i) the exchange date; (ii) the total number of
shares of ESOP Preferred Stock to be exchanged and, if fewer than all the
shares held by such holder are to be exchanged, the number of shares held by
such holder to be exchanged; (iii) the exchange rate; (iv) the place or places
where certificates, if certificated, for such shares are to be surrendered for
exchange; and (v) that dividends on the shares to be exchanged will cease to
accrue on such exchange date.
(D) Notwithstanding anything to the contrary in paragraph (A)
of this Section 6, in the event that the Plan is, or contributions thereto are,
terminated, the Corporation may, in its sole discretion, call for redemption
any or all of the then outstanding ESOP Preferred Stock, upon notice as
required in paragraph (B) of this Section 6, out of funds legally available
therefor, at a redemption price per share equal to the following percentages of
the Liquidation Price in effect on the date fixed for redemption:
<PAGE> 17
17
<TABLE>
<CAPTION>
During the Twelve-
Month Period Percentage of
Beginning September 19, Liquidation Price
----------------------- -----------------
<S> <C>
1991 106.98
1992 106.20
1993 105.43
1994 104.65
1995 103.88
1996 103.10
1997 102.33
1998 101.55
1999 100.78
2000 100.00
</TABLE>
and thereafter at 100%, plus, in each case, an amount equal to all accrued
(whether or not accumulated) and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation
in cash or shares of Common Stock, or a combination thereof, as permitted by
paragraph (E) of this Section 6. From and after the date fixed for redemption,
dividends on shares of ESOP Preferred Stock called for redemption will cease to
accrue and all rights of the holder in respect of such shares shall cease,
except the right to receive the redemption price. Upon payment of the
redemption price, such shares shall be deemed to have been transferred to the
Corporation, to be held as treasury shares or to be retired, in either case as
provided in Section 1(A).
(E) The Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of ESOP Preferred Stock
in cash or in shares of Common Stock, or in a combination of such shares and
cash, any such shares of Common Stock to be valued for such purpose at their
Fair Market Value (as defined in paragraph 9(H)(2)); provided, however, that in
calculating their Fair Market Value the Adjustment Period (as defined in
paragraph 9(H)(2)) shall be deemed to be the five (5) consecutive trading days
preceding the date of redemption.
7. Redemption at the Option of the Holder.
(A) Unless otherwise provided by law, shares of ESOP
Preferred Stock shall be redeemed by the Corporation at the option of the
holder, at any time and from time to time upon notice to the Corporation given
not less than five business days prior to the date fixed by the holder in such
notice, when and to the extent necessary for such holder to
<PAGE> 18
18
provide for distributions required to be made under, or to satisfy an
investment election provided to participants in accordance with, the Plan or
any successor plan or when the holder elects to redeem shares of ESOP Preferred
Stock in connection with any Preferred Dividend (a "Dividend Redemption"), in
shares of Common Stock legally available therefor, at a redemption price equal
to the higher of (x) the Liquidation Price per share on the date fixed for
redemption and (y) the Fair Market Value (as defined in paragraph 9(H)(2)) of
the number of shares of Common Stock into which each share of ESOP Preferred
Stock is convertible at the time the notice of such redemption is given, plus
in either case an amount equal to accrued (whether or not accumulated) and
unpaid dividends thereon to the date fixed for redemption (such higher price on
any date, together with such accrued and unpaid dividends, the "Special
Redemption Price"). At the election of the Corporation, such redemption may
instead be made out of funds legally available therefor in cash or a
combination of Common Stock and cash. Any shares of Common Stock shall be
valued for the purposes of redemption pursuant to this paragraph (A) as
provided by paragraph (E) of Section 6. In the case of any Dividend
Redemption, such holder shall give the notice specified above on the fifth
business day after the related Dividend Payment Date and such redemption shall
be effective as to such number of shares of ESOP Preferred Stock as shall equal
(x) the aggregate amount of such Preferred Dividends paid with respect to
shares of ESOP Preferred Stock allocated or credited to the accounts of
participants in the Plan or any successor plan that are used to repay any loan
associated with such allocated or credited shares divided by (y) the Special
Redemption Price specified above in this paragraph (A).
(B) Unless otherwise provided by law, shares of ESOP
Preferred Stock shall be redeemed by the Corporation at the option of the
holder, at any time and from time to time upon notice to the Corporation given
not less than five business days prior to the date fixed by the holder in such
notice, upon certification by such holder to the Corporation of the following
events: (i) when and to the extent necessary for such holder to make any
payments of principal, interest or premium due and payable (whether voluntary,
scheduled, upon acceleration or otherwise) upon any obligations of the trust
established under the Plan in connection with the acquisition of ESOP Preferred
Stock or any indebtedness, expenses or costs incurred by the holder for the
benefit of the Plan; or (ii) when and if it shall be established to the
satisfaction of the holder that the Plan
<PAGE> 19
19
has not initially been determined by the Internal Revenue Service to be
qualified as a "stock bonus plan" and an "employee stock ownership plan" within
the meaning of Section 401(a) or 4975(e)(7) of the Code, respectively, in
shares of Common Stock legally available therefor, at a redemption price equal
to the Liquidation Price plus an amount equal to accrued and unpaid dividends
thereon to the date fixed for redemption. At the election of the Corporation,
such redemption may instead be made out of funds legally available therefor in
cash or a combination of Common Stock and cash. Any shares of Common Stock
shall be valued for the purposes of redemption pursuant to this paragraph (B)
as provided by paragraph (E) of Section 6.
8. Consolidation, Merger, etc.
(A) If the Corporation shall consummate any consolidation or merger
or similar transaction, however named, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged solely for or changed,
reclassified or converted solely into securities of any successor or resulting
company (including the Corporation) that constitute "qualifying employer
securities" with respect to a holder of ESOP Preferred Stock within the
meanings of Section 409(l) of the Code and Section 407(d)(5) of ERISA, or any
successor provision of law, and, if applicable, for a cash payment in lieu of
fractional shares, if any, then, in such event, the terms of such consolidation
or merger or similar transaction shall provide that the shares of ESOP
Preferred Stock of such holder shall be converted into or exchanged for and
shall become preferred securities of such successor or resulting company,
having in respect of such company insofar as possible (taking into account,
without limitation, any requirements relating to the listing of such preferred
securities on any national securities exchange or the qualification of such
preferred securities for trading in any over-the-counter market) the same
powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Sections 6, 7 and 8
hereof), and the qualifications, limitations or restrictions thereon, that the
ESOP Preferred Stock had immediately prior to such transaction; provided,
however, that after such transaction each security into which the ESOP
Preferred Stock is so converted or for which it is exchanged shall be
convertible, pursuant to the terms and conditions provided by Section 5 hereof,
into the number and kind of qualifying employer securities receivable by a
holder equivalent to the number of shares of Common Stock into which such
shares of ESOP
<PAGE> 20
20
Preferred Stock could have been converted pursuant to Section 5 hereof
immediately prior to such transaction and provided further that if by virtue of
the structure of such transaction, a holder of Common Stock is required to make
an election with respect to the nature and kind of consideration to be received
in such transaction, which election cannot practicably be made by the holders
of the ESOP Preferred Stock, then such election shall be deemed to be solely
for "qualifying employer securities" (together, if applicable, with a cash
payment in lieu of fractional shares) with the effect provided above on the
basis of the number and kind of qualifying employer securities receivable by a
holder of the number of shares of Common Stock into which the shares of ESOP
Preferred Stock could have been converted pursuant to Section 5 hereof
immediately prior to such transaction (it being understood that if the kind or
amount of qualifying employer securities receivable in respect of each share of
Common Stock upon such transaction is not the same for each such share, then
the kind and amount of qualifying employer securities deemed to be receivable
in respect of each share of Common Stock for purposes of this proviso shall be
the kind and amount so receivable per share of Common Stock by a plurality of
such shares). The rights of the ESOP Preferred Stock as preferred equity of
such successor or resulting company shall successively be subject to
adjustments pursuant to Section 9 hereof after any such transaction as nearly
equivalent as practicable to the adjustments provided for by such Section prior
to such transaction. The Corporation shall not consummate any such merger,
consolidation or similar transaction unless all the terms of this paragraph (A)
are complied with.
(B) If the Corporation shall consummate any consolidation or
merger or similar transaction, however named, pursuant to which the outstanding
shares of Common Stock are by operation of law exchanged for or changed,
reclassified or converted into other shares or securities or cash or any other
property, or any combination thereof, other than any such consideration which
is constituted solely of qualifying employer securities that are common stock
or common equity (as referred to in paragraph (A) of this Section 8) and cash
payments, if applicable, in lieu of fractional shares or other interests,
outstanding shares of ESOP Preferred Stock shall, without any action on the
part of the Corporation or any holder thereof (but subject to paragraph (C) of
this Section 8), be automatically converted immediately prior to the
consummation of such merger, consolidation or similar transaction into shares
of Common Stock at the Conversion Price then in effect.
<PAGE> 21
21
(C) If the Corporation shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 8, then the Corporation shall as soon as practicable
thereafter (and in any event at least ten (10) business days before
consummation of such transaction) give notice of such agreement and the
material terms thereof to each holder of ESOP Preferred Stock and each such
holder shall have the right to elect, by written notice to the Corporation, to
receive, upon consummation of such transaction (if and when such transaction
is consummated), out of funds legally available therefor, from the Corporation
or the successor of the Corporation, in redemption of such ESOP Preferred
Stock, in lieu of any cash or other securities which such holder would
otherwise be entitled to receive under paragraph (B) of this Section 8, a cash
payment equal to the Liquidation Price per share on the date fixed for such
transaction, plus an amount equal to accrued (whether or not accumulated) and
unpaid dividends thereon to the date fixed for such transaction. No such
notice of redemption shall be effective unless given to the Corporation prior
to the close of business of the fifth business day prior to consummation of
such transaction, unless the Corporation or the successor of the Corporation
shall waive such prior notice, but any notice or redemption so given prior to
such time may be withdrawn by notice of withdrawal given to the Corporation
prior to the close of business on the fifth business day prior to consummation
of such transaction.
9. Anti-dilution Adjustments.
(A) (1) Subject to the provisions of paragraphs (E) and (F)
of this Section 9, in the event the Corporation shall, at any time or from time
to time while any of the shares of the ESOP Preferred Stock are outstanding,
(i) pay a dividend or make a distribution in respect of the Common Stock in
shares of Common Stock or (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares, in each case whether by reclassification of
shares, recapitalization of the Corporation (excluding a recapitalization or
reclassification effected by a merger or consolidation to which Section 8
applies) or otherwise, then, in such event, the Board of Directors shall, to
the extent legally permissible, declare a dividend in respect of the ESOP
Preferred Stock in shares of ESOP Preferred Stock (a "Special Dividend") in
such a manner that a holder of ESOP Preferred Stock will become a holder of
that number of shares of ESOP Preferred Stock equal to the product of the
number of such shares held prior to such event times a fraction (the
<PAGE> 22
22
"Section 9(A) Fraction"), the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock outstanding immediately before
such event. A Special Dividend declared pursuant to this Section 9(A)(1) shall
be effective, upon payment of such dividend or distribution in respect of the
Common Stock, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis), and
in the case of a subdivision shall become effective immediately as of the
effective date thereof. Concurrently with the declaration of the Special
Dividend pursuant to this paragraph 9(A)(1), the Conversion Price, the
Liquidation Price and the Preferred Dividend Rate of all shares of ESOP
Preferred Stock shall be adjusted by dividing the Conversion Price, the
Liquidation Price and the Preferred Dividend Rate, respectively, in effect
immediately before such event by the Section 9(A) Fraction.
(2) Subject to the provisions of paragraphs (E) and (F) of this
Section 9, in the event the Corporation shall, at any time or from time to time
while any of the shares of the ESOP Preferred Stock are outstanding, combine
the outstanding shares of Common Stock into a lesser number of shares, whether
by reclassification of shares, recapitalization of the Corporation (excluding a
recapitalization or reclassification effected by a merger, consolidation or
other transaction to which Section 8 applies) or otherwise, then, in such
event, the Conversion Price shall automatically be adjusted by dividing the
Conversion Price in effect immediately before such event by the Section 9(A)
Fraction and the Liquidation Price and the Preferred Dividend Rate will not be
adjusted. An adjustment to the Conversion Price made pursuant to this
paragraph 9(A)(2) shall be given effect immediately as of the effective date of
such combination.
(B) Subject to the provisions of paragraphs (E) and (F) of this
Section 9, in the event the Corporation shall, at any time or from time to time
while any of the shares of ESOP Preferred Stock are outstanding, issue to
holders of shares of Common Stock as a dividend or distribution, including by
way of a reclassification of shares or a recapitalization of the Corporation,
any right or warrant to purchase shares of Common Stock (but not including as a
right or warrant for this purpose any security convertible into or exchangeable
for shares of Common Stock) for a consideration having a Fair Market Value (as
hereinafter defined) per share less than the Fair Market Value of a share of
Common Stock on the date of issuance of such right or warrant (other than
pursuant to any
<PAGE> 23
23
employee or director incentive, compensation or benefit plan or arrangement of
the Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted), then, in such event, the Board of Directors shall, to the extent
legally permissible, declare a Special Dividend in such a manner that a holder
of ESOP Preferred Stock will become a holder of that number of shares of ESOP
Preferred Stock equal to the product of the number of such shares held prior to
such event times a fraction (the "Section 9(B) Fraction"), the numerator of
which is the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants and the denominator of which is the number of shares of Common Stock
outstanding immediately before such issuance of warrants or rights plus the
number of shares of Common Stock that could be purchased at the Fair Market
Value of a share of Common Stock at the time of such issuance for the maximum
aggregate consideration payable upon exercise in full of all such rights and
warrants. A Special Dividend declared pursuant to this Section 9(B) shall be
effective upon such issuance of rights or warrants. Concurrently with the
declaration of the Special Dividend pursuant to this Section 9(B), the
Conversion Price, the Liquidation Price and the Preferred Dividend Rate of all
shares of ESOP Preferred Stock shall be adjusted by dividing the Conversion
Price, the Liquidation Price and the Preferred Dividend Rate, respectively, in
effect immediately before such event by the Section 9(B) Fraction.
(C) (1) Subject to the provisions of paragraphs (E) and (F) of
this Section 9, in the event the Corporation shall, at any time or from time to
time while any of the shares of ESOP Preferred Stock are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to (x) any right or
warrant to purchase or acquire shares of Common Stock (including as such a
right or warrant any security convertible into or exchangeable for shares of
Common Stock) or (y) any employee or director incentive, compensation or
benefit plan or arrangement of the Corporation or any subsidiary of the
Corporation heretofore or hereafter adopted) at a purchase price per share less
than the Fair Market Value of a share of Common Stock on the date of such
issuance, sale or exchange, then, in such event, the Board of Directors shall,
to the extent legally permissible, declare a Special Dividend in such a manner
that a holder of ESOP Preferred Stock will become the holder of that number of
shares of ESOP Preferred Stock equal to the product of the number of such
shares held prior to such event times a
<PAGE> 24
24
fraction (the "Section 9(C)(1) Fraction"), the numerator of which is the number
of shares of Common Stock outstanding immediately before such issuance, sale or
exchange plus the number of shares of Common Stock so issued, sold or exchanged
and the denominator of which is the number of shares of Common Stock
outstanding immediately before such issuance, sale or exchange plus the number
of shares of Common Stock that could be purchased at the Fair Market Value of a
share of Common Stock at the time of such issuance, sale or exchange for the
maximum aggregate consideration paid therefor.
(2) Subject to the provisions of paragraphs (E) and (F) of this
Section 9, in the event that the Corporation shall, at any time or from time to
time while any ESOP Preferred Stock is outstanding, issue, sell or exchange any
right or warrant to purchase or acquire shares of Common Stock (including as
such a right or warrant any security convertible into or exchangeable for
shares of Common Stock other than pursuant to (x) any employee or director
incentive, compensation or benefit plan or arrangement of the Corporation or
any subsidiary of the Corporation heretofore or hereafter adopted and (y) any
dividend or distribution on shares of Common Stock contemplated in Section
9(A)(1)) for a consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Non-Dilutive Amount (as hereinafter
defined), then, in such event, the Board of Directors shall, to the extent
legally permissible, declare a Special Dividend in such a manner that a holder
of ESOP Preferred Stock will become the holder of that number of shares of ESOP
Preferred Stock equal to the product of the number of such shares held prior to
such event times a fraction (the "Section 9(C)(2) Fraction"), the numerator of
which is the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants and the denominator of which is the number of shares of Common Stock
outstanding immediately before such issuance of rights or warrants plus the
number of shares of Common Stock that could be purchased at the Fair Market
Value of a share of Common Stock at the time of such issuance for the total of
(x) the maximum aggregate consideration payable at the time of the issuance,
sale or exchange of such right or warrant and (y) the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.
(3) A Special Dividend declared pursuant to this Section 9(C)
shall be effective upon the effective date of
<PAGE> 25
25
such issuance, sale or exchange. Concurrently with the declaration of the
Special Dividend pursuant to this Section 9(C), the Conversion Price, the
Liquidation Price and the Preferred Dividend Rate of all shares of ESOP
Preferred Stock shall be adjusted by dividing the Conversion Price, the
Liquidation Price and the Preferred Dividend Rate, respectively, in effect
immediately before such event by the Section 9(C)(1) Fraction or Section
9(C)(2) Fraction, as the case may be.
(D) Subject to the provisions of paragraphs (E) and (F) of this
Section 9, in the event the Corporation shall, at any time or from time to time
while any of the shares of ESOP Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including capitalization or
reclassification effected by a merger or consolidation to which Section 8 does
not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of Common
Stock, then, in such event, the Board of Directors shall, to the extent legally
permissible, declare a Special Dividend in such a manner that a holder of ESOP
Preferred Stock will become a holder of that number of shares of ESOP Preferred
Stock equal to the product of the number of such shares held prior to such
event times a fraction (the "Section 9(D) Fraction"), the numerator of which is
the product of (a) the number of shares of Common Stock outstanding immediately
before such Extraordinary Distribution or Pro Rata Repurchase minus, in the
case of Pro Rata Repurchase, the number of shares of Common Stock repurchased
by the Corporation multiplied by (b) the Fair Market Value of a share of Common
Stock on the day before the ex-dividend date with respect to an Extraordinary
Distribution that is paid in cash and on the distribution date with respect to
an Extraordinary Distribution that is paid other than in cash, or on the
applicable expiration date (including all extensions thereof) of any tender
offer that is a Pro Rata Repurchase or on the date of purchase with respect to
any Pro Rata Repurchase that is not a tender offer, as the case may be, and the
denominator of which is (i) the product of (x) the number of shares of Common
Stock outstanding immediately before such Extraordinary Distribution or Pro
Rata Repurchase multiplied by (y) the Fair Market Value of a share of Common
Stock on the day before the ex-dividend date with respect to an Extraordinary
Distribution that is paid in cash and on the distribution date with respect to
an Extraordinary Distribution that is paid other than in cash, or on the
applicable expiration date
<PAGE> 26
26
(including all extensions thereof) of any tender offer that is a Pro Rata
Repurchase, or on the date of purchase with respect to any Pro Rata Repurchase
that is not a tender offer, as the case may be, minus (ii) the Fair Market
Value of the Extraordinary Distribution or the aggregate purchase price of the
Pro Rata Repurchase, as the case may be. The Corporation shall send each
holder of ESOP Preferred Stock (i) notice of its intent to make any
Extraordinary Distribution and (ii) notice of any offer by the Corporation to
make a Pro Rata Repurchase, in each case at the same time as, or as soon as
practicable after, such offer is first communicated to holders of Common Stock
or, in the case of an Extraordinary Distribution, the announcement of a record
date in accordance with the rules of any stock exchange on which the Common
Stock is listed or admitted to trading. Such notice shall indicate the
intended record date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer for a Pro Rata
Repurchase and the purchase price payable by the Corporation pursuant to such
offer, as well as the Conversion Price and the number of shares of Common Stock
into which a share of ESOP Preferred Stock may be converted at such time.
Concurrently with the Special Dividend paid pursuant to this Section 9(D), the
Conversion Price, the Liquidation Price and the Preferred Dividend Rate of all
shares of ESOP Preferred Stock shall be adjusted by dividing the Conversion
Price, the Liquidation Price and the Preferred Dividend Rate, respectively, in
effect immediately before such Extraordinary Distribution or Pro Rata
Repurchase by the Section 9(D) Fraction.
(E) Notwithstanding any other provision of this Section 9, the
Corporation shall not be required to make (i) any Special Dividend or any
adjustment of the Conversion Price, the Liquidation Price or the Preferred
Dividend Rate unless such Special Dividend or adjustment would require an
increase or decrease of at least one percent (1%) in the number of shares of
ESOP Preferred Stock outstanding, or, (ii) if no additional shares of ESOP
Preferred Stock are issued, any adjustment of the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the Conversion Price. Any lesser Special Dividend or adjustment shall be
carried forward and shall be made no later than the time of, and together with,
the next subsequent Special Dividend or adjustment which, together with any
Special Dividend or Dividends, adjustment or adjustments so carried forward,
shall amount to an increase or decrease of at least one percent (1%) of the
number of shares of ESOP Preferred Stock outstanding or, if no additional
shares of ESOP Preferred Stock are being issued,
<PAGE> 27
27
an increase or decrease of at least one percent (1%) of the Conversion Price,
whichever the case may be.
(F) The Corporation and the Board of Directors shall each use its
best efforts to take all necessary steps or to take all actions as are
reasonably necessary or appropriate for declaration of any Special Dividend
provided in any of paragraphs (A), (B), (C) and (D) of this Section 9, but
shall not be required to call a special meeting of stockholders in order to
implement the provisions thereof. If for any reason the Board of Directors is
precluded from giving full effect to the Special Dividend provided in any of
such paragraphs, then no such Special Dividend shall be declared, but instead
the Conversion Price shall automatically be adjusted by dividing the Conversion
Price in effect immediately before the relevant event by the Section 9(A),
Section 9(B), Section 9(C) or Section 9(D) Fraction, as applicable, and the
Liquidation Price and the Preferred Dividend Rate will not be adjusted. An
adjustment to the Conversion Price made pursuant to this paragraph (F) shall be
given effect, (i) in the case of a payment of a dividend or distribution under
Section 9(A), upon payment thereof as of the record date for the determination
of holders entitled to receive such dividend or distribution (on a retroactive
basis), and, in the case of a subdivision under Section 9(A), immediately as of
the effective date thereof, (ii) in the case of Section 9(B), upon such
issuance of rights or warrants, (iii) in the case of Section 9(C), upon the
effective date of such issuance, sale or exchange and (iv) in the case of an
Extraordinary Dividend under Section 9(D), as of the record date for the
determination of holders entitled to receive such Extraordinary Dividend (on a
retroactive basis), and, in the case of a Pro Rata Repurchase under Section
9(D), upon the expiration date thereof (if such Pro Rata Repurchase is a tender
offer) or the effective date thereof (if such Pro Rata Repurchase is not a
tender offer). If subsequently the Board of Directors is able to give full
effect to the Special Dividend as provided in paragraph (A), (B), (C) or (D) of
this Section 9, then such Special Dividend will be declared and other
adjustments will be made in accordance with the provisions of such paragraph
and the adjustment in the Conversion Price as provided in this paragraph (F)
will automatically be reversed and nullified prospectively.
(G) If the Corporation shall make any dividend or distribution
on the Common Stock or issue any Common Stock, other capital stock or other
security of the Corporation or any rights or warrants to purchase or acquire
any such
<PAGE> 28
28
security, which transaction does not result in an adjustment to the number of
shares of ESOP Preferred Stock outstanding or the Conversion Price pursuant to
the foregoing provisions of this Section 9, the Board of Directors of the
Corporation may, in its sole discretion, consider whether such action is of
such a nature that some type of equitable adjustment should be made in respect
of such transaction. If in such case the Board of Directors of the Corporation
determines that some type of adjustment should be made, an adjustment shall be
made effective as of such date as determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the Corporation as
to whether some type of adjustment should be made pursuant to the foregoing
provisions of this Section 9(G), and, if so, as to what adjustment should be
made and when, shall be final and binding on the Corporation and all
stockholders of the Corporation. The Corporation shall be entitled, but not
required, to make such additional adjustments, in addition to those required by
the foregoing provisions of this Section 9, as shall be necessary in order that
any dividend or distribution in shares of capital stock of the Corporation,
subdivision, reclassification or combination of shares of the Corporation or
any reclassification of the Corporation shall not be taxable to holders of the
Common Stock.
(H) For purposes hereof, the following definitions shall apply:
(1) "Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the shares of
ESOP Preferred Stock are outstanding) of (i) cash or (ii) any shares of capital
stock of the Corporation (other than shares of Common Stock), other securities
of the Corporation (other than securities of the type referred to in paragraph
(B) of this Section 9), evidences of indebtedness of the Corporation or any
other person or any other property (including shares of any subsidiary of the
Corporation), or any combination of the foregoing, where the aggregate amount
of such cash dividend or other distribution together with the amount of all
cash dividends and other distributions made during the preceding period of
twelve months, when combined with the aggregate amount of all Pro Rata
Repurchases (for this purpose, including only that portion of the aggregate
purchase price of such Pro Rata Repurchase that is in excess of the Fair Market
Value of the Common Stock repurchased as determined on the applicable
expiration date (including all extensions thereof) of any tender offer or
exchange offer that is a Pro Rata Repurchase, or the date of purchase with
respect to any
<PAGE> 29
29
other Pro Rata Repurchase that is not a tender offer or exchange offer) made
during such period, exceeds twelve and one-half percent (12-1/2%) of the
aggregate Fair Market Value of all shares of Common Stock outstanding on the
day before the ex-dividend date with respect to such Extraordinary Distribution
that is paid in cash and on the distribution date with respect to an
Extraordinary Distribution that is paid other than in cash. The Fair Market
Value of an Extraordinary Distribution for purposes of paragraph (D) of this
Section 9 shall be the sum of the Fair Market Value of such Extraordinary
Distribution plus the aggregate amount of any cash dividends or other
distributions that are not Extraordinary Distributions made during such
twelve-month period and not previously included in the calculation of an
adjustment pursuant to paragraph (D) of this Section 9, but shall exclude the
aggregate amount of regular quarterly dividends declared by the Board of
Directors and paid by the Corporation in such twelve-month period.
(2) "Fair Market Value" shall mean, as to shares of Common Stock
or any other class of capital stock or securities of the Corporation or any
other issuer that are publicly traded, the average of the Current Market Prices
(as hereinafter defined) of such shares or securities for each day of the
Adjustment Period (as hereinafter defined). "Current Market Price" of publicly
traded shares of Common Stock or any other class of capital stock or other
security of the Corporation or any other issuer for a day shall mean the last
reported sales price, regular way, or, in case no sale takes place on such day,
the average of the reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange Composite Tape or, if
such security is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which such security
is listed or admitted to trading or, if not listed or admitted to trading on
any national securities exchange, on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market System or, if
such security is not quoted on such National Market System, the average of the
closing bid and asked prices on such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
regularly making a market in such security selected for such purpose by the
Board of Directors of the Corporation. "Adjustment Period" shall mean the
period of five consecutive trading days, selected by the Board of Directors of
the
<PAGE> 30
30
Corporation, during the twenty (20) trading days preceding, and including, the
date as of which the Fair Market Value of a security is to be determined. The
"Fair Market Value" of any security that is not publicly traded or of any other
property shall mean the fair value thereof as determined by an independent
investment banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors of the
Corporation, or, if no such investment banking or appraisal firm is in the good
faith judgment of the Board of Directors available to make such determination,
as determined in good faith by the Board of Directors of the Corporation.
(3) "Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase or acquire
shares of Common Stock (including any security convertible into or exchangeable
for shares of Common Stock) shall mean the difference between (i) the product of
the Fair Market Value of a share of Common Stock on the day preceding the first
public announcement of such issuance, sale or exchange multiplied by the
maximum number of shares of Common Stock that could be acquired on such date
upon the exercise in full of such rights or warrants (including upon the
conversion or exchange of all such convertible or exchangeable securities),
whether or not exercisable (or convertible or exchangeable) at such date, and
(ii) the aggregate amount payable pursuant to such right or warrant to purchase
or acquire such maximum number of shares of Common Stock; provided, however,
that in no event shall the Non-Dilutive Amount be less than zero. For purposes
of the foregoing sentence, in the case of a security convertible into or
exchangeable for shares of Common Stock, the amount payable pursuant to a right
or warrant to purchase or acquire shares of Common Stock shall be the Fair
Market Value of such security on the date of the issuance, sale or exchange of
such security by the Corporation.
(4) "Pro Rata Repurchase" shall mean any purchase of shares or
Common Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the Corporation,
evidences of indebtedness of the Corporation or any other person or any other
property (including shares of a subsidiary of the Corporation), or any
combination thereof, effected while any of the shares of ESOP Preferred Stock
are outstanding, pursuant to any tender offer or exchange offer subject to
Section 13(e) of the Exchange Act, or any successor provision of law, or
pursuant to any other offer available to substantially all holders of Common
Stock;
<PAGE> 31
31
provided, however, that no purchase of shares by the Corporation or any
subsidiary thereof made in open market transactions shall be deemed a Pro Rata
Repurchase. For purposes of this Section 9(H), shares shall be deemed to have
been purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act on the date
shares of ESOP Preferred Stock are initially issued by the Corporation or on
such other terms and conditions as the Board of Directors of the Corporation
shall have determined are reasonably designed to prevent such purchases from
having a material effect on the trading market for the Common Stock.
(I) Whenever an adjustment increasing the number of shares of
ESOP Preferred Stock outstanding is required pursuant hereto, the Board of
Directors shall take action as is necessary so that a sufficient number of
shares of ESOP Preferred Stock are designated with respect to such increase
resulting from such adjustment. Whenever an adjustment to the Conversion
Price, the Liquidation Price or the Preferred Dividend Rate of the ESOP
Preferred Stock is required pursuant hereto, the Corporation shall forthwith
place on file with the transfer agent for the Common Stock and the ESOP
Preferred Stock, if there be one, and with the Treasurer of the Corporation, a
statement signed by the Treasurer or any Assistant Treasurer of the Corporation
stating the adjusted Conversion Price, Liquidation Price and Preferred Dividend
Rate determined as provided herein. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustments, including any determination of Fair
Market Value involved in such computation. Promptly after each adjustment to
the number of shares of ESOP Preferred Stock outstanding, the Conversion Price,
the Liquidation Price or the Preferred Dividend Rate, the Corporation shall
mail a notice thereof and of the then prevailing number of shares of ESOP
Preferred Stock outstanding, the Conversion Price, the Liquidation Price and
the Preferred Dividend Rate to each holder of shares of ESOP Preferred Stock.
10. Miscellaneous.
(A) All notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon the earlier of
receipt thereof or three (3) business days after the mailing thereof if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid,
<PAGE> 32
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addressed: (i) if to the Corporation, to its office at 1251 Avenue of the
Americas, New York, New York 10020 (Attention: Secretary) or to the transfer
agent for the ESOP Preferred Stock, or other agent of the Corporation
designated as permitted hereof or (ii) if to any holder of the ESOP Preferred
Stock or Common Stock, as the case may be, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for Common Stock) or (iii) to such
other address as the Corporation or any such holder, as the case may be, shall
have designated by notice similarly given.
(B) The term "Common Stock" as used herein means the Corporation's
Common Stock, par value $1.00 per share, as the same exists at the date of
filing of this Certificate of Designation pursuant to Section 151 of the
General Corporation Law of the State of Delaware, or any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to without par
value, or from without par value to par value. In the event that, at any time
as a result of an adjustment made pursuant to Section 9 hereof, the holder of
any shares of the ESOP Preferred Stock upon thereafter surrendering such shares
for conversion shall become entitled to receive any shares or other securities
of the Corporation other than shares of Common Stock, the anti-dilution
provisions contained in Section 9 hereof shall apply in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to Common
Stock, and the provisions of Sections 1 through 8 and 10 hereof with respect to
the Common Stock shall apply on like or similar terms to any such other shares
or securities.
(C) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of ESOP Preferred Stock or shares of Common Stock or other
securities issued on account of ESOP Preferred Stock pursuant thereto or
certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax which may be payable in respect
of any transfer involved in the issuance or delivery of shares of ESOP
Preferred Stock or Common Stock or other securities in a name other than that
in which the shares of ESOP Preferred Stock with respect to which such shares
or other securities are issued or delivered were registered, or in respect of
any payment to any person with respect to any shares or securities other than a
payment
<PAGE> 33
33
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid or is not payable.
(D) In the event that a holder of shares of ESOP Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion or exchange of such shares should be registered or
to whom payment upon redemption of shares of ESOP Preferred Stock should be
made or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares, and make such payment, in the name of the holder of such
ESOP Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates or other documentation representing such shares, or
such payment, to the address of such holder shown on the records of the
Corporation.
(E) The Corporation may appoint, and from time to time discharge
and change, a transfer agent for the ESOP Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of ESOP
Preferred Stock.
<PAGE> 34
34
Subpart B: 9.36% Cumulative Preferred Stock*
1. Designation and Amount; Fractional Shares. The designation
for such series of the Preferred Stock authorized by this resolution shall be
the 9.36% Cumulative Preferred Stock, without par value but with a stated value
of $25.00 per share (the "Cumulative Preferred Stock"). The maximum number of
shares of Cumulative Preferred Stock shall be 5,500,000. The Cumulative
Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock
will be entitled to receive, when and as declared by the Board out of assets of
the Corporation legally available for payment, cash dividends payable quarterly
at the rate of 9.36% per annum. Dividends on the Cumulative Preferred Stock,
calculated as a percentage of the stated value, will be payable quarterly on
February 28, May 30, August 30 and November 30, commencing August 30, 1991
(each a "dividend payment date"). Dividends on shares of the Cumulative
Preferred Stock will be cumulative from the date of initial issuance of such
shares of Cumulative Preferred Stock. Dividends will be payable, in arrears,
to holders of record as they appear on the stock books of the Corporation on
such record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board. The amount of dividends
payable for the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day year of twelve
30-day months. No dividends may be declared or paid or set apart for payment
on any Parity Preferred Stock (as defined in paragraph 9(b) below) with regard
to the payment of dividends unless there shall also be or have been declared
and paid or set apart for payment on the Cumulative Preferred Stock, like
dividends for all dividend payment periods of the Cumulative Preferred Stock
ending on or before the dividend payment date of such Parity Preferred Stock,
ratably in proportion to the respective amounts of dividends (x) accumulated
and unpaid or payable on such Parity Preferred Stock, on the one hand, and (y)
accumulated and unpaid through the dividend payment period or periods of the
Cumulative Preferred Stock next preceding such dividend payment date, on the
other hand.
- --------------------
* Terms defined in this Subpart B are so defined for purposes of this
Subpart alone.
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35
Except as set forth in the preceding sentence, unless full
cumulative dividends on the Cumulative Preferred Stock have been paid, no
dividends (other than in Common Stock of the Corporation) may be paid or
declared and set aside for payment or other distribution made upon the Common
Stock or on any other stock of the Corporation ranking junior to or on a parity
with the Cumulative Preferred Stock as to dividends, nor may any Common Stock
or any other stock of the Corporation ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment be made to or available for a
sinking fund for the redemption of any shares of such stock; provided, however,
that any moneys theretofore deposited in any sinking fund with respect to any
preferred stock of the Corporation in compliance with the provisions of such
sinking fund may thereafter be applied to the purchase or redemption of such
preferred stock in accordance with the terms of such sinking fund regardless of
whether at the time of such application full cumulative dividends upon shares
of the Cumulative Preferred Stock outstanding to the last dividend payment date
shall have been paid or declared and set apart for payment) by the Corporation
(except by conversion into or exchange for stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to dividends).
3. Liquidation Preference. The shares of Cumulative Preferred
Stock shall rank, as to liquidation, dissolution or winding up of the
Corporation, prior to the shares of Common Stock and any other class of stock
of the Corporation ranking junior to the Cumulative Preferred Stock as to
rights upon liquidation, dissolution or winding up of the Corporation, so that
in the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Cumulative Preferred Stock
shall be entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common Stock or any
other such junior stock, an amount equal to $25.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an amount equal to
all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of Cumulative Preferred Stock to the date of final
distribution. The holders of the Cumulative Preferred Stock will not be
entitled to receive the Liquidation Preference until the liquidation preference
of any other class of stock of the Corporation ranking senior to the Cumulative
Preferred Stock as to rights upon
<PAGE> 36
36
liquidation, dissolution or winding up shall have been paid (or a sum set aside
therefor sufficient to provide for payment) in full. After payment of the full
amount of the Liquidation Preference and such dividends, the holders of shares
of Cumulative Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of Parity Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts which would be
payable on such shares if all amounts payable thereon were paid in full. For
the purposes hereof, neither a consolidation or merger of the Corporation with
or into any other corporation, nor a merger of any other corporation with or
into the Corporation, nor a sale or transfer of all or any part of the
Corporation's assets for cash or securities shall be considered a liquidation,
dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not
convertible into shares of any other class or series of stock of the
Corporation.
5. Voting Rights. The holders of shares of Cumulative
Preferred Stock shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State of Delaware,
and except as follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Cumulative Preferred Stock or on any Parity Preferred Stock
with respect to payment of dividends shall be in arrears for an
aggregate number of days equal to six calendar quarters or more,
whether or not consecutive, the holders of the outstanding shares of
Cumulative Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of stock upon which
like voting rights have been conferred and are exercisable (voting
together as a class), to elect two of the authorized number of members
of the Board of Directors of the Corporation at the Corporation's next
annual meeting of stockholders and at each subsequent annual meeting
of stockholders until such arrearages have been paid or set apart for
payment, at which time such right shall terminate, except as herein or
by law expressly provided, subject to revesting in the
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37
event of each and every subsequent default of the character above
mentioned. Upon any termination of the right of the holders of shares
of Cumulative Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors then in office
elected by the holders of shares of Cumulative Preferred Stock shall
terminate immediately. Any director who shall have been so elected
pursuant to this paragraph may be removed at any time, either with or
without cause. Any vacancy thereby created may be filled, only by the
affirmative vote of the holders of shares of Cumulative Preferred
Stock voting separately as a class (together with the holders of
shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any
director elected by the holders of shares of Cumulative Preferred
Stock voting as a class becomes vacant for any reason other than
removal from office as aforesaid, the remaining director elected
pursuant to this paragraph may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of
Cumulative Preferred Stock shall be entitled to one vote for each
share held (the holders of shares of any other class or series of
preferred stock having like voting rights being entitled to such
number of votes, if any, for each share of such stock held as may be
granted to them).
(b) So long as any shares of Cumulative Preferred Stock
remain outstanding, the consent of the holders of at least two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time
and all other class or series of stock upon which like voting rights
have been conferred and are exercisable (voting together as a class)
given in person or by proxy, either in writing or at any meeting
called for the purpose, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the issuance or increase of the authorized amount of
any class or series of shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the shares of the
Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Certificate of
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38
Incorporation (including this resolution or any provision
hereof) that would materially and adversely affect any power,
preference, or special right of the shares of Cumulative
Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of authorized
Common Stock or authorized Preferred Stock or any increase or decrease
in the number of shares of any series of Preferred Stock or the
creation and issuance of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with or junior to the shares
of Cumulative Preferred Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect
such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of
Cumulative Preferred Stock shall have been redeemed or called for
redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock
may be redeemed at the option of the Corporation, as a whole, or from time to
time in part, at any time, upon not less than 30 days' prior notice mailed to
the holders of the shares to be redeemed at their addresses as shown on the
stock books of the Corporation; provided, however, that shares of the
Cumulative Preferred Stock shall not be redeemable prior to May 30, 1996.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $25.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock
have not been paid, the Cumulative Preferred Stock may not be redeemed in part
and the Corporation may not purchase or acquire any shares of the Cumulative
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Cumulative Preferred Stock. If fewer than
all the outstanding shares of Cumulative Preferred Stock are to be redeemed,
the Corporation will select those to be redeemed by lot or a substantially
equivalent method.
<PAGE> 39
39
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption, the funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares of Cumulative Preferred Stock so called for
redemption, then, notwithstanding that any certificates for such shares have
not been surrendered for cancellation, on the redemption date dividends shall
cease to accrue on the shares to be redeemed, and at the close of business on
the redemption date the holders of such shares shall cease to be stockholders
with respect to such shares and shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall revert to
the general funds of the Corporation, after which reversion the holders of such
shares so called for redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such redemption. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall be required for
(a) the creation of any indebtedness of any kind of the Corporation, (b) the
creation, or increase or decrease in the amount, of any class or series of
stock of the Corporation not ranking prior as to dividends or upon liquidation,
dissolution or winding up to the Cumulative Preferred Stock or (c) any increase
or decrease in the amount of authorized Common Stock or any increase, decrease
or change in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. Subject to the provisions of
paragraph 5, the Board reserves the right by subsequent amendment of this
resolution from time to time to increase or decrease the number of shares which
constitute the Cumulative Preferred Stock (but not below the number of shares
thereof then outstanding) and in other respects to amend this resolution within
the limitations provided by law, this resolution and the Certificate of
Incorporation.
9. Rank. For the purposes of this resolution, any stock of
any class or classes of the Corporation shall be deemed to rank:
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(a) prior to shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or
both, if the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, whether or not the dividend rates, dividend
payment dates, or redemption or liquidation prices per share thereof
be different from those of the Cumulative Preferred Stock, if the
holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributed
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority of one over the other as between the
holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer
to any stock on a parity with the shares of Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up,
or both, if such class shall be Common Stock or if the holders of the
Cumulative Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the Common Stock
and on a parity with the Corporation's ESOP Convertible Preferred Stock, with a
liquidation value of $35.875 per share, the Corporation's 8.88% Cumulative
Preferred Stock, with a liquidation value of $200.00 per share, and the
Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
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41
Subpart C: 8.88% Cumulative Preferred Stock*
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized by this
resolution shall be the 8.88% Cumulative Preferred Stock, without par value,
with a stated value of $200.00 per share (the "Cumulative Preferred Stock").
The stated value per share of Cumulative Preferred Stock shall not for any
purpose be considered to be a determination by the Board or the Committee with
respect to the capital and surplus of the Corporation. The maximum number of
shares of Cumulative Preferred Stock shall be 975,000. The Cumulative
Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred
Stock will be entitled to receive, when and as declared by the Board or the
Committee out of assets of the Corporation legally available for payment, cash
dividends payable quarterly at the rate of 8.88% per annum. Dividends on the
Cumulative Preferred Stock, calculated as a percentage of the stated value,
will be payable quarterly on February 28, May 30, August 30 and November 30,
commencing February 28, 1992 (each a "dividend payment date"). Dividends on
shares of the Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such shares of Cumulative Preferred Stock. Dividends will
be payable, in arrears, to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 60 days nor less than 10
days preceding the payment dates thereof, as shall be fixed by the Board or the
Committee. The amount of dividends payable for the initial dividend period or
any period shorter than a full dividend period shall be calculated on the basis
of a 360-day year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock (as defined in
paragraph 9(b) below) with regard to the payment of dividends unless there
shall also be or have been declared and paid or set apart for payment on the
Cumulative Preferred Stock, like dividends for all dividend payment periods of
the Cumulative Preferred Stock ending on or before the dividend payment date of
such Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock,
on the one hand, and (y) accumulated and unpaid
- ---------------------
* Terms defined in this Subpart C are so defined for purposes of this
Subpart alone.
<PAGE> 42
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through the dividend payment period or periods of the Cumulative Preferred
Stock next preceding such dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless full
cumulative dividends on the Cumulative Preferred Stock have been paid, no
dividends (other than in Common Stock of the Corporation) may be paid or
declared and set aside for payment or other distribution made upon the Common
Stock or on any other stock of the Corporation ranking junior to or on a parity
with the Cumulative Preferred Stock as to dividends, nor may any Common Stock
or any other stock of the Corporation ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired by the Corporation for any consideration or any payment by the
Corporation be made to or available for a sinking fund for the redemption of
any shares of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred stock of the
Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such preferred stock in
accordance with the terms of such sinking fund regardless of whether at the
time of such application full cumulative dividends upon shares of the
Cumulative Preferred Stock outstanding to the last dividend payment date shall
have been paid or declared and set apart for payment; and provided further that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or winding up of the
Corporation, prior to the shares of Common Stock and any other class of stock
of the Corporation ranking junior to the Cumulative Preferred Stock as to
rights upon liquidation, dissolution or winding up of the Corporation, so that
in the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Cumulative Preferred Stock
shall be entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common Stock or any
other such junior stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an amount equal to
all dividends (whether or not earned or declared) accrued and
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43
accumulated and unpaid on the shares of Cumulative Preferred Stock to the date
of final distribution. The holders of the Cumulative Preferred Stock will not
be entitled to receive the Liquidation Preference until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation, dissolution or
winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. After payment of the full amount of the
Liquidation Preference and an amount equal to such dividends, the holders of
shares of Cumulative Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Corporation. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares of
Parity Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributable among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. For the purposes hereof, neither a consolidation or merger
of the Corporation with or into any other corporation, nor a merger of any
other corporation with or into the Corporation, nor a sale or transfer of all
or any part of the Corporation's assets for cash or securities shall be
considered a liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not
convertible into shares of any other class or series of stock of the
Corporation.
5. Voting Rights. The holders of shares of Cumulative
Preferred Stock shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State of Delaware,
and except as follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Cumulative Preferred Stock or on any Parity Preferred Stock
with respect to payment of dividends shall be in arrears for an
aggregate number of days equal to six calendar quarters or more,
whether or not consecutive, the holders of the outstanding shares of
Cumulative Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of stock upon which
like voting rights have been conferred and are exercisable (voting
together as a class), to elect two of the authorized number of members
<PAGE> 44
44
of the Board at the Corporation's next annual meeting of stockholders
and at each subsequent annual meeting of stockholders until such
arrearages have been paid or set apart for payment, at which time such
right shall terminate, except as herein or by law expressly provided,
subject to revesting in the event of each and every subsequent default
of the character above mentioned. Upon any termination of the right
of the holders of shares of Cumulative Preferred Stock as a class to
vote for directors as herein provided, the term of office of all
directors then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate immediately. Any director
who shall have been so elected pursuant to this paragraph may be
removed at any time, either with or without cause. Any vacancy
thereby created may be filled only by the affirmative vote of the
holders of shares of Cumulative Preferred Stock voting separately as a
class (together with the holders of shares of any other class or
series of stock upon which like voting rights have been conferred and
are exercisable). If the office of any director elected by the
holders of shares of Cumulative Preferred Stock voting as a class
becomes vacant for any reason other than removal from office as
aforesaid, the remaining director elected pursuant to this paragraph
may choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. At elections for such
directors, each holder of shares of Cumulative Preferred Stock shall
be entitled to one vote for each share held (the holders of shares of
any other class or series of preferred stock having like voting rights
being entitled to such number of votes, if any, for each share of such
stock held as may be granted to them).
(b) So long as any shares of Cumulative Preferred Stock
remain outstanding, the consent of the holders of at least two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time
and all other classes or series of stock upon which like voting rights
have been conferred and are exercisable (voting together as a class)
given in person or by proxy, either in writing or at any meeting
called for the purpose, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the issuance or increase of the authorized amount of
any class or series of shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the shares of the
Cumulative Preferred Stock; or
<PAGE> 45
45
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Certificate of Incorporation (including this resolution
or any provision hereof) that would materially and adversely
affect any power, preference, or special right of the shares
of Cumulative Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock or any
increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series
of Common Stock or Preferred Stock, in each case ranking on a
parity with or junior to the shares of Cumulative Preferred
Stock with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of
Cumulative Preferred Stock shall have been redeemed or called for
redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock
may be redeemed at the option of the Corporation, as a whole, or from time to
time in part, at any time, upon not less than 30 days' prior notice mailed to
the holders of the shares to be redeemed at their addresses as shown on the
stock books of the Corporation; provided, however, that shares of the
Cumulative Preferred Stock shall not be redeemable prior to November 30, 1996.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock
have not been paid, the Cumulative Preferred Stock may not be redeemed in part
and the Corporation may not purchase or acquire any shares of the Cumulative
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Cumulative Preferred Stock.
<PAGE> 46
46
If fewer than all the outstanding shares of Cumulative
Preferred Stock are to be redeemed, the Corporation will select those to be
redeemed by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption, the funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares of Cumulative Preferred Stock so called for
redemption, then, notwithstanding that any certificates for such shares have
not been surrendered for cancellation, on the redemption date dividends shall
cease to accrue on the shares to be redeemed, and at the close of business on
the redemption date the holders of such shares shall cease to be stockholders
with respect to such shares and shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall revert to
the general funds of the Corporation, after which reversion the holders of such
shares so called for redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such redemption. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
All shares of Cumulative Preferred Stock redeemed, purchased
or otherwise acquired by the Corporation shall be retired and cancelled and
shall be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series, and may thereafter be issued.
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall be required for
(a) the creation of any indebtedness of any kind of the Corporation, (b) the
creation, or increase or decrease in the amount, of any class or series of
stock of the Corporation not ranking prior as to dividends or upon liquidation,
dissolution or winding up to the Cumulative Preferred Stock or (c) any increase
or decrease in the amount of authorized Common Stock or any increase, decrease
or change in the par value thereof or in any other terms thereof.
<PAGE> 47
47
8. Amendment of Resolution. The Board and the Committee each
reserves the right by subsequent amendment of this resolution from time to time
to increase or decrease the number of shares that constitute the Cumulative
Preferred Stock (but not below the number of shares thereof then outstanding)
and in other respects to amend this resolution within the limitations provided
by law, this resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of
any class or classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or
both, if the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, whether or not the dividend rates, dividend
payment dates, or redemption or liquidation prices per share thereof
be different from those of the Cumulative Preferred Stock, if the
holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributed
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority of one over the other as between the
holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer
to any stock on a parity with the shares of Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up,
or both, if such class shall be Common Stock or if the holders of the
Cumulative Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of stock of such class or classes.
<PAGE> 48
48
The Cumulative Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the Common Stock
and on a parity with the Corporation's ESOP Convertible Preferred Stock, with a
liquidation value of $35.875 per share, the Corporation's 9.36% Cumulative
Preferred Stock, with a liquidation value of $25.00 per share, and the
Corporation's 8-3/4% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
<PAGE> 49
49
Subpart D: 8-3/4% Cumulative Preferred Stock*
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized by this
resolution shall be the 8-3/4% Cumulative Preferred Stock, without par value,
with a stated value of $200.00 per share (the "Cumulative Preferred Stock").
The stated value per share of Cumulative Preferred Stock shall not for any
purpose be considered to be a determination by the Board or the Committee with
respect to the capital and surplus of the Corporation. The number of shares of
Cumulative Preferred Stock shall be 750,000. The Cumulative Preferred Stock is
issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred
Stock will be entitled to receive, when and as declared by the Board or the
Committee out of assets of the Corporation legally available for payment, cash
dividends payable quarterly at the rate of 8-3/4% per annum. Dividends on the
Cumulative Preferred Stock, calculated as a percentage of the stated value,
will be payable quarterly on February 28, May 30, August 30 and November 30,
commencing May 30, 1992 (each a "dividend payment date"). Dividends on shares
of the Cumulative Preferred Stock will be cumulative from the date of initial
issuance of such shares of Cumulative Preferred Stock. Dividends will be
payable, in arrears, to holders of record as they appear on the stock books of
the Corporation on such record dates, not more than 60 days nor less than 10
days preceding the payment dates thereof, as shall be fixed by the Board or the
Committee. The amount of dividends payable for the initial dividend period or
any period shorter than a full dividend period shall be calculated on the basis
of a 360-day year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock (as defined in
paragraph 9(b) below) with regard to the payment of dividends unless there
shall also be or have been declared and paid or set apart for payment on the
Cumulative Preferred Stock, like dividends for all dividend payment periods of
the Cumulative Preferred Stock ending on or before the dividend payment date of
such Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock,
on the one hand, and (y) accumulated and unpaid through the dividend payment
period or periods of the
- --------------------
* Terms defined in this Subpart D are so defined for purposes of this
Subpart alone.
<PAGE> 50
50
Cumulative Preferred Stock next preceding such dividend payment date, on the
other hand.
Except as set forth in the preceding sentence, unless full
cumulative dividends on the Cumulative Preferred Stock have been paid, no
dividends (other than in Common Stock of the Corporation) may be paid or
declared and set aside for payment or other distribution made upon the Common
Stock or on any other stock of the Corporation ranking junior to or on a parity
with the Cumulative Preferred Stock as to dividends, nor may any Common Stock
or any other stock of the Corporation ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired by the Corporation for any consideration or any payment by the
Corporation be made to or available for a sinking fund for the redemption of
any shares of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred stock of the
Corporation in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such preferred stock in
accordance with the terms of such sinking fund regardless of whether at the
time of such application full cumulative dividends upon shares of the
Cumulative Preferred Stock outstanding to the last dividend payment date shall
have been paid or declared and set apart for payment; and provided further that
any such junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or winding up of the
Corporation, prior to the shares of Common Stock and any other class of stock
of the Corporation ranking junior to the Cumulative Preferred Stock as to
rights upon liquidation, dissolution or winding up of the Corporation, so that
in the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Cumulative Preferred Stock
shall be entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common Stock or any
other such junior stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an amount equal to
all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of Cumulative Preferred
<PAGE> 51
51
Stock to the date of final distribution. The holders of the Cumulative
Preferred Stock will not be entitled to receive the Liquidation Preference
until the liquidation preference of any other class of stock of the Corporation
ranking senior to the Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up shall have been paid (or a sum set aside therefor
sufficient to provide for payment) in full. After payment of the full amount
of the Liquidation Preference and an amount equal to such dividends, the
holders of shares of Cumulative Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation. If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the holders of
shares of Parity Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof, shall
be distributable among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. For the purposes hereof, neither a consolidation or merger
of the Corporation with or into any other corporation, nor a merger of any
other corporation with or into the Corporation, nor a sale or transfer of all
or any part of the Corporation's assets for cash or securities shall be
considered a liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not
convertible into shares of any other class or series of stock of the
Corporation.
5. Voting Rights. The holders of shares of Cumulative
Preferred Stock shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State of Delaware,
and except as follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Cumulative Preferred Stock or on any Parity Preferred Stock
with respect to payment of dividends shall be in arrears for an
aggregate number of days equal to six calendar quarters or more,
whether or not consecutive, the holders of the outstanding shares of
Cumulative Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of stock upon which
like voting rights have been conferred and are exercisable (voting
together as a class), to elect two of the authorized number of members
of the Board at the Corporation's next annual meeting of
<PAGE> 52
52
stockholders and at each subsequent annual meeting of stockholders
until such arrearages have been paid or set apart for payment, at
which time such right shall terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and
every subsequent default of the character above mentioned. Upon any
termination of the right of the holders of shares of Cumulative
Preferred Stock as a class to vote for directors as herein provided,
the term of office of all directors then in office elected by the
holders of shares of Cumulative Preferred Stock shall terminate
immediately. Any director who shall have been so elected pursuant to
this paragraph may be removed at any time, either with or without
cause. Any vacancy thereby created may be filled only by the
affirmative vote of the holders of shares of Cumulative Preferred
Stock voting separately as a class (together with the holders of
shares of any other class or series of stock upon which like voting
rights have been conferred and are exercisable). If the office of any
director elected by the holders of shares of Cumulative Preferred
Stock voting as a class becomes vacant for any reason other than
removal from office as aforesaid, the remaining director elected
pursuant to this paragraph may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy
occurred. At elections for such directors, each holder of shares of
Cumulative Preferred Stock shall be entitled to one vote for each
share held (the holders of shares of any other class or series of
preferred stock having like voting rights being entitled to such
number of votes, if any, for each share of such stock held as may be
granted to them).
(b) So long as any shares of Cumulative Preferred Stock
remain outstanding, the consent of the holders of at least two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time
and all other classes or series of stock upon which like voting rights
have been conferred and are exercisable (voting together as a class)
given in person or by proxy, either in writing or at any meeting
called for the purpose, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the issuance or increase of the authorized amount of
any class or series of shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the shares of the
Cumulative Preferred Stock; or
<PAGE> 53
53
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Certificate of Incorporation (including this resolution
or any provision hereof) that would materially and adversely
affect any power, preference, or special right of the shares
of Cumulative Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock or any
increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series
of Common Stock or Preferred Stock, in each case ranking on a
parity with or junior to the shares of Cumulative Preferred
Stock with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect such powers, preferences or special rights.
(c) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of
Cumulative Preferred Stock shall have been redeemed or called for
redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
6. Redemption. The shares of the Cumulative Preferred Stock
may be redeemed at the option of the Corporation, as a whole, or from time to
time in part, at any time, upon not less than 30 days' prior notice mailed to
the holders of the shares to be redeemed at their addresses as shown on the
stock books of the Corporation; provided, however, that shares of the
Cumulative Preferred Stock shall not be redeemable prior to May 30, 1997.
Subject to the foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock
have not been paid, the Cumulative Preferred Stock may not be redeemed in part
and the Corporation may not purchase or acquire any shares of the Cumulative
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Cumulative Preferred Stock.
<PAGE> 54
54
If fewer than all the outstanding shares of Cumulative
Preferred Stock are to be redeemed, the Corporation will select those to be
redeemed by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption, the funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata benefit of
the holders of the shares of Cumulative Preferred Stock so called for
redemption, then, notwithstanding that any certificates for such shares have
not been surrendered for cancellation, on the redemption date dividends shall
cease to accrue on the shares to be redeemed, and at the close of business on
the redemption date the holders of such shares shall cease to be stockholders
with respect to such shares and shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall revert to
the general funds of the Corporation, after which reversion the holders of such
shares so called for redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such redemption. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
All shares of Cumulative Preferred Stock redeemed, purchased
or otherwise acquired by the Corporation shall be retired and cancelled and
shall be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series, and may thereafter be issued.
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall be required for
(a) the creation of any indebtedness of any kind of the Corporation, (b) the
creation, or increase or decrease in the amount, of any class or series of
stock of the Corporation not ranking prior as to dividends or upon liquidation,
dissolution or winding up to the Cumulative Preferred Stock or (c) any increase
or decrease in the amount of authorized Common Stock or any increase, decrease
or change in the par value thereof or in any other terms thereof.
<PAGE> 55
55
8. Amendment of Resolution. The Board and the Committee each
reserves the right by subsequent amendment of this resolution from time to time
to increase or decrease the number of shares that constitute the Cumulative
Preferred Stock (but not below the number of shares thereof then outstanding)
and in other respects to amend this resolution within the limitations provided
by law, this resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of
any class or classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock, either
as to dividends or upon liquidation, dissolution or winding up, or
both, if the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of
the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, whether or not the dividend rates, dividend
payment dates, or redemption or liquidation prices per share thereof
be different from those of the Cumulative Preferred Stock, if the
holders of stock of such class or classes shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributed
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority of one over the other as between the
holders of such stock and the holders of shares of Cumulative
Preferred Stock (the term "Parity Preferred Stock" being used to refer
to any stock on a parity with the shares of Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, as the context may require); and
(c) junior to shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up,
or both, if such class shall be Common Stock or if the holders of the
Cumulative Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of stock of such class or classes.
<PAGE> 56
56
The Cumulative Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the Common Stock
and on a parity with the Corporation's ESOP Convertible Preferred Stock, with a
liquidation value of $35.875 per share, the Corporation's 9.36% Cumulative
Preferred Stock, with a liquidation value of $25.00 per share, and the
Corporation's 8.88% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
<PAGE> 57
57
PART II -- COMMON STOCK (a) Dividends. Subject to the
preferential dividend rights applicable to shares of any class or series of
stock having preference over the Common Stock as to dividends, the holders of
shares of Common Stock shall be entitled to receive such dividends when and as
declared by the Board of Directors and shall share equally, share for share
alike, in such dividends.
(b) Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, after distribution in full of the preferential amounts to be
distributed to the holders of shares of any class or series of stock having
preference over the Common Stock upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution, ratably in proportion to the number of
shares of the Common Stock held.
(c) Voting. Each share of Common Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation. The holders of the shares of Common Stock
shall at all times, except as otherwise provided in this Restated Certificate
of Incorporation or required by law, vote as one class, together with the
holders of any other class or series of stock of the Corporation accorded such
general class voting right.
SECTION 3. Definitions. For the purposes of this Restated
Certificate of Incorporation:
(a) the term "outstanding", when used in reference to shares
of stock, shall mean issued shares, excluding shares held by the
Corporation or a Subsidiary; and
(b) the term "Subsidiary" or "Subsidiaries" shall mean a
corporation(s) of which the Corporation, directly or indirectly, has
the power, whether through the ownership of voting securities,
contract or otherwise, to elect at least a majority of the members of
such corporation's board of directors; provided, however, that for
purposes of Article VI of the Restated Certificate of Incorporation,
the term "Subsidiary" or "Subsidiaries" shall mean a corporation(s),
all of the capital stock of which is owned by the Corporation, other
than directors' qualifying shares.
<PAGE> 58
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ARTICLE V
BOARD OF DIRECTORS
SECTION 1. Number, Election and Terms of Directors.
The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors consisting of not fewer than four nor more
than fifteen persons; provided, however, that, pursuant to the provisions of
Section 141(a) of the General Corporation Law of the State of Delaware, the
powers and authority of the Board of Directors with respect to any stock
option, performance unit or other compensation or employee benefit plan of the
Corporation, to the extent not otherwise assigned or reserved to the Board of
Directors by the provisions of any such plan, are hereby conferred upon and
shall be exercised by a committee or committees designated by resolution passed
by the Board of Directors to consist of one or more persons who may or may not
be directors of the Corporation, unless the Board of Directors, by resolution
passed by the Board of Directors, shall determine that any or all such powers
and authority shall instead be conferred upon and exercised by the Board of
Directors. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence may be established from time to
time by the Board of Directors pursuant to a resolution adopted by a majority
of the entire Board of Directors. Subject to the rights of the holders of any
class or series of stock having preference over the Common Stock as to
dividends or upon liquidation, dissolution or winding up of the Corporation to
elect directors under specified circumstances, if any, directors shall be
elected each year at the annual meeting of stockholders and shall hold office
until their successors shall have been duly elected and qualified, or until
their earlier resignation or removal.
SECTION 2. Calling Special Meetings of Stockholders.
A special meeting of the stockholders may be called at any time and for any
purpose or purposes by the President or the Chairman of the Board or by order
of the Board of Directors, and shall be called by the Secretary upon the
written request of the holders of record of at least 80% of the voting power of
the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock").
SECTION 3. Newly Created Directorships and Vacancies on the
Board of Directors. Subject to the rights of any class or series of stock
having preference over the
<PAGE> 59
59
Common Stock as to dividends or upon liquidation, dissolution or winding up of
the Corporation to elect directors under specified circumstances, if any,
newly-created directorships resulting from any increase in the authorized
number of directors or any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or other
cause shall be filled by a majority vote of the directors then in office,
although less than a quorum; and any director so chosen shall hold office for
the remaining term of his predecessor or, if there shall have been no
predecessor, until the next annual election of directors or until his successor
shall have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 4. Removal of Directors. Subject to the rights of
the holders of any class or series of stock having preference over the Common
Stock as to dividends or upon liquidation, dissolution or winding up of the
Corporation to elect directors under specified circumstances, if any, any
director, or the entire Board of Directors, may be removed from office at any
time, with or without cause, only by the affirmative vote of the holders of at
least 80% of the voting power of the Voting Stock, voting together as a single
class.
SECTION 5. Amendment of By-Laws. In furtherance of and not
in limitation of the powers conferred by statute, the Board of Directors of the
Corporation from time to time, may amend, repeal or adopt By-Laws of the
Corporation; provided, that any By-Laws made, amended or repealed by the Board
of Directors or the stockholders may be amended or repealed, and that any
By-Laws may be made, by the stockholders of the Corporation. Notwithstanding
any other provisions of this Restated Certificate of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or the By-Laws of the Corporation), the affirmative vote of the holders of at
least 80% of the voting power of the Voting Stock, voting together as a single
class, shall be required for the stockholders of the Corporation to amend,
repeal or adopt any By-Laws of the Corporation or to adopt any amendment to
this Restated Certificate of Incorporation inconsistent with the By-Laws of the
Corporation.
SECTION 6. Amendment of Certificate of Incorporation.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the
<PAGE> 60
60
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Restated Certificate of Incorporation or the By-Laws of
the Corporation), the affirmative vote of the holders of at least 80% of the
voting power of the Voting Stock, voting together as a single class, shall be
required to amend or repeal, or to adopt any provision inconsistent with, this
Article V hereof.
SECTION 7. Other Powers. The By-Laws of the Corporation may
confer upon the Board of Directors powers in addition to the foregoing and in
addition to the powers and authorities expressly conferred upon them by law,
but only to the extent permitted by law and not prohibited by the provisions of
this Restated Certificate of Incorporation.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent
permitted by applicable law, any person who was or is a party or is threatened
to be made a party to, or is involved in any manner in, any threatened, pending
or completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person (1) is
or was a director or officer of the Corporation or a Subsidiary or (2) is or
was serving at the request of the Corporation or a Subsidiary as a director,
officer, partner, member, employee or agent of another corporation,
partnership, joint venture, trust, committee or other enterprise.
To the extent deemed advisable by the Board of Directors, the
Corporation may indemnify, to the fullest extent permitted by applicable law,
any person who was or is a party or is threatened to be made a party to, or is
involved in any manner in, any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that the person is or was an employee or agent (other than a
director or officer) of the Corporation or a Subsidiary.
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation or a Subsidiary, or is or was serving at the
request of the Corporation or a Subsidiary as a director, officer, partner,
<PAGE> 61
61
member, employee or agent of another corporation, partnership, joint venture,
trust, committee or other enterprise, against any expense, liability or loss
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation or a Subsidiary would
have the power to indemnify him against such expense, liability or loss under
the provisions of applicable law.
No repeal, modification or amendment of, or adoption of any
provision inconsistent with, this Article VI nor, to the fullest extent
permitted by applicable law, any modification of law shall adversely affect any
right or protection of any person granted pursuant hereto existing at, or with
respect to events that occurred prior to, the time of such repeal, amendment,
adoption or modification.
For purposes of this Article VI, the term "Subsidiary" or
"Subsidiaries" shall mean a corporation(s), all of the capital stock of which
is owned directly or indirectly by the Corporation, other than directors'
qualifying shares.
The right to indemnification conferred in this Article VI also
includes, to the fullest extent permitted by applicable law, the right to be
paid the expenses (including attorneys' fees) incurred in connection with any
such proceeding in advance of its final disposition. The payment of any
amounts to any director, officer, partner, member, employee or agent pursuant
to this Article VI shall subrogate the Corporation to any right such director,
officer, partner, member, employee or agent may have against any other person
or entity. The rights conferred in this Article VI shall be contract rights.
ARTICLE VII
LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach by the
director of his duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper personal benefit.
<PAGE> 62
62
No repeal, modification or amendment of, or adoption of any
provision inconsistent with, this Article VII nor, to the fullest extent
permitted by law, any modification of law shall adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal, amendment, adoption or modification or affect the liability of any
director of the Corporation for any action taken or any omission that occurred
prior to the time of such repeal, amendment, adoption or modification.
If the General Corporation Law of the State of Delaware shall
be amended, after this Restated Certificate of Incorporation is amended to
include this Article VII, to authorize corporate action further eliminating or
limiting the liability of directors, then a director of the Corporation, in
addition to the circumstances in which he is not liable immediately prior to
such amendment, shall be free of liability to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
SEVENTH: That this restatement has been duly adopted by
resolution of the Board of Directors of the Corporation in accordance with
Section 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this
Certificate to be executed by its President and attested by its Assistant
Secretary and its corporate seal to be affixed hereto this 14th day of
September, 1992.
/s/ Robert F. Greenhill
(Seal) ----------------------------
Robert F. Greenhill
President
Attest:
/s/ Patricia A. Kurtz
- -------------------------
Patricia A. Kurtz
Assistant Secretary
<PAGE> 63
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
MORGAN STANLEY GROUP INC.
(Pursuant to Section 242 of the
Delaware General Corporation Law)
MORGAN STANLEY GROUP INC., a Delaware corporation, HEREBY
CERTIFIES AS FOLLOWS;
1. The name of the Corporation is Morgan Stanley Group Inc.
The date of filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was July 10, 1975. The date of
filing of the most recent Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware was September 15, 1992.
2. This Certificate of Amendment sets forth amendments to the
Restated Certificate of Incorporation of the Corporation that were duly adopted
in accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
3. Article IV, Section 2, Part I, Subpart A, Section 1(A) of
the Restated Certificate of Incorporation is hereby amended in full to be and
read as follows:
(A) The shares of such series shall be designated ESOP
CONVERTIBLE PREFERRED STOCK (hereinafter referred to as the "ESOP
Preferred Stock") and such series shall consist of 3,902,438 shares.
Such number of shares may be increased or decreased from time to time
by resolution of the Pricing Committee of this Board of Directors (the
"Pricing Committee"), but no such increase shall result in such series
consisting of more than 4,000,000 shares, and no decrease shall reduce
the number of shares of ESOP Preferred Stock to a number less than
that of shares of ESOP Preferred Stock then outstanding plus the
number of shares issuable upon exercise of any rights, options or
warrants or upon conversion of outstanding securities issued by the
Corporation relating to such shares. Notwithstanding the preceding
sentence, the Board of Directors may increase the number of shares of
ESOP
<PAGE> 64
2
Preferred Stock to a number greater than 4,000,000 shares, or may
decrease the number of such shares, subject only to any limitations
imposed by applicable law or this Restated Certificate of
Incorporation. Any shares of ESOP Preferred Stock redeemed or
purchased by the Corporation shall remain issued and outstanding for
all purposes (except that as long as such shares are held by the
Corporation or its nominee, no dividends shall be paid on such shares
and they shall neither be entitled to vote nor counted for quorum
purposes) and may thereafter be transferred by the Corporation from
time to time to a trustee or trustees referred to in paragraph (B) of
this Section 1 (whereupon the voting and dividend rights of such
shares shall be restored); provided that the Corporation may provide
at the time of or at any time after such redemption or purchase that
any such shares then held by the Corporation or its nominee shall be
retired, and such shares shall then be restored to the status of
authorized but unissued shares of preferred stock of the Corporation.
4. Article IV, Section 2, Part I, Subpart A, Section 9,
Paragraphs (A), (B), (C), (D), (E), (F), (G) and (I) of the Restated
Certificate of Incorporation are hereby amended in full to be and read as
follows:
(A)(1) In the event the Corporation shall, at any time or
from time to time while any of the shares of the ESOP Preferred Stock
are outstanding, (i) pay a dividend or make a distribution in respect
of the Common Stock in shares of Common Stock or (ii) subdivide the
outstanding shares of Common Stock into a greater number of shares, in
each case whether by reclassification of shares, recapitalization of
the Corporation (excluding a recapitalization or reclassification
effected by a merger or consolidation to which Section 8 applies) or
otherwise, then, in such event, the Conversion Price shall, subject to
the provisions of paragraphs (E) and (F) of this Section 9,
automatically be adjusted by dividing such Conversion Price by a
fraction (the "Section 9(A) Fraction"), the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock outstanding immediately before such event. Such adjustment to
the Conversion Price shall be effective, upon payment of such dividend
or distribution in respect of the Common Stock, as of the record date
for the determination of stockholders entitled to receive such
dividend or distribution (on a
<PAGE> 65
3
retroactive basis), and in the case of a subdivision shall become
effective immediately as of the effective date thereof. An adjustment
to the Conversion Price pursuant to this Section 9(A)(1) shall have no
effect on the Liquidation Price or the Preferred Dividend Rate of the
ESOP Preferred Stock.
(2) In the event the Corporation shall, at any time or from
time to time while any of the shares of the ESOP Preferred Stock are
outstanding, combine the outstanding shares of Common Stock into a
lesser number of shares, whether by reclassification of shares,
recapitalization of the Corporation (excluding a recapitalization or
reclassification effected by a merger, consolidation or other
transaction to which Section 8 applies) or otherwise, then, in such
event, the Conversion Price shall, subject to the provisions of
paragraph (F) of this Section 9, automatically be adjusted by dividing
the Conversion Price in effect immediately before such event by the
Section 9(A) Fraction. An adjustment to the Conversion Price made
pursuant to this paragraph 9(A)(2) shall be given effect immediately
as of the effective date of such combination and shall have no effect
on the Liquidation Price or the Preferred Dividend Rate of the ESOP
Preferred Stock.
(B) In the event the Corporation shall, at any time or from
time to time while any of the shares of ESOP Preferred Stock are
outstanding, issue to holders of shares of Common Stock as a dividend
or distribution, including by way of a reclassification of shares or a
recapitalization of the Corporation, any right or warrant to purchase
shares of Common Stock (but not including as a right or warrant for
this purpose any security convertible into or exchangeable for shares
of Common Stock) for a consideration having a Fair Market Value (as
hereinafter defined) per share less than the Fair Market Value of a
share of Common Stock on the date of issuance of such right or warrant
(other than pursuant to any employee or director incentive,
compensation or benefit plan or arrangement of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted), then,
in such event, the Conversion Price shall, subject to the provisions
of paragraphs (E) and (F) of this Section 9, automatically be adjusted
by dividing such Conversion Price by a fraction (the "Section 9(B)
Fraction"), the numerator of which is the number of shares of Common
Stock outstanding immediately before such issuance of rights or
warrants plus the maximum
<PAGE> 66
4
number of shares of Common Stock that could be acquired upon exercise
in full of all such rights and warrants and the denominator of which
is the number of shares of Common Stock outstanding immediately before
such issuance of warrants or rights plus the number of shares of
Common Stock that could be purchased at the Fair Market Value of a
share of Common Stock at the time of such issuance for the maximum
aggregate consideration payable upon exercise in full of all such
rights and warrants. Such adjustment to the Conversion Price shall be
effective upon such issuance of rights or warrants. An adjustment to
the Conversion Price pursuant to this Section 9(B) shall have no
effect on the Liquidation Price or the Preferred Dividend Rate of the
ESOP Preferred Stock.
(C)(1) In the event the Corporation shall, at any time or
from time to time while any of the shares of ESOP Preferred Stock are
outstanding, issue, sell or exchange shares of Common Stock (other
than pursuant to (x) any right or warrant to purchase or acquire
shares of Common Stock (including as such a right or warrant for this
purpose any security convertible into or exchangeable for shares of
Common Stock) or (y) any employee or director incentive, compensation
or benefit plan or arrangement of the Corporation or any subsidiary of
the Corporation heretofore or hereafter adopted) at a purchase price
per share less than the Fair Market Value of a share of Common Stock
on the date of such issuance, sale or exchange, then, in such event,
the Conversion Price shall, subject to the provisions of paragraphs
(E) and (F) of this Section 9, automatically be adjusted by dividing
such Conversion Price by a fraction (the "Section 9(C)(1) Fraction"),
the numerator of which is the number of shares of Common Stock
outstanding immediately before such issuance, sale or exchange plus
the number of shares of Common Stock so issued, sold or exchanged and
the denominator of which is the number of shares of Common Stock
outstanding immediately before such issuance, sale or exchange plus
the number of shares of Common Stock that could be purchased at the
Fair Market Value of a share of Common Stock at the time of such
issuance, sale or exchange for the maximum aggregate consideration
paid therefor.
(2) In the event that the Corporation shall, at any time or
from time to time while any ESOP Preferred Stock is outstanding, issue,
sell or exchange any right or warrant to purchase or acquire
shares of Common Stock (including as such a right or warrant for this
purpose
<PAGE> 67
5
any security convertible into or exchangeable for shares of Common
Stock other than pursuant to any employee or director incentive,
compensation or benefit plan or arrangement of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted) for a
consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Non-Dilutive Amount (as
hereinafter defined), then, in such event, the Conversion Price shall,
subject to the provisions of paragraphs (E) and (F) of this Section 9,
automatically be adjusted by dividing such Conversion Price by a
fraction (the "Section 9(C)(2) Fraction"), the numerator of which is
the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the maximum number of shares
of Common Stock that could be acquired upon exercise in full of all
such rights and warrants and the denominator of which is the number of
shares of Common Stock outstanding immediately before such issuance of
rights or warrants plus the number of shares of Common Stock that
could be purchased at the Fair Market Value of a share of Common Stock
at the time of such issuance for the total of (x) the maximum
aggregate consideration payable at the time of the issuance, sale or
exchange of such right or warrant and (y) the maximum aggregate
consideration payable upon exercise in full of all such rights or
warrants.
(3) An adjustment to the Conversion Price pursuant to this
Section 9(C) shall be effective upon the effective date of any
issuance, sale or exchange described in paragraph (1) or (2) above.
Any such adjustment shall have no effect on the Liquidation Price or
the Preferred Dividend Rate of the ESOP Preferred Stock.
(D) In the event the Corporation shall, at any time or from
time to time while any of the shares of ESOP Preferred Stock are
outstanding, make an Extraordinary Distribution (as hereinafter
defined) in respect of the Common Stock, whether by dividend,
distribution, reclassification of shares or recapitalization of the
Corporation (including capitalization or reclassification effected by
a merger or consolidation to which Section 8 does not apply) or effect
a Pro Rata Repurchase (as hereinafter defined) of Common Stock, then,
in such event, the Conversion Price shall, subject to the provisions
of paragraphs (E) and (F) of this Section 9, automatically be adjusted
by dividing such Conversion
<PAGE> 68
6
Price by a fraction (the "Section 9(D) Fraction"), the numerator of
which is the product of (a) the number of shares of Common Stock
outstanding immediately before such Extraordinary Distribution or Pro
Rata Repurchase minus, in the case of a Pro Rata Repurchase, the
number of shares of Common Stock repurchased by the Corporation
multiplied by (b) the Fair Market Value of a share of Common Stock on
the day before the ex-dividend date with respect to an Extraordinary
Distribution that is paid in cash and on the distribution date with
respect to an Extraordinary Distribution that is paid other than in
cash, or on the applicable expiration date (including all extensions
thereof) of any tender offer that is a Pro Rata Repurchase or on the
date of purchase with respect to any Pro Rata Repurchase that is not a
tender offer, as the case may be, and the denominator of which is (i)
the product of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata
Repurchase multiplied by (y) the Fair Market Value of a share of
Common Stock on the day before the ex-dividend date with respect to an
Extraordinary Distribution that is paid in cash and on the
distribution date with respect to an Extraordinary Distribution that
is paid other than in cash, or on the applicable expiration date
(including all extensions thereof) of any tender offer that is a Pro
Rata Repurchase, or on the date of purchase with respect to any Pro
Rata Repurchase that is not a tender offer, as the case may be, minus
(ii) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may
be. The Corporation shall send each holder of ESOP Preferred Stock
(i) notice of its intent to make any Extraordinary Distribution and
(ii) notice of any offer by the Corporation to make a Pro Rata
Repurchase, in each case at the same time as, or as soon as
practicable after, such offer is first communicated to holders of
Common Stock or, in the case of an Extraordinary Distribution, the
announcement of a record date in accordance with the rules of any
stock exchange on which the Common Stock is listed or admitted to
trading. Such notice shall indicate the intended record date and the
amount and nature of such dividend or distribution, or the number of
shares subject to such offer for a Pro Rata Repurchase and the
purchase price payable by the Corporation pursuant to such offer, as
well as the Conversion Price and the number of shares of Common Stock
into which a share of ESOP Preferred Stock may be converted at such
time. An adjustment to the Conversion Price pursuant to
<PAGE> 69
7
this Section 9(D) shall be effective (i) in the case of an
Extraordinary Dividend as of the record date for the determination of
holders entitled to receive such Extraordinary Dividend (on a
retroactive basis) and (ii) in the case of a Pro Rata Repurchase upon
the expiration date thereof (if such Pro Rata Repurchase is a tender
offer) or the effective date thereof (if such Pro Rata Repurchase is
not a tender offer). Any such adjustment shall have no effect on the
Liquidation Price or the Preferred Dividend Rate of the ESOP Preferred
Stock.
(E) The Board of Directors shall have the authority to
determine that any adjustment to the Conversion Price provided for in
paragraph (A)(1), (B), (C) or (D) of this Section 9 shall not be made
(or if already made, to determine that such adjustment shall be
cancelled prospectively), and in lieu thereof to declare a dividend in
respect of the ESOP Preferred Stock in shares of ESOP Preferred Stock
(a "Special Dividend") in such a manner that a holder of ESOP
Preferred Stock will become a holder of that number of shares of ESOP
Preferred Stock equal to the product of the number of such shares held
prior to such event times the Section 9(A), Section 9(B), Section
9(C)(1), Section 9(C)(2) or Section 9(D) Fraction, as applicable. The
declaration of such a Special Dividend shall be authorized, if at all,
by the Board of Directors no later than 30 calendar days following the
authorization by the Board of Directors (or by a committee duly
authorized by the Board of Directors) of the transaction or other
event described in any of the foregoing paragraphs (A)(1), (B), (C) or
(D) that would otherwise result in an adjustment to the Conversion
Price being made pursuant to any such paragraphs, and if the Board of
Directors does not authorize the declaration of a Special Dividend by
the end of such 30-day period, then no such Special Dividend shall be
declared and the adjustment to the Conversion Price provided for in
paragraph (A)(1), (B), (C) or (D) of this Section 9 shall become final
and binding on the Corporation and all stockholders of the
Corporation. Concurrently with the declaration of any Special
Dividend pursuant to this paragraph (E), the Conversion Price, the
Liquidation Price and the Preferred Dividend Rate of all shares of
ESOP Preferred Stock shall be adjusted by dividing the Conversion
Price, the Liquidation Price and the Preferred Dividend Rate,
respectively, in effect immediately before such event by the Section
9(A), Section 9(B), Section 9(C)(1), Section 9(C)(2) or Section 9(D)
Fraction, as applicable.
<PAGE> 70
8
(F) Unless the Board of Directors determines otherwise, and
notwithstanding any other provision of this Section 9, any adjustment
to the Conversion Price provided for in any of paragraphs (A), (B), (C)
or (D) of this Section 9 shall not be made unless such adjustment
would require an increase or decrease of at least one percent (1%) in
the Conversion Price and, similarly, the Board of Directors shall not
declare any Special Dividend pursuant to paragraph (E) of this Section
9 unless such Special Dividend or adjustment would require an
increase or decrease of at least one percent (1%) in the number of
shares of ESOP Preferred Stock outstanding. Any lesser adjustment to
the Conversion Price or Special Dividend shall be carried forward and
shall be made no later than the time of, and together with, the next
subsequent adjustment to the Conversion Price or Special Dividend
which, together with any adjustment or adjustments or Special Dividend
or Dividends so carried forward, shall amount to an increase or
decrease of at least one percent (1%) of the Conversion Price or an
increase or decrease of at least one percent (1%) in the number of
shares of ESOP Preferred Stock outstanding, whichever the case may be.
(G) If the Corporation shall make any dividend or
distribution on the Common Stock or issue any Common Stock, other
capital stock or other security of the Corporation or any rights or
warrants to purchase or acquire any such security, which transaction
does not result in an adjustment to the Conversion Price or to the
number of shares of ESOP Preferred Stock outstanding pursuant to the
foregoing provisions of this Section 9, the Board of Directors of the
Corporation may, in its sole discretion, consider whether such action
is of such a nature that some type of equitable adjustment should be
made in respect of such transaction. If in such case the Board of
Directors of the Corporation determines that some type of adjustment
should be made, an adjustment shall be made effective as of such date
as determined by the Board of Directors of the Corporation. The
determination of the Board of Directors of the Corporation as to
whether some type of adjustment should be made pursuant to the
foregoing provisions of this Section 9(G), and, if so, as to what
adjustment should be made and when, shall be final and binding on the
Corporation and all stockholders of the Corporation. The Corporation
shall be entitled, but not required, to make such additional
adjustments, in addition to those required by the foregoing provisions
of this Section 9, as shall be necessary in order that any dividend or
<PAGE> 71
9
distribution in shares of capital stock of the Corporation,
subdivision, reclassification or combination of shares of the
Corporation or any reclassification of the Corporation shall not be
taxable to holders of the Common Stock.
* * *
(I) Whenever an adjustment to the Conversion Price of the
ESOP Preferred Stock is required pursuant to this Section 9, the
Corporation shall forthwith place on file with the transfer agent for
the Common Stock and the ESOP Preferred Stock, if there be one, and
with the Treasurer of the Corporation, a statement signed by the
Treasurer or any Assistant Treasurer of the Corporation stating the
adjusted Conversion Price determined as provided herein. In addition,
whenever a Special Dividend is declared pursuant to paragraph (E) of
this Section 9, (i) the maximum number of shares of ESOP Preferred
Stock shall be adjusted by multiplying 4,000,000 (or such other number
as shall be the maximum number of shares of ESOP Preferred Stock in
effect prior to the authorization of such Special Dividend) by the
Section 9(A), Section 9(B), Section 9(C)(1), Section 9(C)(2) or
Section 9(D) Fraction, as the case may be, (ii) the Board of Directors
shall take action as is necessary so that a sufficient number of
shares of ESOP Preferred Stock are designated with respect to any
increase in the number of shares of ESOP Preferred Stock to be
outstanding as a result of such Special Dividend and (iii) the
Corporation shall forthwith place on file with the transfer agent for
the Common Stock and the ESOP Preferred Stock, if there be one, and
with the Treasurer of the Corporation, a statement signed by the
Treasurer or any Assistant Treasurer of the Corporation stating the
adjusted maximum number of shares of ESOP Preferred Stock, Conversion
Price, Liquidation Price and Preferred Dividend Rate determined as
provided herein. The statement required by either of the two
preceding sentences shall set forth in reasonable detail such facts as
shall be necessary to show the reason and the manner of computing such
adjustments, including any determination of Fair Market Value involved
in such computation. Promptly after each adjustment to the maximum
number of shares of ESOP Preferred Stock, Conversion Price, the
Liquidation Price, the Preferred Dividend Rate, or the number of
shares of ESOP Preferred Stock outstanding, the Corporation shall mail
a notice thereof and of the then prevailing maximum number of shares
of ESOP Preferred Stock, Conversion Price, Liquidation Price,
Preferred Dividend Rate and
<PAGE> 72
10
number of shares of ESOP Preferred Stock outstanding to each holder of
shares of ESOP Preferred Stock.
IN WITNESS WHEREOF, MORGAN STANLEY GROUP INC. has caused this
Certificate to be signed by John J. Mack, its President, and attested by
Jonathan M. Clark, its General Counsel and Secretary, this 30th day of June,
1993.
MORGAN STANLEY GROUP INC.
By: /s/ John J. Mack
--------------------
Name: John J. Mack
Title: President
ATTEST:
/s/ Jonathan M. Clark
- --------------------------
Name: Jonathan M. Clark
Title: General Counsel and
Secretary
<PAGE> 73
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7-3/8% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
______________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Morgan
Stanley Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), by unanimous written consent in lieu of a meeting dated as of
July 27, 1993, with certain of the designations, preferences and rights having
been fixed by the Pricing Committee of the Board (the "Committee") at a meeting
on August 18, 1993, pursuant to authority delegated to it by the Board pursuant
to the provisions of Section 141(c) of the General Corporation Law of the State
of Delaware:
RESOLVED that, pursuant to authority expressly granted to and
vested in the Committee by the Board and in the Board by provisions of
the Restated Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, without par value (the "Preferred Stock"), which
shall consist of 1,000,000 of the 30,000,000 shares of Preferred Stock
which the Corporation now has authority to issue, is authorized, and
the Board and, pursuant to the authority expressly granted to the
Committee by the Board pursuant to the provisions of Section 141(c) of
the General Corporation Law of the State of Delaware and the
Certificate of Incorporation, the Committee, fix the powers,
<PAGE> 74
2
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of such series (in addition to the
powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations
or restrictions thereof, set forth in the Certificate of Incorporation
which may be applicable to the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized
by this resolution shall be the 7-3/8% Cumulative Preferred
Stock, without par value, with a stated value of $200.00 per
share (the "Cumulative Preferred Stock"). The stated value
per share of Cumulative Preferred Stock shall not for any
purpose be considered to be a determination by the Board or
the Committee with respect to the capital and surplus of the
Corporation. The number of shares of Cumulative Preferred
Stock shall be 1,000,000. The Cumulative Preferred Stock is
issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative
Preferred Stock will be entitled to receive, when, as and if
declared by the Board or the Committee out of assets of the
Corporation legally available for payment, cash dividends
payable quarterly at the rate of 7-3/8% per annum. Dividends
on the Cumulative Preferred Stock, calculated as a percentage
of the stated value, will be payable quarterly on February 28,
May 30, August 30 and November 30 commencing November 30, 1993
(each a "dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as
they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the
Board or the Committee. The amount of dividends payable for
the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the
payment of dividends
<PAGE> 75
3
unless there shall also be or have been declared and paid or
set apart for payment on the Cumulative Preferred Stock, like
dividends for all dividend payment periods of the Cumulative
Preferred Stock ending on or before the dividend payment date
of such Parity Preferred Stock, ratably in proportion to the
respective amounts of dividends (x) accumulated and unpaid or
payable on such Parity Preferred Stock, on the one hand, and
(y) accumulated and unpaid through the dividend payment
period or periods of the Cumulative Preferred Stock next
preceding such dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless
full cumulative dividends on the Cumulative Preferred Stock
have been paid, no dividends (other than in Common Stock of
the Corporation) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a
parity with the Cumulative Preferred Stock as to dividends,
nor may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment be made to or
available for a sinking fund for the redemption of any shares
of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred
stock of the Corporation in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the
terms of such sinking fund, regardless of whether at the time
of such application full cumulative dividends upon shares of
the Cumulative Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set
apart for payment) by the Corporation; provided that any such
junior or parity Preferred Stock or Common Stock may be
converted into or exchanged for stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to
dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or
winding up of the Corporation, prior to the shares of Common
Stock and any other class of stock of the Corporation ranking
<PAGE> 76
4
junior to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Corporation, so
that in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior
stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an
amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution.
The holders of the Cumulative Preferred Stock will not be
entitled to receive the Liquidation Preference until the
liquidation preference of any other class of stock of the
Corporation ranking senior to the Cumulative Preferred Stock
as to rights upon liquidation, dissolution or winding up shall
have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. After payment of the full
amount of the Liquidation Preference and such dividends, the
holders of shares of Cumulative Preferred Stock will not be
entitled to any further participation in any distribution of
assets by the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the
holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be
distributable among such holders ratably in accordance with
the respective amounts which would be payable on such shares
if all amounts payable thereon were paid in full. For the
purposes hereof, neither a consolidation or merger of the
Corporation with or into any other corporation, nor a merger
of any other corporation with or into the Corporation, nor a
sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a
liquidation, dissolution or winding up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is
not convertible into shares of any other class or series of
stock of the Corporation.
<PAGE> 77
5
5. Voting Rights. The holders of shares of
Cumulative Preferred Stock shall have no voting rights
whatsoever, except for any voting rights to which they may be
entitled under the laws of the State of Delaware, and except
as follows:
(a) Whenever, at any time or times,
dividends payable on the shares of Cumulative
Preferred Stock or on any Parity Preferred Stock with
respect to payment of dividends, shall be in arrears
for an aggregate number of days equal to six calendar
quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative
Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of
stock upon which like voting rights have been
conferred and are exercisable (voting together as a
class), to elect two of the authorized number of
members of the Board at the Corporation's next annual
meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have
been paid or set apart for payment, at which time
such right shall terminate, except as herein or by
law expressly provided, subject to revesting in the
event of each and every subsequent default of the
character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative
Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors
then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant
to this paragraph may be removed at any time, either
with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the
holders of shares of Cumulative Preferred Stock
voting separately as a class (together with the
holders of shares of any other class or series of
stock upon which like voting rights have been
conferred and are exercisable). If the office of any
director elected by the holders of shares of
Cumulative Preferred Stock voting as a class becomes
vacant for any reason other than removal from office
as aforesaid, the remaining
<PAGE> 78
6
director elected pursuant to this paragraph may
choose a successor who shall hold office for the
unexpired term in respect of which such vacancy
occurred. At elections for such directors, each
holder of shares of Cumulative Preferred Stock shall
be entitled to one vote for each share held (the
holders of shares of any other class or series of
preferred stock having like voting rights being
entitled to such number of votes, if any, for each
share of such stock held as may be granted to them).
(b) So long as any shares of Cumulative
Preferred Stock remain outstanding, the consent of
the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time
and all other classes or series of stock upon which
like voting rights have been conferred and are
exercisable (voting together as a class) given in
person or by proxy, either in writing or at any
meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the
authorized amount of any class or series of
shares ranking prior (as that term is defined
in paragraph 9(a) hereof) to the shares of
the Cumulative Preferred Stock; or
(ii) the amendment, alteration or
repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the
Certificate of Incorporation, (including this
resolution or any provision hereof) that
would materially and adversely affect any
power, preference, or special right of the
shares of Cumulative Preferred Stock or of
the holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock
or any increase or decrease in the number of shares
of any series of Preferred Stock or the creation and
issuance of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with or
junior to the shares of Cumulative Preferred Stock
with
<PAGE> 79
7
respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and
adversely affect such powers, preferences or special
rights.
(c) The foregoing voting provisions shall
not apply if, at or prior to the time when the act
with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of
Cumulative Preferred Stock shall have been redeemed
or called for redemption and sufficient funds shall
have been deposited in trust to effect such
redemption.
6. Redemption. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the
Corporation, as a whole, or from time to time in part, at any
time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation; provided,
however, that shares of the Cumulative Preferred Stock shall
not be redeemable prior to August 30, 1998. Subject to the
foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together
with an amount equal to all dividends (whether or not earned
or declared) accrued and accumulated and unpaid to, but
excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative
Preferred Stock have not been paid, the Cumulative Preferred
Stock may not be redeemed in part and the Corporation may not
purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of
Cumulative Preferred Stock are to be redeemed, the Corporation
will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to
this paragraph 6 and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have
been set aside by the Corporation, separate and apart from its
other funds, in trust for the pro rata benefit of the holders
of the shares of Cumulative Preferred Stock
<PAGE> 80
8
so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to
accrue on the shares to be redeemed, and at the close of
business on the redemption date the holders of such shares
shall cease to be stockholders with respect to such shares and
shall have no interest in or claims against the Corporation by
virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys
payable upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. Subject to applicable
escheat laws, any moneys so set aside by the Corporation and
unclaimed at the end of two years from the redemption date
shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for
redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such
redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
7. Authorization and Issuance of Other Securities.
No consent of the holders of the Cumulative Preferred Stock
shall be required for (a) the creation of any indebtedness of
any kind of the Corporation, (b) the creation, or increase or
decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon
liquidation, dissolution or winding up to the Cumulative
Preferred Stock or (c) any increase or decrease in the amount
of authorized Common Stock or any increase, decrease or change
in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the
Committee each reserves the right by subsequent amendment of
this resolution from time to time to increase or decrease the
number of shares that constitute the Cumulative Preferred
Stock (but not below the number of shares thereof then
outstanding) and in other respects to amend this resolution
within the limitations provided by law, this resolution and
the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any
stock of any class or classes of the Corporation shall be
deemed to rank:
<PAGE> 81
9
(a) prior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall
be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the
Cumulative Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share
thereof be different from those of the Cumulative
Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding
up, as the case may be, in proportion to their
respective dividend rates or liquidation prices,
without preference or priority of one over the other
as between the holders of such stock and the holders
of shares of Cumulative Preferred Stock (the term
"Parity Preferred Stock" being used to refer to any
stock on a parity with the shares of Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, as
the context may require); and
(c) junior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
such class shall be Common Stock or if the holders of
the Cumulative Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders
of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as
to dividends and upon liquidation, dissolution or winding up,
to the Common Stock and on a parity with the Corporation's
ESOP Convertible
<PAGE> 82
10
Preferred Stock, with a liquidation value of $35.88 per share,
the Corporation's 9.36% Cumulative Preferred Stock, with a
liquidation value of $25.00 per share, the Corporation's 8.88%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share and the Corporation's 8-3/4% Cumulative
Preferred Stock, with a liquidation value of $200.00 per
share.
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has
caused this Certificate to be made under the seal of the Corporation
and signed by Barton M. Biggs, its Managing Director, and attested by
Ralph L. Pellecchio, its Assistant Secretary, this 24th day of August,
1993.
MORGAN STANLEY GROUP INC.
By: /s/ Barton M. Biggs
---------------------
Name: Barton M. Biggs
Title: Managing Director,
who is duly authorized to
exercise the duties of a
Vice President.
[SEAL]
Attest:
/s/ Ralph L. Pellecchio
-----------------------
Assistant Secretary
<PAGE> 83
CERTIFICATE OF CORRECTION FILED
TO CORRECT A CERTAIN ERROR IN THE
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE 7-3/8% CUMULATIVE PREFERRED STOCK
($200.00 STATED VALUE)
OF
MORGAN STANLEY GROUP INC,
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF
THE STATE OF DELAWARE ON AUGUST 24, 1993, AND
FORWARDED TO THE OFFICE OF THE RECORDER OF DEEDS
IN AND FOR KENT COUNTY, DELAWARE ON AUGUST 25, 1993
Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware
Morgan Stanley Group Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is Morgan Stanley Group
Inc. (the "Corporation").
2. A Certificate of Designation of Preferences and Rights
of the 7-3/8% Cumulative Preferred Stock ($200.00 Stated Value) of the
Corporation was filed on August 24, 1993 and forwarded to the Office of the
Recorder of Deeds in and for Kent County, Delaware on August 25, 1993 (the
"Certificate").
3. The Certificate requires correction as permitted by
subsection (f) of the Section 103 of the General Corporation Law of the State
of Delaware.
<PAGE> 84
4. The inaccuracy or defect of the Certificate to be
corrected is that the concluding clause is corrected to read as follows:
"IN WITNESS WHEREOF, Morgan Stanley Group Inc. has
caused this Certificate to be made under the seal of the
Corporation and signed by Barton M. Biggs, its Managing
Director, and attested by Ralph Pallecchio, its Assistant
Secretary, this 24th day of August, 1993."
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this
Certificate of Correction to be made under the seal of the Corporation and
signed by Anson M. Beard, Jr., its Managing Director, and attested by Patricia
A. Kurtz, its Assistant Secretary, this 27th day of August, 1993.
MORGAN STANLEY GROUP INC.
By: /s/ Anson M. Beard, Jr.
--------------------------------
Name: Anson M. Beard, Jr.
Title: Managing Director,
who is duly authorized
to exercise the duties
of a Vice President
[SEAL]
Attest:
/s/ Patricia A. Kurtz
-------------------------
Assistant Secretary
<PAGE> 85
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7.82% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
______________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
______________________________
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Morgan
Stanley Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), by unanimous written consent in lieu of a meeting dated as of
October 29, 1993, with certain of the designations, preferences and rights
having been fixed by the Pricing Committee of the Board (the "Committee") at a
meeting on November 19, 1993, pursuant to authority delegated to it by the
Board pursuant to the provisions of Section 141(c) of the General Corporation
Law of the State of Delaware:
RESOLVED that, pursuant to authority expressly granted to and
vested in the Committee by the Board and in the Board by provisions of
the Restated Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, without par value (the "Preferred Stock"), which
shall consist of 682,813 of the 30,000,000 shares of Preferred Stock
which the Corporation now has authority to issue, is authorized, and
the Board and, pursuant to the authority expressly granted to the
Committee by the Board pursuant to the provisions of Section 141(c) of
the General Corporation Law of the State of Delaware and the
Certificate of Incorporation, the Committee, fix the powers,
designations, preferences
<PAGE> 86
2
and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof,
set forth in the Certificate of Incorporation which may be applicable
to the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized by
this resolution shall be the 7.82% Cumulative Preferred Stock,
without par value, with a stated value of $200.00 per share (the
"Cumulative Preferred Stock"). The stated value per share of
Cumulative Preferred Stock shall not for any purpose be
considered to be a determination by the Board or the Committee
with respect to the capital and surplus of the Corporation. The
maximum number of shares of Cumulative Preferred Stock shall be
682,813. The Cumulative Preferred Stock is issuable in whole
shares only.
2. Dividends. Holders of shares of Cumulative Preferred
Stock will be entitled to receive, when, as and if declared by
the Board or the Committee out of assets of the Corporation
legally available for payment, cash dividends payable quarterly
at the rate of 7.82% per annum. Dividends on the Cumulative
Preferred Stock will be payable quarterly on February 28, May 30,
August 30 and November 30 (each a "dividend payment date").
Dividends on shares of the Cumulative Preferred Stock will be
cumulative from the date of initial issuance of such shares of
Cumulative Preferred Stock. Dividends will be payable, in
arrears, to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board or the Committee. The amount of
dividends payable for the initial dividend period or any period
shorter than a full dividend period shall be calculated on the
basis of a 360-day year of twelve 30-day months. No dividends
may be declared or paid or set apart for payment on any Parity
Preferred Stock (as defined in paragraph 9(b) below) with regard
to the payment of dividends unless there shall also be or have
been declared and paid or set apart for payment on the Cumulative
<PAGE> 87
3
Preferred Stock, like dividends for all dividend payment periods
of the Cumulative Preferred Stock ending on or before the
dividend payment date of such Parity Preferred Stock, ratably in
proportion to the respective amounts of dividends (x) accumulated
and unpaid or payable on such Parity Preferred Stock, on the one
hand, and (y) accumulated and unpaid through the dividend payment
period or periods of the Cumulative Preferred Stock next
preceding such dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless full
cumulative dividends on the Cumulative Preferred Stock have been
paid, no dividends (other than in Common Stock of the
Corporation) may be paid or declared and set aside for payment
or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with
the Cumulative Preferred Stock as to dividends, nor may any
Common Stock or any other stock of the Corporation ranking junior
to or on a parity with the Cumulative Preferred Stock as to
dividends be redeemed, purchased or otherwise acquired for any
consideration (or any payment be made to or available for a
sinking fund for the redemption of any shares of such stock;
provided, however, that any moneys theretofore deposited in any
sinking fund with respect to any preferred stock of the
Corporation in compliance with the provisions of such sinking
fund may thereafter be applied to the purchase or redemption of
such preferred stock in accordance with the terms of such sinking
fund, regardless of whether at the time of such application full
cumulative dividends upon shares of the Cumulative Preferred
Stock outstanding to the last dividend payment date shall have
been paid or declared and set apart for payment) by the
Corporation; provided that any such junior or parity Preferred
Stock or Common Stock may be converted into or exchanged for
stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or
winding up of the Corporation, prior to the shares of Common
Stock and any other class of stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to
<PAGE> 88
4
rights upon liquidation, dissolution or winding up of the
Corporation, so that in the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Cumulative Preferred Stock shall
be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior stock,
an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an
amount equal to all dividends (whether or not earned or declared)
accrued and accumulated and unpaid on the shares of Cumulative
Preferred Stock to the date of final distribution. The holders
of the Cumulative Preferred Stock will not be entitled to receive
the Liquidation Preference until the liquidation preference of
any other class of stock of the Corporation ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up shall have been paid (or a sum set
aside therefor sufficient to provide for payment) in full. After
payment of the full amount of the Liquidation Preference and such
dividends, the holders of shares of Cumulative Preferred Stock
will not be entitled to any further participation in any
distribution of assets by the Corporation. If, upon any
liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable
among the holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts
payable thereon were paid in full. For the purposes hereof,
neither a consolidation or merger of the Corporation with or into
any other corporation, nor a merger of any other corporation with
or into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall be
considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is not
convertible into shares of any other class or series of stock of
the Corporation.
<PAGE> 89
5
5. Voting Rights. The holders of shares of Cumulative
Preferred Stock shall have no voting rights whatsoever, except
for any voting rights to which they may be entitled under the
laws of the State of Delaware, and except as follows:
(a) Whenever, at any time or times, dividends payable
on the shares of Cumulative Preferred Stock or on any Parity
Preferred Stock with respect to payment of dividends, shall
be in arrears for an aggregate number of days equal to six
calendar quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative Preferred
Stock shall have the right, with holders of shares of any
one or more other class or series of stock upon which like
voting rights have been conferred and are exercisable
(voting together as a class), to elect two of the authorized
number of members of the Board at the Corporation's next
annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid
or set apart for payment, at which time such right shall
terminate, except as herein or by law expressly provided,
subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon
any termination of the right of the holders of shares of
Cumulative Preferred Stock as a class to vote for directors
as herein provided, the term of office of all directors then
in office elected by the holders of shares of Cumulative
Preferred Stock shall terminate immediately.
Any director who shall have been so elected pursuant to this
paragraph may be removed at any time, either with or without
cause. Any vacancy thereby created may be filled only by
the affirmative vote of the holders of shares of Cumulative
Preferred Stock voting separately as a class (together with
the holders of shares of any other class or series of stock
upon which like voting rights have been conferred and are
exercisable). If the office of any director elected by the
holders of shares of Cumulative Preferred Stock voting as a
class becomes vacant for any reason other than removal from
office as aforesaid, the remaining
<PAGE> 90
6
director elected pursuant to this paragraph may choose
a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. At elections for
such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share
held (the holders of shares of any other class or series of
preferred stock having like voting rights being entitled to
such number of votes, if any, for each share of such stock
held as may be granted to them).
(b) So long as any shares of Cumulative Preferred
Stock remain outstanding, the consent of the holders of at
least two-thirds of the shares of Cumulative Preferred Stock
outstanding at the time and all other classes or series of
stock upon which like voting rights have been conferred and
are exercisable (voting together as a class) given in person
or by proxy, either in writing or at any meeting called for
the purpose, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the issuance or increase of the authorized
amount of any class or series of shares ranking prior
(as that term is defined in paragraph 9(a) hereof) to
the shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any
of the provisions of the Certificate of
Incorporation, (including this resolution or any
provision hereof) that would materially and adversely
affect any power, preference, or special right of the
shares of Cumulative Preferred Stock or of the
holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock
or any increase or decrease in the number of shares
of any series of Preferred Stock or the creation and
issuance of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with or
junior to the shares of Cumulative Preferred Stock
with
<PAGE> 91
7
respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and
adversely affect such powers, preferences or special
rights.
(c) The foregoing voting provisions shall not apply
if, at or prior to the time when the act with respect to
which such vote would otherwise be required shall be
effected, all outstanding shares of Cumulative Preferred
Stock shall have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to
effect such redemption.
6. Redemption Shares. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the Corporation,
as a whole, or from time to time in part, at any time, upon not
less than 30 days' prior notice mailed to the holders of the
shares to be redeemed at their addresses as shown on the stock
books of the Corporation; provided, however, that shares of the
Cumulative Preferred Stock shall not be redeemable prior to
November 30, 1998. Subject to the foregoing, on or after such
date, shares of the Cumulative Preferred Stock are redeemable at
$200.00 per share together with an amount equal to all dividends
(whether or not earned or declared) accrued and accumulated and
unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred
Stock have not been paid, the Cumulative Preferred Stock may not
be redeemed in part and the Corporation may not purchase or
acquire any shares of the Cumulative Preferred Stock otherwise
than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Cumulative Preferred Stock. If fewer
than all the outstanding shares of Cumulative Preferred Stock are
to be redeemed, the Corporation will select those to be redeemed
by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption,
the funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds, in
trust for the pro rata benefit of the holders of the shares of
Cumulative Preferred Stock
<PAGE> 92
8
so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to
accrue on the shares to be redeemed, and at the close of business
on the redemption date the holders of such shares shall cease to
be stockholders with respect to such shares and shall have no
interest in or claims against the Corporation by virtue thereof
and shall have no voting or other rights with respect to such
shares, except the right to receive the moneys payable upon
surrender (and endorsement, if required by the Corporation) of
their certificates, and the shares evidenced thereby shall no
longer be outstanding. Subject to applicable escheat laws, any
moneys so set aside by the Corporation and unclaimed at the end
of two years from the redemption date shall revert to the general
funds of the Corporation, after which reversion the holders of
such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so
deposited shall be paid to the Corporation from time to time.
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of
the Corporation, (b) the creation, or increase or decrease in the
amount, of any class or series of stock of the Corporation not
ranking prior as to dividends or upon liquidation, dissolution or
winding up to the Cumulative Preferred Stock or (c) any increase
or decrease in the amount of authorized Common Stock or any
increase, decrease or change in the par value thereof or in any
other terms thereof.
8. Amendment of Resolution. The Board and the Committee
each reserves the right by subsequent amendment of this
resolution from time to time to increase or decrease the number
of shares that constitute the Cumulative Preferred Stock (but not
below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided
by law, this resolution and the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock
of any class or classes of the Corporation shall be deemed to
rank:
<PAGE> 93
9
(a) prior to shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, if the holders of stock
of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in preference or priority to the holders
of shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative
Preferred Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, whether or not the
dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those
of the Cumulative Preferred Stock, if the holders of stock
of such class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority
of one over the other as between the holders of such stock
and the holders of shares of Cumulative Preferred Stock (the
term "Parity Preferred Stock" being used to refer to any
stock on a parity with the shares of Cumulative Preferred
Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, as the context may
require); and
(c) junior to shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, if such class shall be
Common Stock or if the holders of the Cumulative Preferred
Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to
the holders of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the
Common Stock and on a parity with the Corporation's ESOP
Convertible
<PAGE> 94
10
Preferred Stock, with a liquidation value of $35.88 per share,
the Corporation's 9.36% Cumulative Preferred Stock, with a
liquidation value of $25.00 per share, the Corporation's 8.88%
Cumulative Preferred Stock, with a liquidation value of $200.00
per share, the Corporation's 8-3/4% Cumulative Preferred Stock,
with a liquidation value of $200.00 per share and the
Corporation's 7-3/8% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share.
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused
this Certificate to be made under the seal of the Corporation and signed by
Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its
Assistant Secretary, this 23rd day of November, 1993.
MORGAN STANLEY GROUP INC.
/s/ Richard B. Fisher
By: ------------------------
Name: Richard B. Fisher
Title: Chairman
[SEAL]
Attest:
/s/ Patricia A. Kurtz
- -----------------------------
Assistant Secretary
<PAGE> 95
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
7.80% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
-------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------------
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Morgan
Stanley Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), by unanimous written consent in lieu of a meeting dated as of
October 29, 1993, with certain of the designations, preferences and rights
having been fixed by the Pricing Committee of the Board (the "Committee") at a
meeting on February 1, 1994, pursuant to authority delegated to it by the Board
pursuant to the provisions of Section 141(c) of the General Corporation Law of
the State of Delaware:
RESOLVED that, pursuant to authority expressly granted to and
vested in the Committee by the Board and in the Board by provisions of
the Restated Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, without par value (the "Preferred Stock"), which
shall consist of 1,150,000 of the 30,000,000 shares of Preferred
Stock which the Corporation now has authority to issue, is authorized,
and the Board and, pursuant to the authority expressly granted to the
Committee by the Board pursuant to the provisions of Section 141(c) of
the General Corporation Law of the State of Delaware and the
Certificate of Incorporation, the Committee, fix the powers,
<PAGE> 96
2
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of such series (in addition to the
powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations
or restrictions thereof, set forth in the Certificate of Incorporation
which may be applicable to the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares.
The designation for such series of the Preferred Stock
authorized by this resolution shall be the 7.80% Cumulative
Preferred Stock, without par value, with a stated value of
$200.00 per share (the "Cumulative Preferred Stock"). The
stated value per share of Cumulative Preferred Stock shall not
for any purpose be considered to be a determination by the
Board or the Committee with respect to the capital and surplus
of the Corporation. The maximum number of shares of
Cumulative Preferred Stock shall be 1,150,000. The Cumulative
Preferred Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative
Preferred Stock will be entitled to receive, when, as and if
declared by the Board or the Committee out of assets of the
Corporation legally available for payment, cash dividends
payable quarterly at the rate of 7.80% per annum. Dividends
on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a
"dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as
they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the
Board or the Committee. The amount of dividends payable for
the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the
payment of dividends unless there shall also be or have been
declared and paid or set apart for payment on the Cumulative
<PAGE> 97
3
Preferred Stock, like dividends for all dividend payment
periods of the Cumulative Preferred Stock ending on or before
the dividend payment date of such Parity Preferred Stock,
ratably in proportion to the respective amounts of dividends
(x) accumulated and unpaid or payable on such Parity Preferred
Stock, on the one hand, and (y) accumulated and unpaid through
the dividend payment period or periods of the Cumulative
Preferred Stock next preceding such dividend payment date, on
the other hand.
Except as set forth in the preceding sentence, unless
full cumulative dividends on the Cumulative Preferred Stock
have been paid, no dividends (other than in Common Stock of
the Corporation) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a
parity with the Cumulative Preferred Stock as to dividends,
nor may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment be made to or
available for a sinking fund for the redemption of any shares
of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred
stock of the Corporation in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the
terms of such sinking fund, regardless of whether at the time
of such application full cumulative dividends upon shares of
the Cumulative Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set
apart for payment) by the Corporation; provided that any such
junior or parity Preferred Stock or Common Stock may be
converted into or exchanged for stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to
dividends.
3. Liquidation Preference. The shares of
Cumulative Preferred Stock shall rank, as to liquidation,
dissolution or winding up of the Corporation, prior to the
shares of Common Stock and any other class of stock of the
Corporation ranking junior to the Cumulative Preferred Stock
as to
<PAGE> 98
4
rights upon liquidation, dissolution or winding up of the
Corporation, so that in the event of any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Cumulative
Preferred Stock shall be entitled to receive out of the assets
of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of Common
Stock or any other such junior stock, an amount equal to
$200.00 per share (the "Liquidation Preference" of a share of
Cumulative Preferred Stock) plus an amount equal to all
dividends (whether or not earned or declared) accrued and
accumulated and unpaid on the shares of Cumulative Preferred
Stock to the date of final distribution. The holders of the
Cumulative Preferred Stock will not be entitled to receive the
Liquidation Preference until the liquidation preference of any
other class of stock of the Corporation ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation,
dissolution or winding up shall have been paid (or a sum set
aside therefor sufficient to provide for payment) in full.
After payment of the full amount of the Liquidation Preference
and such dividends, the holders of shares of Cumulative
Preferred Stock will not be entitled to any further
participation in any distribution of assets by the
Corporation. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of
Parity Preferred Stock shall be insufficient to pay in full
the preferential amount aforesaid, then such assets, or the
proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were
paid in full. For the purposes hereof, neither a
consolidation or merger of the Corporation with or into any
other corporation, nor a merger of any other corporation with
or into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall
be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock
is not convertible into shares of any other class or series of
stock of the Corporation.
<PAGE> 99
5
5. Voting Rights. The holders of shares of
Cumulative Preferred Stock shall have no voting rights
whatsoever, except for any voting rights to which they may be
entitled under the laws of the State of Delaware, and except
as follows:
(a) Whenever, at any time or times,
dividends payable on the shares of Cumulative
Preferred Stock or on any Parity Preferred Stock with
respect to payment of dividends, shall be in arrears
for an aggregate number of days equal to six calendar
quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative
Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of
stock upon which like voting rights have been
conferred and are exercisable (voting together as a
class), to elect two of the authorized number of
members of the Board at the Corporation's next annual
meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have
been paid or set apart for payment, at which time
such right shall terminate, except as herein or by
law expressly provided, subject to revesting in the
event of each and every subsequent default of the
character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative
Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors
then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant
to this paragraph may be removed at any time, either
with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the
holders of shares of Cumulative Preferred Stock
voting separately as a class (together with the
holders of shares of any other class or series of
stock upon which like voting rights have been
conferred and are exercisable). If the office of any
director elected by the holders of shares of
Cumulative Preferred Stock voting as a class becomes
vacant for any reason other than removal from office
as aforesaid, the remaining
<PAGE> 100
6
director elected pursuant to this paragraph may choose a successor who
shall hold office for the unexpired term in respect of which such
vacancy occurred. At elections for such directors, each holder of
shares of Cumulative Preferred Stock shall be entitled to one vote for
each share held (the holders of shares of any other class or series of
preferred stock having like voting rights being entitled to such number
of votes, if any, for each share of such stock held as may be granted to
them).
(b) So long as any shares of Cumulative Preferred Stock
remain outstanding, the consent of the holders of at least two-thirds of
the shares of the Cumulative Preferred Stock outstanding at the time and
all other classes or series of stock upon which like voting rights have
been conferred and are exercisable (voting together as a class) given in
person or by proxy, either in writing or at any meeting called for the
purpose, shall be necessary to permit, effect or validate any one or
more of the following:
(i) the issuance or increase of the authorized amount of
any class or series of shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the shares of the
Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of
the Certificate of Incorporation, (including this resolution or
any provision hereof) that would materially and adversely
affect any power, preference, or special right of the shares of
Cumulative Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of authorized
Common Stock or authorized Preferred Stock or any increase or
decrease in the number of shares of any series of Preferred
Stock or the creation and issuance of other series of Common
Stock or Preferred Stock, in each case ranking on a parity with
or junior to the shares of Cumulative Preferred Stock with
<PAGE> 101
7
respect to the payment of dividends and the distribution
of assets upon liquidation, dissolution or winding up, shall
not be deemed to materially and adversely affect such
powers, preferences or special rights.
(c) The foregoing voting provisions shall not
apply if, at or prior to the time when the act with respect to
which such vote would otherwise be required shall be effected,
all outstanding shares of Cumulative Preferred Stock shall have
been redeemed or called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
6. Redemption Shares. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the Corporation, as a
whole, or from time to time in part, at any time, upon not less than 30
days' prior notice mailed to the holders of the shares to be redeemed at
their addresses as shown on the stocks books of the Corporation;
provided, however, that shares of the Cumulative Preferred Stock shall
not be redeemable prior to February 28, 1999. Subject to the foregoing,
on or after such date, shares of the Cumulative Preferred Stock are
redeemable at $200.00 per share together with an amount equal to all
dividends (whether or not earned or declared) accrued and accumulated
and unpaid to, but excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative Preferred Stock
have not been paid, the Cumulative Preferred Stock may not be redeemed
in part and the Corporation may not purchase or acquire any shares of
the Cumulative Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of Cumulative
Preferred Stock are to be redeemed, the Corporation will select those to
be redeemed by lot or a substantially equivalent method.
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption, the
funds necessary for such redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in trust for the
pro rata benefit of the holders of the shares of Cumulative Preferred
Stock
<PAGE> 102
8
so called for redemption, then, notwithstanding that any certificates
for such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares to
be redeemed, and at the close of business on the redemption date the
holders of such shares shall cease to be stockholders with respect to
such shares and shall have no interest in or claims against the
Corporation by virtue thereof and shall have no voting or other rights
with respect to such shares, except the right to receive the moneys
payable upon surrender (and endorsement, if required by the Corporation)
of their certificates, and the shares evidenced thereby shall no longer
be outstanding. Subject to applicable escheat laws, any moneys so set
aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation,
after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Corporation for
the payment of the amounts payable upon such redemption. Any interest
accrued on funds so deposited shall be paid to the Corporation from time
to time.
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation, or increase or decrease in the amount, of
any class or series of stock of the Corporation not ranking prior as to
dividends or upon liquidation, dissolution or winding up to the
Cumulative Preferred Stock or (c) any increase or decrease in the amount
of authorized Common Stock or any increase, decrease or change in the
par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee
each reserves the right by subsequent amendment of this resolution from
time to time to increase or decrease the number of shares that
constitute the Cumulative Preferred Stock (but not below the number of
shares thereof then outstanding) and in other respects to amend this
resolution within the limitations provided by law, this resolution and
the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock
of any class or classes of the Corporation shall be deemed to rank:
<PAGE> 103
9
(a) prior to shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution
or winding up, or both, if the holders of stock of such class
or classes shall be entitled by the terms thereof to the
receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of shares of the
Cumulative Preferred Stock;
(b) on a parity with shares of the Cumulative
Preferred Stock, either as to dividends or upon liquidation,
dissolution or winding up, or both, whether or not the dividend
rates, dividend payment dates, or redemption or liquidation
prices per share thereof be different from those of the
Cumulative Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms thereof to the
receipt of dividends or of amounts distributed upon
liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation
prices, without preference or priority of one over the other as
between the holders of such stock and the holders of shares of
Cumulative Preferred Stock (the term "Parity Preferred Stock"
being used to refer to any stock on a parity with the shares of
Cumulative Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, as the context
may require); and
(c) junior to shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution
or winding up, or both, if such class shall be Common Stock or
if the holders of the Cumulative Preferred Stock shall be
entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of
stock in such class or classes.
The Cumulative Preferred Stock shall rank prior, as to
dividends and upon liquidation, dissolution or winding up, to the Common
Stock and on a parity with the Corporation's ESOP Convertible
<PAGE> 104
10
Preferred Stock, with a liquidation value of $35.88
per share, the Corporation's 9.36% Cumulative
Preferred Stock, with a liquidation value of $25.00
per share, the Corporation's 8.88% Cumulative
Preferred Stock, with a liquidation value of $200.00
per share, the Corporation's 8-3/4% Cumulative
Preferred Stock, with a liquidation value of $200.00
per share, the Corporation's 7-3/8% Cumulative
Preferred Stock, with a liquidation value of $200.00
per share and, if issued, the Corporation's 7.82%
Cumulative Preferred Stock with a liquidation value
of $200.00 per share.
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused
this Certificate to be made under the seal of the Corporation and signed
by Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz,
its Assistant Secretary, this 4 day of February, 1994.
MORGAN STANLEY GROUP INC.
By: /s/ Richard B. Fisher
---------------------------
Name: Richard B. Fisher
Title: Chairman of the Board
[SEAL]
Attest:
/s/ Patricia A. Kurtz
- -------------------------
Patricia A. Kurtz
Assistant Secretary
<PAGE> 105
CERTIFICATE OF DECREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
7.82% CUMULATIVE PREFERRED STOCK
Morgan Stanley Group Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That the Restated Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of Delaware on September 15, 1992
and forwarded for recording in the Office of the Recorder of Deeds for Kent
County, Delaware on September 15, 1992 and a Certificate of Designation of
Preferences and Rights ("Certificate of Designation") of the 7.82% Cumulative
Preferred Stock, was filed in said Office of the Secretary of State on November
24, 1993 and forwarded for recording in the office of the Recorder of Deeds on
even date therewith.
That pursuant to authority expressly granted to and vested in the
Pricing Committee of the Board of Directors of the Corporation (the "Pricing
Committee"), by resolutions duly adopted by said Board of Directors on October
29, 1993 (the "Resolutions"), the Pricing Committee fixed certain designations,
preferences and rights of the aforesaid 7.82% Cumulative Preferred Stock as set
forth in the Certificate of Designation.
That pursuant to authority expressly granted to and vested in the
Pricing Committee by the Resolutions, the Pricing Committee by a written
unanimous consent in lieu of a meeting dated as of April 12, 1994 duly adopted
a resolution authorizing and directing a decrease in the authorized number of
shares of the 7.82% Cumulative Preferred Stock of the Corporation, from 682,813
shares to 611,238 shares and providing that the 71,575 shares of the 7.82%
Cumulative Preferred Stock designated by the Pricing Committee but not issued
and outstanding resume the status of authorized and unissued Preferred Stock,
all in accordance with the provisions of Section 151 of The General Corporation
Law of the State of Delaware and the aforesaid Restated Certificate of
Incorporation of the Corporation.
<PAGE> 106
IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused this
certificate to be signed by Richard B. Fisher, its Chairman, and attested by
Patricia A. Kurtz, its Assistant Secretary, this 12 day of April, 1994.
By /s/ Richard B. Fisher
------------------------------
Name: Richard B. Fisher
Title: Chairman
ATTEST:
By /s/ Patricia A. Kurtz
------------------------------
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 107
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
9.00% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board") of Morgan Stanley Group
-----
Inc., a Delaware corporation (hereinafter called the "Corporation"), by
-----------
unanimous written consent in lieu of a meeting dated as of October 29, 1993 with
certain of the designations, preferences and rights having been fixed by the
Pricing Committee of the Board (the "Committee") at a meeting on February 10,
---------
1995, pursuant to authority delegated to it by the Board pursuant to the
provisions of Section 141(c) of the General Corporation Law of the State of
Delaware:
RESOLVED that, pursuant to authority expressly granted to and vested
in the Committee by the Board and in the Board by provisions of the
Restated Certificate of Incorporation of the Corporation, as amended (the
"Certificate of Incorporation"), the issuance of a series of Preferred
-----------------------------
Stock, without par value (the "Preferred Stock"), which shall consist of
---------------
738,763 of the 30,000,000 shares of Preferred Stock which the Corporation
now has authority to issue, is authorized, and the Board and, pursuant to
the authority expressly granted to the Committee by the Board pursuant to
the provisions of Section 141(c) of the General Corporation Law of the
State of Delaware and the Certificate of Incorporation, the Committee fix
the powers, designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, set
<PAGE> 108
2
forth in the Certificate of Incorporation which may be applicable to the
Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The designation
-----------------------------------------
for such series of the Preferred Stock authorized by this resolution
shall be the 9.00% Cumulative Preferred Stock, without par value, with
a stated value of $200.00 per share (the "Cumulative Preferred
--------------------
Stock"). The stated value per share of Cumulative Preferred Stock
------
shall not for any purpose be considered to be a determination by the
Board or the Committee with respect to the capital and surplus of the
Corporation. The maximum number of shares of Cumulative Preferred
Stock shall be 738,763. The Cumulative Preferred Stock is issuable in
whole shares only.
2. Dividends. Holders of shares of Cumulative Preferred Stock
---------
will be entitled to receive, when, as and if declared by the Board or
the Committee out of assets of the Corporation legally available for
payment, cash dividends payable quarterly at the rate of 9.00% per
annum. Dividends on the Cumulative Preferred Stock will be payable
quarterly on February 28, May 30, August 30 and November 30 (each a
"dividend payment date"). Dividends on shares of the Cumulative
----------------------
Preferred Stock will be cumulative from the date of initial issuance
of such shares of Cumulative Preferred Stock. Dividends will be
payable, in arrears, to holders of record as they appear on the stock
books of the Corporation on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates thereof, as shall be
fixed by the Board or the Committee. The amount of dividends payable
for the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day year of
twelve 30-day months. No dividends may be declared or paid or set
apart for payment on any Parity Preferred Stock (as defined in
paragraph 9(b) below) with regard to the payment of dividends unless
there shall also be or have been declared and paid or set apart for
payment on the Cumulative Preferred Stock, like dividends for all
dividend payment periods of the Cumulative Preferred Stock ending on
or before the dividend payment date of such Parity Preferred Stock,
ratably in proportion to the respective amounts of dividends (x)
accumulated and unpaid or payable on such Parity Preferred Stock, on
the one hand, and (y) accumulated and unpaid through the dividend
payment period or periods of the Cumulative Preferred Stock next
preceding such dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless full
cumulative dividends on the Cumulative Preferred Stock have been paid,
no dividends (other than in Common Stock of the Corporation) may be
paid or declared and set aside for payment or other distribution made
upon the Common Stock or on any other stock of the Corporation ranking
junior to or on a parity with the
<PAGE> 109
3
Cumulative Preferred Stock as to dividends, nor may any Common Stock
or any other stock of the Corporation ranking junior to or on a parity
with the Cumulative Preferred Stock as to dividends be redeemed,
purchased or otherwise acquired for any consideration (or any payment
be made to or available for a sinking fund for the redemption of any
shares of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred stock of
the Corporation in compliance with the provisions of such sinking fund
may thereafter be applied to the purchase or redemption of such
preferred stock in accordance with the terms of such sinking fund,
regardless of whether at the time of such application full cumulative
dividends upon shares of the Cumulative Preferred Stock outstanding to
the last dividend payment date shall have been paid or declared and
set apart for payment) by the Corporation; provided that any such
junior or parity Preferred Stock or Common Stock may be converted into
or exchanged for stock of the Corporation ranking junior to the
Cumulative Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative Preferred
----------------------
Stock shall rank, as to liquidation, dissolution or winding up of the
Corporation, prior to the shares of Common Stock and any other class
of stock of the Corporation ranking junior to the Cumulative Preferred
Stock as to rights upon liquidation, dissolution or winding up of the
Corporation, so that in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the Cumulative Preferred Stock shall be entitled to receive
out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any
distribution is made to holders of shares of Common Stock or any other
such junior stock, an amount equal to $200.00 per share (the
"Liquidation Preference" of a share of Cumulative Preferred Stock)
-----------------------
plus an amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution. The
holders of the Cumulative Preferred Stock will not be entitled to
receive the Liquidation Preference until the liquidation preference of
any other class of stock of the Corporation ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation, dissolution
or winding up shall have been paid (or a sum set aside therefor
sufficient to provide for payment) in full. After payment of the full
amount of the Liquidation Preference and such dividends, the holders
of shares of Cumulative Preferred Stock will not be entitled to any
further participation in any distribution of assets by the
Corporation. If, upon any liquidation, dissolution or winding up of
the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Parity Preferred Stock
shall be insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall be
distributable among such holders
<PAGE> 110
4
ratably in accordance with the respective amounts which would be
payable on such shares if all amounts payable thereon were paid in
full. For the purposes hereof, neither a consolidation or merger of
the Corporation with or into any other corporation, nor a merger of
any other corporation with or into the Corporation, nor a sale or
transfer of all or any part of the Corporation's assets for cash or
securities shall be considered a liquidation, dissolution or winding
up of the Corporation.
4. Conversion. The Cumulative Preferred Stock is not
----------
convertible into shares of any other class or series of stock of the
Corporation.
5. Voting Rights. The holders of shares of Cumulative Preferred
-------------
Stock shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State of
Delaware, and except as follows:
(a) Whenever, at any time or times, dividends payable on the
shares of Cumulative Preferred Stock or on any Parity Preferred
Stock with respect to payment of dividends, shall be in arrears
for an aggregate number of days equal to six calendar quarters or
more, whether or not consecutive, the holders of the outstanding
shares of Cumulative Preferred Stock shall have the right, with
holders of shares of any one or more other class or series of
stock upon which like voting rights have been conferred and are
exercisable (voting together as a class), to elect two of the
authorized number of members of the Board at the Corporation's
next annual meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have been paid or
set apart for payment, at which time such right shall terminate,
except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of
the character above mentioned. Upon any termination of the right
of the holders of shares of Cumulative Preferred Stock as a class
to vote for directors as herein provided, the term of office of
all directors then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate immediately.
Any director who shall have been so elected pursuant to this
paragraph may be removed at any time, either with or without
cause. Any vacancy thereby created may be filled only by the
affirmative vote of the holders of shares of Cumulative Preferred
Stock voting separately as a class (together with the holders of
shares of any other class or series of stock upon which like
voting rights have been conferred and are exercisable). If the
office of any director elected by the holders of shares of
Cumulative Preferred Stock voting as a class becomes vacant
<PAGE> 111
5
for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to this paragraph may choose
a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. At elections for such
directors, each holder of shares of Cumulative Preferred Stock
shall be entitled to one vote for each share held (the holders of
shares of any other class or series of preferred stock having
like voting rights being entitled to such number of votes, if
any, for each share of such stock held as may be granted to
them).
(b) So long as any shares of Cumulative Preferred Stock
remain outstanding, the consent of the holders of at least two-
thirds of the shares of Cumulative Preferred Stock outstanding at
the time and all other classes or series of stock upon which like
voting rights have been conferred and are exercisable (voting
together as a class) given in person or by proxy, either in
writing or at any meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the authorized amount
of any class or series of shares ranking prior (as that term
is defined in paragraph 9(a) hereof) to the shares of the
Cumulative Preferred Stock; or
(ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions
of the Certificate of Incorporation, (including this
resolution or any provision hereof) that would materially
and adversely affect any power, preference, or special right
of the shares of Cumulative Preferred Stock or of the
holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized Preferred Stock or any
increase or decrease in the number of shares of any series
of Preferred Stock or the creation and issuance of other
series of Common Stock or Preferred Stock, in each case
ranking on a parity with or junior to the shares of
Cumulative Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially
and adversely affect such powers, preferences or special
rights.
(c) The foregoing voting provisions shall not apply if, at
or prior to the time when the act with respect to which such vote
would
<PAGE> 112
6
otherwise be required shall be effected, all outstanding shares
of Cumulative Preferred Stock shall have been redeemed or called
for redemption and sufficient funds shall have been deposited in
trust to effect such redemption.
6. Redemption Shares. The shares of the Cumulative Preferred
-----------------
Stock may be redeemed at the option of the Corporation, as a whole, or
from time to time in part, at any time, upon not less than 30 days'
prior notice mailed to the holders of the shares to be redeemed at
their addresses as shown on the stock books of the Corporation;
provided, however, that shares of the Cumulative Preferred Stock shall
not be redeemable prior to February 28, 2000. Subject to the
foregoing, on or after such date, shares of the Cumulative Preferred
Stock are redeemable at $200.00 per share together with an amount
equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid to, but excluding, the date fixed for
redemption.
If full cumulative dividends on the Cumulative Preferred Stock
have not been paid, the Cumulative Preferred Stock may not be redeemed
in part and the Corporation may not purchase or acquire any shares of
the Cumulative Preferred Stock otherwise than pursuant to a purchase
or exchange offer made on the same terms to all holders of the
Cumulative Preferred Stock. If fewer than all the outstanding shares
of Cumulative Preferred Stock are to be redeemed, the Corporation will
select those to be redeemed by lot or a substantially equivalent
method.
If a notice of redemption has been given pursuant to this
paragraph 6 and if, on or before the date fixed for redemption, the
funds necessary for such redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in trust for the
pro rata benefit of the holders of the shares of Cumulative Preferred
Stock so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to accrue
on the shares to be redeemed, and at the close of business on the
redemption date the holders of such shares shall cease to be
stockholders with respect to such shares and shall have no interest in
or claims against the Corporation by virtue thereof and shall have no
voting or other rights with respect to such shares, except the right
to receive the moneys payable upon surrender (and endorsement, if
required by the Corporation) of their certificates, and the shares
evidenced thereby shall no longer be outstanding. Subject to
applicable escheat laws, any moneys so set aside by the Corporation
and unclaimed at the end of two years from the redemption date shall
revert to the general funds of the Corporation, after which reversion
the holders of such shares so called for redemption shall look only to
the general funds of the Corporation for the
<PAGE> 113
7
payment of the amounts payable upon such redemption. Any interest
accrued on funds so deposited shall be paid to the Corporation from
time to time.
7. Authorization and Issuance of Other Securities. No consent
----------------------------------------------
of the holders of the Cumulative Preferred Stock shall be required for
(a) the creation of any indebtedness of any kind of the Corporation,
(b) the creation, or increase or decrease in the amount, of any class
or series of stock of the Corporation not ranking prior as to
dividends or upon liquidation, dissolution or winding up to the
Cumulative Preferred Stock or (c) any increase or decrease in the
amount of authorized Common Stock or any increase, decrease or change
in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the Committee each
-----------------------
reserves the right by subsequent amendment of this resolution from
time to time to increase or decrease the number of shares that
constitute the Cumulative Preferred Stock (but not below the number of
shares thereof then outstanding) and in other respects to amend this
resolution within the limitations provided by law, this resolution and
the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any stock of
----
any class or classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or
winding up, or both, if the holders of stock of such class or
classes shall be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Cumulative Preferred
Stock;
(b) on a parity with shares of the Cumulative Preferred
Stock, either as to dividends or upon liquidation, dissolution or
winding up, or both, whether or not the dividend rates, dividend
payment dates, or redemption or liquidation prices per share
thereof be different from those of the Cumulative Preferred
Stock, if the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of dividends or of
amounts distributed upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority of
one over the other as between the holders of such stock and the
holders of shares of Cumulative Preferred Stock (the term "Parity
------
Preferred Stock" being used to refer to any stock on a parity
---------------
with the shares of
<PAGE> 114
8
Cumulative Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, as the context
may require); and
(c) junior to shares of the Cumulative Preferred Stock,
either as to dividends or upon liquidation, dissolution or
winding up, or both, if such class shall be Common Stock or if
the holders of the Cumulative Preferred Stock shall be entitled
to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of stock of such class or
classes.
The Cumulative Preferred Stock shall rank prior, as to dividends
and upon liquidation, dissolution or winding up, to the Common Stock and on
a parity with (i) the Corporation's ESOP Convertible Preferred Stock, with
a liquidation value of $35.88 per share, (ii) the Corporation's 9.36%
Cumulative Preferred Stock, with a liquidation value of $25.00 per share,
(iii) the Corporation's 8.88% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (iv) the Corporation's 8-3/4%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share,
(v) the Corporation's 7-3/8% Cumulative Preferred Stock, with a liquidation
value of $200.00 per share, (vi) if issued, the Corporation's 7.82%
Cumulative Preferred Stock, with a liquidation value of $200.00 per share
and (vii) if issued, the Corporation's 7.80% Cumulative Preferred Stock,
with a liquidation value of $200.00 per share.
<PAGE> 115
9
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has caused this
Certificate to be made under the seal of the Corporation and signed by
Richard B. Fisher, its Chairman, and attested by Patricia A. Kurtz, its
Assistant Secretary, this 14th day of February, 1995.
MORGAN STANLEY GROUP INC.
By: /s/ Richard B. Fisher
-----------------------------------------
Name: Richard B. Fisher
Title: Chairman of the Board
[SEAL]
ATTEST:
/s/ Patricia A. Kurtz
- ----------------------------------
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 116
CERTIFICATE OF DECREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
9.00% CUMULATIVE PREFERRED STOCK
Morgan Stanley Group Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
That the Restated Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of Delaware on
September 15, 1992 and forwarded for recording in the Office of the Recorder of
Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of
Designation of Preferences and Rights ("Certificate of Designation") of the
9.00% Cumulative Preferred Stock, was filed in said Office of the Secretary of
State on February 17, 1995 and forwarded for recording in the office of the
Recorder of Deeds on even date therewith.
That pursuant to authority expressly granted to and vested in
the Pricing Committee of the Board of Directors of the Corporation (the "Pricing
Committee"), by resolutions duly adopted by said Board of Directors on October
29, 1993 (the "Resolutions"), the Pricing Committee fixed certain designations,
preferences and rights of the aforesaid 9.00% Cumulative Preferred Stock as set
forth in the Certificate of Designation.
That pursuant to authority expressly granted to and vested in
the Pricing Committee by the Resolutions, the Pricing Committee by a written
unanimous consent in lieu of a meeting dated as of March 9, 1995 duly adopted a
resolution authorizing and directing a decrease in the authorized number of
shares of the 9.00% Cumulative Preferred Stock of the Corporation, from 738,763
shares to 720,900 shares and providing that the 17,863 shares of the 9.00%
Cumulative Preferred Stock designated by the Pricing Committee but not issued
and outstanding resume the status of authorized and unissued Preferred Stock,
all in accordance with the provisions of Section 151 of The General Corporation
Law of the State of Delaware and the aforesaid Restated Certificate of
Incorporation of the Corporation.
IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused
this certificate to be signed by Richard B. Fisher, its Chairman, and attested
by Patricia A. Kurtz, its Assistant Secretary, this 13th day of March, 1995.
By /s/ Richard B. Fisher
--------------------------------
Name: Richard B. Fisher
Title: Chairman
ATTEST:
By /s/ Patricia A. Kurtz
-------------------------------
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 117
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
8.40% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Morgan
Stanley Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), by unanimous written consent in lieu of a meeting dated as of
April 12, 1995 with certain of the designations, preferences and rights having
been fixed by the Pricing Committee of the Board (the "Committee") at a meeting
on July 27, 1995, pursuant to authority delegated to it by the Board pursuant to
the provisions of Section 141(c) of the General Corporation Law of the State of
Delaware:
RESOLVED that, pursuant to authority expressly granted to and
vested in the Committee by the Board and in the Board by provisions of
the Restated Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, without par value (the "Preferred Stock"), which
shall consist of 1,006,250 of the 30,000,000 shares of Preferred Stock
which the Corporation now has authority to issue, is authorized, and
the Board and, pursuant to the authority expressly granted to the
Committee by the Board pursuant to the provisions of Section 141(c) of
the General Corporation Law of the State of Delaware and the
Certificate of Incorporation, the Committee fix the powers,
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or
restrictions thereof, set
<PAGE> 118
2
forth in the Certificate of Incorporation which may be applicable
to the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized
by this resolution shall be the 8.40% Cumulative Preferred
Stock, without par value, with a stated value of $200.00 per
share (the "Cumulative Preferred Stock"). The stated value per
share of Cumulative Preferred Stock shall not for any purpose
be considered to be a determination by the Board or the
Committee with respect to the capital and surplus of the
Corporation. The total number of shares of Cumulative
Preferred Stock shall be 1,006,250. The Cumulative Preferred
Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative
Preferred Stock will be entitled to receive, when, as and if
declared by the Board or the Committee out of assets of the
Corporation legally available for payment, cash dividends
payable quarterly at the rate of 8.40% per annum. Dividends on
the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a
"dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as
they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the
Board or the Committee. The amount of dividends payable for
the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the
payment of dividends unless there shall also be or have been
declared and paid or set apart for payment on the Cumulative
Preferred Stock, like dividends for all dividend payment
periods of the Cumulative Preferred Stock ending on or before
the dividend payment date of such Parity Preferred Stock,
ratably in proportion to the respective amounts of dividends
(x) accumulated and unpaid or payable on such Parity Preferred
Stock, on the one hand, and (y) accumulated and unpaid through
the dividend payment period or periods of the Cumulative
Preferred Stock next preceding such dividend payment date, on
the other hand.
Except as set forth in the preceding sentence, unless
full cumulative dividends on the Cumulative Preferred Stock
have been paid, no dividends (other than in Common Stock of
the Corporation) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a
parity with the
<PAGE> 119
3
Cumulative Preferred Stock as to dividends, nor may any Common
Stock or any other stock of the Corporation ranking junior to
or on a parity with the Cumulative Preferred Stock as to
dividends be redeemed, purchased or otherwise acquired for any
consideration (or any payment be made to or available for a
sinking fund for the redemption of any shares of such stock;
provided, however, that any moneys theretofore deposited in
any sinking fund with respect to any preferred stock of the
Corporation in compliance with the provisions of such sinking
fund may thereafter be applied to the purchase or redemption
of such preferred stock in accordance with the terms of such
sinking fund, regardless of whether at the time of such
application full cumulative dividends upon shares of the
Cumulative Preferred Stock outstanding to the last dividend
payment date shall have been paid or declared and set apart
for payment) by the Corporation; provided that any such junior
or parity Preferred Stock or Common Stock may be converted
into or exchanged for stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or
winding up of the Corporation, prior to the shares of Common
Stock and any other class of stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Corporation, so
that in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior
stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an
amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution.
The holders of the Cumulative Preferred Stock will not be
entitled to receive the Liquidation Preference until the
liquidation preference of any other class of stock of the
Corporation ranking senior to the Cumulative Preferred Stock
as to rights upon liquidation, dissolution or winding up shall
have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. After payment of the full amount
of the Liquidation Preference and such dividends, the holders
of shares of Cumulative Preferred Stock will not be entitled
to any further participation in any distribution of assets by
the Corporation. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation,
or proceeds thereof, distributable among the holders of shares
of Parity Preferred Stock shall be insufficient to pay in full
the preferential amount aforesaid, then such assets, or the
proceeds thereof, shall be distributable among such holders
<PAGE> 120
4
ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were
paid in full. For the purposes hereof, neither a consolidation
or merger of the Corporation with or into any other
corporation, nor a merger of any other corporation with or
into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall
be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is
not convertible into shares of any other class or series of
stock of the Corporation.
5. Voting Rights. The holders of shares of
Cumulative Preferred Stock shall have no voting rights
whatsoever, except for any voting rights to which they may be
entitled under the laws of the State of Delaware, and
except as follows:
(a) Whenever, at any time or times,
dividends payable on the shares of Cumulative
Preferred Stock or on any Parity Preferred Stock with
respect to payment of dividends, shall be in arrears
for an aggregate number of days equal to six calendar
quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative
Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of
stock upon which like voting rights have been
conferred and are exercisable (voting together as a
class), to elect two of the authorized number of
members of the Board at the Corporation's next annual
meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have
been paid or set apart for payment, at which time
such right shall terminate, except as herein or by
law expressly provided, subject to revesting in the
event of each and every subsequent default of the
character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative
Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors
then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant
to this paragraph may be removed at any time, either
with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the
holders of shares of Cumulative Preferred Stock
voting separately as a class (together with the
holders of shares of any other class or series of
stock upon which like voting rights have been
conferred and are exercisable). If the office of any
director elected by the holders of shares of
Cumulative Preferred Stock voting as a class becomes
vacant
<PAGE> 121
5
for any reason other than removal from office as
aforesaid, the remaining director elected pursuant to
this paragraph may choose a successor who shall hold
office for the unexpired term in respect of which
such vacancy occurred. At elections for such
directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for
each share held (the holders of shares of any other
class or series of preferred stock having like voting
rights being entitled to such number of votes, if
any, for each share of such stock held as may be
granted to them).
(b) So long as any shares of Cumulative
Preferred Stock remain outstanding, the consent of
the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time
and all other classes or series of stock upon which
like voting rights have been conferred and are
exercisable (voting together as a class) given in
person or by proxy, either in writing or at any
meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the
authorized amount of any class or series of
shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the
shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or
repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the
Certificate of Incorporation, (including
this resolution or any provision hereof)
that would materially and adversely affect
any power, preference, or special right of
the shares of Cumulative Preferred Stock or
of the holders thereof; provided, however,
that any increase in the amount of
authorized Common Stock or authorized
Preferred Stock or any increase or decrease
in the number of shares of any series of
Preferred Stock or the creation and issuance
of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with
or junior to the shares of Cumulative
Preferred Stock with respect to the payment
of dividends and the distribution of assets
upon liquidation, dissolution or winding up,
shall not be deemed to materially and
adversely affect such powers, preferences or
special rights.
(c) The foregoing voting provisions shall
not apply if, at or prior to the time when the act
with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of
<PAGE> 122
6
Cumulative Preferred Stock shall have been redeemed
or called for redemption and sufficient funds shall
have been deposited in trust to effect such
redemption.
6. Redemption Shares. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the
Corporation, as a whole, or from time to time in part, at any
time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation; provided,
however, that shares of the Cumulative Preferred Stock shall
not be redeemable prior to August 30, 2000. Subject to the
foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together
with an amount equal to all dividends (whether or not earned
or declared) accrued and accumulated and unpaid to, but
excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative
Preferred Stock have not been paid, the Cumulative Preferred
Stock may not be redeemed in part and the Corporation may not
purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of
Cumulative Preferred Stock are to be redeemed, the Corporation
will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to
this paragraph 6 and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have
been set aside by the Corporation, separate and apart from its
other funds, in trust for the pro rata benefit of the holders
of the shares of Cumulative Preferred Stock so called for
redemption, then, notwithstanding that any certificates for
such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares
to be redeemed, and at the close of business on the redemption
date the holders of such shares shall cease to be stockholders
with respect to such shares and shall have no interest in or
claims against the Corporation by virtue thereof and shall
have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon surrender
(and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer
be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of
two years from the redemption date shall revert to the general
funds of the Corporation, after which reversion the holders of
such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of the
amounts payable upon such redemption. Any interest accrued on
funds so deposited shall be paid to the Corporation from time
to time.
<PAGE> 123
7
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall
be required for (a) the creation of any indebtedness of any
kind of the Corporation, (b) the creation, or increase or
decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon
liquidation, dissolution or winding up to the Cumulative
Preferred Stock or (c) any increase or decrease in the amount
of authorized Common Stock or any increase, decrease or change
in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the
Committee each reserves the right by subsequent amendment of
this resolution from time to time to increase or decrease the
number of shares that constitute the Cumulative Preferred
Stock (but not below the number of shares thereof then
outstanding) and in other respects to amend this resolution
within the limitations provided by law, this resolution and
the Certificate of Incorporation.
9. Rank. For the purposes of this resolution, any
stock of any class or classes of the Corporation shall be
deemed to rank:
(a) prior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall
be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the
Cumulative Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share
thereof be different from those of the Cumulative
Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding
up, as the case may be, in proportion to their
respective dividend rates or liquidation prices,
without preference or priority of one over the other
as between the holders of such stock and the holders
of shares of Cumulative Preferred Stock (the term
"Parity Preferred Stock" being used to refer to any
stock on a parity with the shares of Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, as
the context may require); and
<PAGE> 124
8
(c) junior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
such class shall be Common Stock or if the holders of
the Cumulative Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders
of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as
to dividends and upon liquidation, dissolution or winding up,
to the Common Stock and on a parity with (i) the Corporation's
ESOP Convertible Preferred Stock, with a liquidation value of
$35.88 per share, (ii) the Corporation's 9.36% Cumulative
Preferred Stock, with a liquidation value of $25.00 per share,
(iii) the Corporation's 8.88% Cumulative Preferred Stock, with
a liquidation value of $200.00 per share, (iv) the
Corporation's 8-3/4% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (v) the Corporation's
7-3/8% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (vi) if issued, the Corporation's 7.82%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (vii) if issued, the Corporation's 7.80%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share and (viii) if issued, the Corporation's
9.00% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
<PAGE> 125
9
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has
caused this Certificate to be made under the seal of the Corporation
and signed by Richard B. Fisher, its Chairman, and attested by Patricia
A. Kurtz, its Assistant Secretary, this 27th day of July, 1995.
MORGAN STANLEY GROUP INC.
By: /s/ Richard B. Fisher
-----------------------------------
Name: Richard B. Fisher
Title: Chairman of the Board
[SEAL]
Attest:
/s/ Patricia A. Kurtz
- ----------------------------
Patricia A. Kurtz
Assistant Secretary
<PAGE> 126
CERTIFICATE OF DECREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
8.40% CUMULATIVE PREFERRED STOCK
Morgan Stanley Group Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
That the Restated Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of Delaware on
September 15, 1992 and forwarded for recording in the Office of the Recorder of
Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of
Designation of Preferences and Rights ("Certificate of Designation") of the
8.40% Cumulative Preferred Stock, was filed in said Office of the Secretary of
State on July 31, 1995 and forwarded for recording in the office of the Recorder
of Deeds on even date therewith.
That pursuant to authority expressly granted to and vested in
the Pricing Committee of the Board of Directors of the Corporation (the "Pricing
Committee"), by resolutions duly adopted by said Board of Directors on April 12,
1995 (the "Resolutions"), the Pricing Committee fixed certain designations,
preferences and rights of the aforesaid 8.40% Cumulative Preferred Stock as set
forth in the Certificate of Designation.
That pursuant to authority expressly granted to and vested in the
Pricing Committee by the Resolutions, the Pricing Committee by a written
unanimous consent in lieu of a meeting dated as of September 6, 1995 duly
adopted a resolution authorizing and directing a decrease in the authorized
number of shares of the 8.40% Cumulative Preferred Stock of the Corporation,
from 1,006,250 shares to 996,776 shares and providing that the 9,474 shares of
the 8.40% Cumulative Preferred Stock designated by the Pricing Committee but not
issued and outstanding resume the status of authorized and unissued Preferred
Stock, all in accordance with the provisions of Section 151 of The General
Corporation Law of the State of Delaware and the aforesaid Restated Certificate
of Incorporation of the Corporation.
IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused
this certificate to be signed by Richard B. Fisher, its Chairman, and attested
by Patricia A. Kurtz, its Assistant Secretary, this 6th day of September, 1995.
By /s/ Richard B. Fisher
---------------------------------
Name: Richard B. Fisher
Title: Chairman
ATTEST:
By /s/ Patricia A. Kurtz
----------------------------------
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 127
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF THE
8.20% CUMULATIVE PREFERRED STOCK
($200.00 Stated Value)
OF
MORGAN STANLEY GROUP INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
<PAGE> 128
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Morgan
Stanley Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), by unanimous written consent in lieu of a meeting dated as of
April 12, 1995 with certain of the designations, preferences and rights having
been fixed by the Pricing Committee of the Board (the "Committee") at a meeting
on October 13, 1995, pursuant to authority delegated to it by the Board pursuant
to the provisions of Section 141(c) of the General Corporation Law of the State
of Delaware:
RESOLVED that, pursuant to authority expressly granted to and
vested in the Committee by the Board and in the Board by provisions of
the Restated Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), the issuance of a series
of Preferred Stock, without par value (the "Preferred Stock"), which
shall consist of 862,500 of the 30,000,000 shares of Preferred Stock
which the Corporation now has authority to issue, is authorized, and
the Board and, pursuant to the authority expressly granted to the
Committee by the Board pursuant to the provisions of Section 141(c) of
the General Corporation Law of the State of Delaware and the
Certificate of Incorporation, the Committee fix the powers,
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or
restrictions thereof, set
<PAGE> 129
2
forth in the Certificate of Incorporation which may be applicable to
the Preferred Stock) as follows:
1. Designation and Amount; Fractional Shares. The
designation for such series of the Preferred Stock authorized
by this resolution shall be the 8.20% Cumulative Preferred
Stock, without par value, with a stated value of $200.00 per
share (the "Cumulative Preferred Stock"). The stated value per
share of Cumulative Preferred Stock shall not for any purpose
be considered to be a determination by the Board or the
Committee with respect to the capital and surplus of the
Corporation. The total number of shares of Cumulative
Preferred Stock shall be 862,500. The Cumulative Preferred
Stock is issuable in whole shares only.
2. Dividends. Holders of shares of Cumulative
Preferred Stock will be entitled to receive, when, as and if
declared by the Board or the Committee out of assets of the
Corporation legally available for payment, cash dividends
payable quarterly at the rate of 8.20% per annum. Dividends
on the Cumulative Preferred Stock will be payable quarterly on
February 28, May 30, August 30 and November 30 (each a
"dividend payment date"). Dividends on shares of the
Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such shares of Cumulative Preferred Stock.
Dividends will be payable, in arrears, to holders of record as
they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the
Board or the Committee. The amount of dividends payable for
the initial dividend period or any period shorter than a full
dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. No dividends may be declared or
paid or set apart for payment on any Parity Preferred Stock
(as defined in paragraph 9(b) below) with regard to the
payment of dividends unless there shall also be or have been
declared and paid or set apart for payment on the Cumulative
Preferred Stock, like dividends for all dividend payment
periods of the Cumulative Preferred Stock ending on or before
the dividend payment date of such Parity Preferred Stock,
ratably in proportion to the respective amounts of dividends
(x) accumulated and unpaid or payable on such Parity Preferred
Stock, on the one hand, and (y) accumulated and unpaid through
the dividend payment period or periods of the Cumulative
Preferred Stock next preceding such dividend payment date, on
the other hand.
Except as set forth in the preceding sentence, unless
full cumulative dividends on the Cumulative Preferred Stock
have been paid, no dividends (other than in Common Stock of
the Corporation) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a
parity with the
<PAGE> 130
3
Cumulative Preferred Stock as to dividends, nor may any Common
Stock or any other stock of the Corporation ranking junior to
or on a parity with the Cumulative Preferred Stock as to
dividends be redeemed, purchased or otherwise acquired for any
consideration (or any payment be made to or available for a
sinking fund for the redemption of any shares of such stock;
provided, however, that any moneys theretofore deposited in
any sinking fund with respect to any preferred stock of the
Corporation in compliance with the provisions of such sinking
fund may thereafter be applied to the purchase or redemption
of such preferred stock in accordance with the terms of such
sinking fund, regardless of whether at the time of such
application full cumulative dividends upon shares of the
Cumulative Preferred Stock outstanding to the last dividend
payment date shall have been paid or declared and set apart
for payment) by the Corporation; provided that any such junior
or parity Preferred Stock or Common Stock may be converted
into or exchanged for stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to dividends.
3. Liquidation Preference. The shares of Cumulative
Preferred Stock shall rank, as to liquidation, dissolution or
winding up of the Corporation, prior to the shares of Common
Stock and any other class of stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up of the Corporation, so
that in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to
holders of shares of Common Stock or any other such junior
stock, an amount equal to $200.00 per share (the "Liquidation
Preference" of a share of Cumulative Preferred Stock) plus an
amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid on the shares of
Cumulative Preferred Stock to the date of final distribution.
The holders of the Cumulative Preferred Stock will not be
entitled to receive the Liquidation Preference until the
liquidation preference of any other class of stock of the
Corporation ranking senior to the Cumulative Preferred Stock
as to rights upon liquidation, dissolution or winding up shall
have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. After payment of the full amount
of the Liquidation Preference and such dividends, the holders
of shares of Cumulative Preferred Stock will not be entitled
to any further participation in any distribution of assets by
the Corporation. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation,
or proceeds thereof, distributable among the holders of shares
of Parity Preferred Stock shall be insufficient to pay in full
the preferential amount aforesaid, then such assets, or the
proceeds thereof, shall be distributable among such holders
<PAGE> 131
4
ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were
paid in full. For the purposes hereof, neither a consolidation
or merger of the Corporation with or into any other
corporation, nor a merger of any other corporation with or
into the Corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall
be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock
is not convertible into shares of any other class or series of
stock of the Corporation.
5. Voting Rights. The holders of shares of
Cumulative Preferred Stock shall have no voting rights
whatsoever, except for any voting rights to which they may be
entitled under the laws of the State of Delaware, and except
as follows:
(a) Whenever, at any time or times,
dividends payable on the shares of Cumulative
Preferred Stock or on any Parity Preferred Stock with
respect to payment of dividends, shall be in arrears
for an aggregate number of days equal to six calendar
quarters or more, whether or not consecutive, the
holders of the outstanding shares of Cumulative
Preferred Stock shall have the right, with holders of
shares of any one or more other class or series of
stock upon which like voting rights have been
conferred and are exercisable (voting together as a
class), to elect two of the authorized number of
members of the Board at the Corporation's next annual
meeting of stockholders and at each subsequent annual
meeting of stockholders until such arrearages have
been paid or set apart for payment, at which time
such right shall terminate, except as herein or by
law expressly provided, subject to revesting in the
event of each and every subsequent default of the
character above mentioned. Upon any termination of
the right of the holders of shares of Cumulative
Preferred Stock as a class to vote for directors as
herein provided, the term of office of all directors
then in office elected by the holders of shares of
Cumulative Preferred Stock shall terminate
immediately.
Any director who shall have been so elected pursuant
to this paragraph may be removed at any time, either
with or without cause. Any vacancy thereby created
may be filled only by the affirmative vote of the
holders of shares of Cumulative Preferred Stock
voting separately as a class (together with the
holders of shares of any other class or series of
stock upon which like voting rights have been
conferred and are exercisable). If the office of any
director elected by the holders of shares of
Cumulative Preferred Stock voting as a class becomes
vacant
<PAGE> 132
5
for any reason other than removal from office as
aforesaid, the remaining director elected pursuant to
this paragraph may choose a successor who shall hold
office for the unexpired term in respect of which
such vacancy occurred. At elections for such
directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for
each share held (the holders of shares of any other
class or series of preferred stock having like voting
rights being entitled to such number of votes, if
any, for each share of such stock held as may be
granted to them).
(b) So long as any shares of Cumulative
Preferred Stock remain outstanding, the consent of
the holders of at least two-thirds of the shares of
Cumulative Preferred Stock outstanding at the time
and all other classes or series of stock upon which
like voting rights have been conferred and are
exercisable (voting together as a class) given in
person or by proxy, either in writing or at any
meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the
following:
(i) the issuance or increase of the
authorized amount of any class or series of
shares ranking prior (as that term is
defined in paragraph 9(a) hereof) to the
shares of the Cumulative Preferred Stock; or
(ii) the amendment, alteration or
repeal, whether by merger, consolidation or
otherwise, of any of the provisions of the
Certificate of Incorporation, (including
this resolution or any provision hereof)
that would materially and adversely affect
any power, preference, or special right of
the shares of Cumulative Preferred Stock or
of the holders thereof; provided, however,
that any increase in the amount of
authorized Common Stock or authorized
Preferred Stock or any increase or decrease
in the number of shares of any series of
Preferred Stock or the creation and issuance
of other series of Common Stock or Preferred
Stock, in each case ranking on a parity with
or junior to the shares of Cumulative
Preferred Stock with respect to the payment
of dividends and the distribution of assets
upon liquidation, dissolution or winding up,
shall not be deemed to materially and
adversely affect such powers, preferences or
special rights.
(c) The foregoing voting provisions shall
not apply if, at or prior to the time when the act
with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of
<PAGE> 133
6
Cumulative Preferred Stock shall have been redeemed
or called for redemption and sufficient funds shall
have been deposited in trust to effect such
redemption.
6. Redemption Shares. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the
Corporation, as a whole, or from time to time in part, at any
time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation; provided,
however, that shares of the Cumulative Preferred Stock shall
not be redeemable prior to November 30, 2000. Subject to the
foregoing, on or after such date, shares of the Cumulative
Preferred Stock are redeemable at $200.00 per share together
with an amount equal to all dividends (whether or not earned
or declared) accrued and accumulated and unpaid to, but
excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative
Preferred Stock have not been paid, the Cumulative Preferred
Stock may not be redeemed in part and the Corporation may not
purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of
Cumulative Preferred Stock are to be redeemed, the Corporation
will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to
this paragraph 6 and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have
been set aside by the Corporation, separate and apart from its
other funds, in trust for the pro rata benefit of the holders
of the shares of Cumulative Preferred Stock so called for
redemption, then, notwithstanding that any certificates for
such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares
to be redeemed, and at the close of business on the redemption
date the holders of such shares shall cease to be stockholders
with respect to such shares and shall have no interest in or
claims against the Corporation by virtue thereof and shall
have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon surrender
(and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer
be outstanding. Subject to applicable escheat laws, any moneys
so set aside by the Corporation and unclaimed at the end of
two years from the redemption date shall revert to the general
funds of the Corporation, after which reversion the holders of
such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of the
amounts payable upon such redemption. Any interest accrued on
funds so deposited shall be paid to the Corporation from time
to time.
<PAGE> 134
7
7. Authorization and Issuance of Other Securities. No
consent of the holders of the Cumulative Preferred Stock shall
be required for (a) the creation of any indebtedness of any
kind of the Corporation, (b) the creation, or increase or
decrease in the amount, of any class or series of stock of the
Corporation not ranking prior as to dividends or upon
liquidation, dissolution or winding up to the Cumulative
Preferred Stock or (c) any increase or decrease in the amount
of authorized Common Stock or any increase, decrease or change
in the par value thereof or in any other terms thereof.
8. Amendment of Resolution. The Board and the
Committee each reserves the right by subsequent amendment of
this resolution from time to time to increase or decrease the
number of shares that constitute the Cumulative Preferred
Stock (but not below the number of shares thereof then
outstanding) and in other respects to amend this resolution
within the limitations provided by law, this resolution and
the Certificate of Incorporation.
9. Rank. For the purposes of this resolution,
any stock of any class or classes of the Corporation shall be
deemed to rank:
(a) prior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall
be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the
Cumulative Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share
thereof be different from those of the Cumulative
Preferred Stock, if the holders of stock of such
class or classes shall be entitled by the terms
thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding
up, as the case may be, in proportion to their
respective dividend rates or liquidation prices,
without preference or priority of one over the other
as between the holders of such stock and the holders
of shares of Cumulative Preferred Stock (the term
"Parity Preferred Stock" being used to refer to any
stock on a parity with the shares of Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, as
the context may require); and
<PAGE> 135
8
(c) junior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
such class shall be Common Stock or if the holders of
the Cumulative Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders
of stock of such class or classes.
The Cumulative Preferred Stock shall rank prior, as
to dividends and upon liquidation, dissolution or winding up,
to the Common Stock and on a parity with (i) the Corporation's
ESOP Convertible Preferred Stock, with a liquidation value of
$35.88 per share, (ii) the Corporation's 9.36% Cumulative
Preferred Stock, with a liquidation value of $25.00 per share,
(iii) the Corporation's 8.88% Cumulative Preferred Stock, with
a liquidation value of $200.00 per share, (iv) the
Corporation's 8-3/4% Cumulative Preferred Stock, with a
liquidation value of $200.00 per share, (v) the Corporation's
7-3/8% Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (vi) if issued, the Corporation's 7.82%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share, (vii) if issued, the Corporation's 7.80%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share (viii) if issued, the Corporation's 9.00%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share and (ix) if issued, the Corporation's 8.40%
Cumulative Preferred Stock, with a liquidation value of
$200.00 per share.
<PAGE> 136
9
IN WITNESS WHEREOF, Morgan Stanley Group Inc. has
caused this Certificate to be made under the seal of the Corporation
and signed by Richard B. Fisher, its Chairman, and attested by Patricia
A. Kurtz, its Assistant Secretary, this 13th day of October, 1995.
MORGAN STANLEY GROUP INC.
By /s/ Richard B. Fisher
--------------------------------
Name: Richard B. Fisher
Title: Chairman of the Board
[SEAL]
Attest:
By /s/ Patricia A. Kurtz
----------------------------------
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 137
CERTIFICATE OF DECREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
8.20% CUMULATIVE PREFERRED STOCK
Morgan Stanley Group Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
That the Restated Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of Delaware on
September 15, 1992 and forwarded for recording in the Office of the Recorder of
Deeds for Kent County, Delaware on September 15, 1992 and a Certificate of
Designation of Preferences and Rights ("Certificate of Designation") of the
8.20% Cumulative Preferred Stock, was filed in said Office of the Secretary of
State on October 17, 1995 and forwarded for recording in the office of the
Recorder of Deeds on even date therewith.
That pursuant to authority expressly granted to and vested in
the Pricing Committee of the Board of Directors of the Corporation (the "Pricing
Committee"), by resolutions duly adopted by said Board of Directors on April 12,
1995 (the "Resolutions"), the Pricing Committee fixed certain designations,
preferences and rights of the aforesaid 8.20% Cumulative Preferred Stock as set
forth in the Certificate of Designation.
That pursuant to authority expressly granted to and vested in
the Pricing Committee by the Resolutions, the Pricing Committee by a written
unanimous consent in lieu of a meeting dated as of October 27, 1995 duly adopted
a resolution authorizing and directing a decrease in the authorized number of
shares of the 8.20% Cumulative Preferred Stock of the Corporation, from 862,500
shares to 847,500 shares and providing that the 15,000 shares of the 8.20%
Cumulative Preferred Stock designated by the Pricing Committee but not issued
and outstanding resume the status of authorized and unissued Preferred Stock,
all in accordance with the provisions of Section 151 of The General Corporation
Law of the State of Delaware and the aforesaid Restated Certificate of
Incorporation of the Corporation.
IN WITNESS WHEREOF, said Morgan Stanley Group Inc., has caused
this certificate to be signed by Richard B. Fisher, its Chairman, and attested
by Patricia A. Kurtz, its Assistant Secretary, this 31st day of October, 1995.
By /s/ Richard B. Fisher
____________________________
Name: Richard B. Fisher
Title: Chairman
ATTEST:
By /s/ Patricia A. Kurtz
______________________________
Name: Patricia A. Kurtz
Title: Assistant Secretary
<PAGE> 1
Exhibit 4.3
CONSENT AND AMENDMENT
To Morgan Stanley Group Inc.:
Reference is made to each of the following agreements and certificates
to which the undersigned is a party or which evidences an award previously made
to the undersigned (collectively, the "Agreements"):
1. Stockholders' Agreement, dated as of February 14, 1986, among
Morgan Stanley Group Inc. and its stockholders a party thereto.
2. Each nonqualified stock option agreement, including all appendices
and amendments thereto and each voting agreement entered into
pursuant thereto, under the Morgan Stanley Group Inc. 1986 Stock
Option Plan, as amended.
3. Each award agreement, including all appendices and amendments
thereto and each voting agreement entered into pursuant thereto,
under the Morgan Stanley Group Inc. Performance Unit Plan, as
amended.
4. Each award agreement or certificate (including without limitation
each option agreement, stock unit agreement, stock restriction
agreement, option certificate and stock unit certificate), including
all appendices and amendments thereto and each voting agreement
entered into pursuant thereto, under the Morgan Stanley Group Inc.
1988 Equity Incentive Compensation Plan, as amended.
The undersigned hereby consents to the amendment of each of the
Agreements, effective January 31, 1996, (1) so that each Agreement shall be
governed by the laws of the State of Delaware (including without limitation the
1994 amendments to Section 218 of the Delaware General Corporation Law (the
"DGCL")) and (2) so as to confirm (notwithstanding the lmitation on the term of
stockholder voting agreements and voting trust agreements imposed by Delaware
law prior to the 1994 amendments to Section 218 of the DGCL) that the
undertakings and covenants of the undersigned set forth in the Agreements,
including without limitation the covenants of the undersigned with respect to
the voting of shares of common stock, par value $1.00 per share, of Morgan
Stanley Group Inc., shall continue in full force and effect until they have
terminated or expired in accordance with the terms of the Agreements, as so
amended.
IN WITNESS WHEREOF, the undersigned has executed this Consent and
Amendment as of the date indicated below.
Signature: _______________________________
Name (please print): _______________________________
Date: January 31, 1996
<PAGE> 1
Exhibit 11
MORGAN STANLEY GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
PERIOD ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, JANUARY 31, JANUARY 31,
1995 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
PRIMARY (1):
Common stock and common stock equivalents:
Average common shares outstanding 154,307,918 153,976,502 149,286,904
Average common shares issuable
under employee benefit plans 2,604,760 3,816,714 3,129,672
------------ ------------ ------------
Total average common and common
equivalent shares outstanding 156,912,678 157,793,216 152,416,576
============ ============ ============
Earnings:
Net income $ 600 $ 395 $ 786
Less: Preferred stock dividend
requirements 54 65 55
------------ ------------ ------------
Earnings applicable to common shares $ 546 $ 330 $ 731
============ ============ ============
Primary earnings per share $ 3.48 $ 2.09 $ 4.80
============ ============ ============
FULLY DILUTED (1):
Common stock and common stock equivalents:
Average common shares outstanding 154,307,918 153,976,502 149,286,904
Average common shares issuable
under employee benefit plans 3,122,650 3,816,714 3,439,774
Common shares issuable upon conversion
of preferred stock 7,557,596 7,617,748 7,668,218
------------ ------------ ------------
Total average common and common
equivalent shares outstanding 164,988,164 165,410,964 160,394,896
============ ============ ============
Earnings:
Net income $ 600 $ 395 $ 786
Less: Preferred stock dividend
requirements 51 62 51
------------ ------------ ------------
Earnings applicable to common shares $ 549 $ 333 $ 735
============ ============ ============
Fully diluted earnings per share $ 3.33 $ 2.02 $ 4.58
============ ============ ============
</TABLE>
(1) All share and per share amounts have been retroactively adjusted to give
effect for a two-for-one common stock split effected in the form of a 100%
stock dividend, which became effective on January 26, 1996.
<PAGE> 1
Exhibit 12
MORGAN STANLEY GROUP INC.
RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED YEAR ENDED
NOVEMBER 30, FISCAL YEAR ENDED JANUARY 31, DECEMBER 31,
----------------------------------
1995 1995 1994 1993 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Income before income taxes $ 883 $ 594 $1,200 $ 793 $ 772
Add: Fixed charges, net 5,538 5,916 5,055 4,397 3,963
------ ------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,421 $6,510 $6,255 $5,190 $4,735
====== ====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,512 $5,899 $5,020 $4,362 $3,946
Interest factor in rents (2) 37 41 35 35 38
------ ------ ------ ------ ------
Total fixed charges $5,549 $5,940 $5,055 $4,397 $3,984
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.2 1.1 1.2 1.2 1.2
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Earnings:
Income before income taxes $ 883 $ 594 $1,200 $ 793 $ 772
Add: Fixed charges, net 5,538 5,916 5,055 4,397 3,963
------ ------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,421 $6,510 $6,255 $5,190 $4,735
====== ====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,512 $5,899 $5,020 $4,362 $3,946
Interest factor in rents (2) 37 41 35 35 38
Preferred stock dividends (3) 80 97 85 82 47
------ ------ ------ ------ ------
Total fixed charges and preferred
stock dividends $5,629 $6,037 $5,140 $4,479 $4,031
====== ====== ====== ====== ======
Ratio of earnings to fixed charges and
preferred stock dividends 1.1 1.1 1.2 1.2 1.2
</TABLE>
(1) Total interest expense for the fiscal period ended November 30, 1995, the
fiscal year ended January 31, 1995 and the year ended December 31, 1991
includes capitalized interest.
(2) Interest factor in rents represents one-third of rent expense, which is
considered representative of the interest factor.
(3) The preferred stock dividend amounts represent pre-tax earnings required to
cover dividends on preferred stock.
<PAGE> 1
Exhibit 13.1
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 13 QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995(1)
-------------------------------------------------------------------------------------------
Month Quarter Quarter Quarter
Ended Ended Ended Ended
(Dollars in Millions, Feb. 28, May 31, Aug. 31, Nov. 30,
Except Share Data) 1995 1995 1995 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Investment banking $ 80 $ 273 $ 355 $ 503
Principal transactions:
Trading 114 438 352 218
Investments -- (6) 69 39
Commissions 37 131 130 139
Interest and dividends 588 1,742 1,899 1,710
Asset management
and administration 31 88 96 95
Other 1 1 1 --
-------------------------------------------------------------------------------------------
Total revenues 851 2,667 2,902 2,704
Interest expense 558 1,656 1,751 1,536
-------------------------------------------------------------------------------------------
Net revenues 293 1,011 1,151 1,168
-------------------------------------------------------------------------------------------
Expenses excluding interest:
Compensation and benefits 138 475 575 607
Occupancy and equipment 27 80 84 85
Brokerage, clearing and
exchange fees 20 66 64 61
Communications 11 34 31 32
Business development 14 34 30 32
Professional services 14 40 37 40
Other 11 31 32 35
Relocation charge -- -- -- --
-------------------------------------------------------------------------------------------
Total expenses
excluding interest 235 760 853 892
-------------------------------------------------------------------------------------------
Income before income
taxes 58 251 298 276
Provisions for income taxes 20 85 89 89
-------------------------------------------------------------------------------------------
Net income $ 38 $ 166 $ 209 $ 187
-------------------------------------------------------------------------------------------
Earnings applicable to
common shares(2) $ 33 $ 150 $ 192 $ 171
-------------------------------------------------------------------------------------------
Per common share:(3)
Primary earnings(4) $ 0.22 $ 0.95 $ 1.23 $ 1.08
Fully diluted earnings(4) $ 0.21 $ 0.91 $ 1.17 $ 1.04
Cash dividends $ -- $ 0.16 $ 0.16 $ 0.16
Book value $ 24.13 $ 25.19 $ 26.34 $ 28.18
Average common and
equivalent shares(2)(3) 154,037,668 157,595,614 157,236,918 158,415,826
Stock price range(3)(5) $30 7/16-33 11/16 $33 1/16-39 13/16 $37 15/16-43 7/16 $41 7/8-49 3/4
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994(1)
----------------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
(Dollars in Millions, April 30, July 31, Oct. 31, Jan. 31,
Except Share Data) 1994 1994 1994 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Investment banking $ 260 $ 211 $ 190 $ 258
Principal transactions:
Trading 258 300 297 249
Investments 10 23 82 24
Commissions 119 112 104 114
Interest and dividends 1,561 1,525 1,714 1,606
Asset management
and administration 81 89 95 85
Other 3 2 3 1
----------------------------------------------------------------------------------------
Total revenues 2,292 2,262 2,485 2,337
Interest expense 1,404 1,349 1,575 1,547
----------------------------------------------------------------------------------------
Net revenues 888 913 910 790
----------------------------------------------------------------------------------------
Expenses excluding interest:
Compensation and benefits 440 460 460 373
Occupancy and equipment 68 74 79 82
Brokerage, clearing and
exchange fees 58 59 56 57
Communications 29 28 31 34
Business development 39 41 41 44
Professional services 41 39 41 43
Other 29 30 32 40
Relocation charge -- -- -- 59
----------------------------------------------------------------------------------------
Total expenses
excluding interest 704 731 740 732
----------------------------------------------------------------------------------------
Income before income
taxes 184 182 170 58
Provisions for income taxes 67 61 52 19
----------------------------------------------------------------------------------------
Net income $ 117 $ 121 $ 118 $ 39
----------------------------------------------------------------------------------------
Earnings applicable to
common shares(2) $ 101 $ 104 $ 102 $ 23
----------------------------------------------------------------------------------------
Per common share:(3)
Primary earnings(4) $ 0.64 $ 0.66 $ 0.65 $ 0.15
Fully diluted earnings(4) $ 0.61 $ 0.63 $ 0.63 $ 0.15
Cash dividends $ 0.15 $ 0.15 $ 0.15 $ 0.15
Book value $ 23.34 $ 23.76 $ 24.21 $ 24.89
Average common and
equivalent shares(2)(3) 159,657,342 159,211,010 156,708,032 155,068,008
Stock price range(3)(5) $30 7/16-39 3/4 $27 13/16-31 1/8 $29 11/16-34 7/8 $27 5/8-32 9/16
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1995's quarterly periods reflect the change in the Company's
fiscal year-end (see Note 1). Since fiscal 1995 consists of the
ten-month period from February 1, 1995 to November 30, 1995, the first
quarter consists only of the results for the month ended February 28,
1995. Fiscal 1994's quarterly periods are presented based upon the
previous fiscal year-end date.
(2) Amounts shown are used to calculate primary earnings per share.
(3) Amounts shown have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend,
which became effective on January 26, 1996.
(4) Summation of the quarters' earnings per common share does not equal the
annual amounts due to the averaging effect of the number of shares and
share equivalents throughout the year.
(5) Prices represent the range of sales per share on the New York Stock
Exchange for the periods indicated. The number of stockholders of
record at November 30, 1995 approximated 1,235. The number of
beneficial owners of common stock is believed to exceed this number.
<PAGE> 1
Exhibit 13.2
Selected Financial Data
<TABLE>
<CAPTION>
FISCAL
PERIOD ENDED
NOVEMBER 30, FISCAL Fiscal Fiscal Fiscal
1995 PERIOD ENDED Year Ended Year Ended Year Ended Year Ended
ANNUALIZED NOVEMBER 30, January 31, January 31, January 31, December 31,
(Dollars in Millions) (UNAUDITED) 1995 1995 1994 1993 1991
Except Share and Employee Data) -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT: (12 MONTHS) (10 MONTHS)
Revenues:
Investment banking $ 1,453 $ 1,211 $ 919 $ 1,238 $ 965 $ 823
Principal transactions:
Trading 1,346 1,122 1,104 1,459 953 1,320
Investments 122 102 139 158 128 19
Commissions 525 437 449 393 312 271
Interest and dividends 7,127 5,939 6,406 5,660 4,814 4,181
Asset management
and administration 372 310 350 258 200 160
Other 4 3 9 10 10 11
-------------------------------------------------------------------------------------------
Total revenues 10,949 9,124 9,376 9,176 7,382 6,785
Interest expense 6,601 5,501 5,875 5,020 4,362 3,924
-------------------------------------------------------------------------------------------
Net revenues 4,348 3,623 3,501 4,156 3,020 2,861
-------------------------------------------------------------------------------------------
Expenses excluding interest
Compensation and benefits 2,154 1,795 1,733 2,049 1,457 1,396
Other 1,134 945 1,115 907 770 693
Relocation charge -- -- 59 -- -- --
-------------------------------------------------------------------------------------------
Total expenses excluding
interest 3,288 2,740 2,907 2,956 2,227 2,089
-------------------------------------------------------------------------------------------
Income before income taxes 1,060 883 594 1,200 793 772
Provision for income taxes 340 283 199 414 283 297
-------------------------------------------------------------------------------------------
Net income $ 720 $ 600 $ 395 $ 786 $ 510 $ 475
-------------------------------------------------------------------------------------------
Earnings applicable to
common shares $ 655 $ 546 $ 330 $ 731 $ 461 $ 447
-------------------------------------------------------------------------------------------
BALANCE SHEET:
Total assets $143,753 $143,753 $116,694 $ 97,242 $ 80,353 $ 63,709
Total capital: $ 14,345 $ 14,345 $ 12,057 $ 9,813 $ 6,570 $ 5,422
Stockholders' equity $ 5,174 $ 5,174 $ 4,555 $ 4,469 $ 3,434 $ 2,994
Long-term borrowings $ 9,171 $ 9,171 $ 7,502 $ 5,344 $ 3,136 $ 2,428
Average common and
equivalent shares 156,912,678 156,912,678 157,793,216 152,416,576 156,247,600 150,794,762
PER COMMON SHARE:(3)
Primary earnings $ 4.18 $ 3.48 $ 2.09 $ 4.80 $ 2.95 $ 2.97
Fully diluted earnings $ 4.00 $ 3.33 $ 2.02 $ 4.58 $ 2.86 $ 2.81
Cash dividends $ 0.64(4) $ 0.48 $ 0.60 $ 0.54 $ 0.478 $ 0.398
Book value $ 28.18 $ 28.18 $ 24.89 $ 23.07 $ 18.36 $ 15.39
OTHER DATA:
Return on average
common equity 16.2% $ 16.2%(5) $ 8.8% 23.7% 17.6% 21.4%
Income tax rate 32.0% 32.0% 33.5% 34.5% 35.7% 38.5%
Pre-tax margin 24.4% 24.4% 17.0% 28.9% 26.3% 27.0%
Number of employees 9,238 9,238 9,685 8,273 7,421 7,053
CHANGE FROM PRIOR YEAR:
Net revenues 24.2% 3.5% (15.8%) 37.6% 5.6% 32.5%
Net income 82.3% 51.9% (49.7%) 54.1% 7.4% 75.7%
Common stockholders'
equity 15.9% 15.9% 2.1% 28.3% 22.3% 25.3%
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share
(2) Amounts exclude current portion of long-term borrowings
(3) All share and per share amounts have been retroactively adjusted to
give effect for a two-for-one common stock split, effected in the form
of a 100% stock dividend which became effective on January 26, 1996
(4) Quarterly dividend annualized
(5) Return on average common equity for fiscal period ended November 30,
1995 has been annualized
- --------------------------------------------------------------------------------
FISCAL 1995 WAS A TEN-MONTH PERIOD RESULTING FROM THE CHANGE IN MORGAN
STANLEY'S FISCAL YEAR-END FROM JANUARY 31 TO NOVEMBER 30. THE INFORMATION
PRESENTED FOR "FISCAL PERIOD ENDED NOVEMBER 30, 1995 ANNUALIZED" IS INTENDED TO
FACILITATE MORE MEANINGFUL COMPARISON WITH THE FULL YEAR OPERATING RESULTS OF
PRIOR YEARS.
- --------------------------------------------------------------------------------
<PAGE> 1
Page 26
Exhibit 13.3
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS*
RESULTS OF OPERATIONS
The Company's business, particularly its involvement in primary and secondary
markets for all types of financial products, including derivatives, is subject
to substantial positive and negative fluctuations due to a variety of factors
that cannot be predicted with great certainty, including variations in the fair
value of securities and other financial products, the volatility and liquidity
of trading markets, and the level of market activity. As a result, net income
and revenues in any particular period may not be representative of full-year
results and may vary significantly from year to year and from quarter to
quarter. In addition, results of operations in the past have been and in the
future may continue to be materially affected by many factors of a national and
international nature, including economic and market conditions; the availability
of capital; the level and volatility of interest rates; currency values and
other market indices; the availability of credit; inflation; and legislative and
regulatory developments, as well as the size, number and timing of transactions
or assignments (including realization of returns from the Company's principal
and merchant banking investments). In addition, such factors also may have an
impact on the Company's ability to achieve its strategic objectives, including
(without limitation) profitable global expansion. The Company's results of
operations also may be materially affected by competitive factors, including new
entrants into the Company's traditional business activities and its ability to
attract and retain highly skilled individuals and by the ability to
cost-effectively develop and maintain the technology necessary to support its
trading, clearing and risk management systems.
After experiencing a difficult year in 1994, characterized by a
significant decline in client activity, including decreased levels of worldwide
debt and equity underwriting, the global securities industry benefited from
improved market conditions in 1995. Slower economic growth, lower interest
rates, improvements in productivity and expanding corporate profit margins
propelled the U.S. equity markets to record levels. Additionally, low inflation,
coupled with slower economic growth, sent bond prices surging and bond yields to
their lowest point in nearly two years. Favorable conditions created by rising
stock prices and falling interest rates continued through most of 1995,
resulting in improved investment banking conditions.
In addition, the Company benefited from a number of strategic investments
in its businesses made in 1994, including investments in human and technological
resources. The Company's expansion internationally continued to be productive,
evidenced by the fact that approximately 50% of the Company's fiscal 1995 income
before taxes was derived from non-U.S. locations. The Company's continued focus
on cost-containment initiatives also contributed to its positive 1995 results as
business development, professional service expenses and other expenses were
reduced by approximately 9%, on an annualized basis. The Company's return on
equity for fiscal 1995 (16.2% on an annualized basis) reflects, in part, returns
on strategic investments as well as some progress with cost-containment
initiatives.
As the financial services industry continues to consolidate on a global
basis, the Company continues to be committed to a long-term strategy of
expanding and enhancing its franchise and presence. In January 1996, the Company
completed its purchase of Miller Anderson & Sherrerd, LLP ("MAS"), a premier
Philadelphia-based institutional investment management firm, to support the
Company's long-term strategic goal of expanding recurring fee-based businesses.
Although the Company's 1995 results recovered from the depressed levels of
1994, maintaining business activity in areas such as mergers and acquisitions
and product profit margins as well as cost control, the results of risk
management and effective resource allocation will continue to affect the overall
financial results of the Company.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its merchant banking and other principal
investment activities, and its high-yield underwriting and trading policies, and
their respective risks, see Part I, Item I, of the Company's Annual Report on
Form 10-K for the fiscal period ended November 30, 1995 ("Form 10-K").
- --------------------------------------------------------------------------------
* Except for the historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that discuss the risks and uncertainties
involved in the Company's business, including (without limitation) the risks and
uncertainties set forth herein.
<PAGE> 2
Page 27
- --------------------------------------------------------------------------------
MORGAN STANLEY 1995 ANNUAL REPORT
In February 1995, the Board of Directors approved a change in the
Company's fiscal year-end from January 31 to November 30, effective for the
current fiscal period. The discussion which follows compares the results of
operations for fiscal 1995 (the ten-month period from February 1, 1995 to
November 30, 1995) with those for fiscal 1994 (the twelve-month period from
February 1, 1994 to January 31, 1995). Since fiscal 1995 consists of a ten-month
reporting period, results of operations for this period are not directly
comparable with the financial results of prior fiscal years.
FISCAL 1995 COMPARED WITH FISCAL 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
REVENUES AND EARNINGS
- ---------------------------------------------------------------------------------------
FISCAL 1995 Fiscal 1994
(10 MONTHS (12 Months
ENDED Ended
(Dollars in Millions) NOV. 30, 1995) Jan. 31, 1995)
-------------------------------
<S> <C> <C>
Total revenues $9,124 $9,376
Net revenues (total revenues less interest expense) $3,623 $3,501
Total expenses excluding interest $2,740 $2,907
Income before taxes $ 883 $ 594
Net income $ 600 $ 395
- ---------------------------------------------------------------------------------------
</TABLE>
The Company's fiscal 1995 revenues and earnings reflect a strong global
market for mergers and acquisitions, improved sales and trading results
primarily driven by increased customer trading volume, and a reduction in
business development and professional services expenses resulting from the
Company's cost-control initiatives. These results were partially offset by
increased costs for incentive-based compensation and occupancy and equipment
expenses related to the Company's relocation to its New York headquarters at
1585 Broadway.
The Company's fiscal 1995 effective income tax rate of 32% was below its
fiscal 1994 and fiscal 1993 rates of 33.5% and 34.5%, respectively, reflecting,
in part, a more favorable mix of earnings in lower tax rate jurisdictions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
INVESTMENT BANKING REVENUES
- ------------------------------------------------------------------------------
FISCAL 1995 Fiscal 1994
(10 MONTHS (12 Months
ENDED Ended
(Dollars in Millions) NOV. 30, 1995) Jan. 31, 1995)
--------------------------------
<S> <C> <C>
Debt underwriting revenues $ 364 $176
Equity underwriting revenues 371 364
Advisory fees from merger, acquisition
and restructuring transactions 476 379
--------------------------------
Total investment banking revenues $1,211 $919
- ------------------------------------------------------------------------------
</TABLE>
Investment banking revenues increased due to significantly higher levels
of merger and acquisition revenues and increased debt and equity underwriting
revenues, reflecting a higher level of debt and equity financing activity as
well as a stronger market share resulting from strategic investments made in
personnel during 1994 to strengthen client service capabilities.
<PAGE> 3
Page 28
- --------------------------------------------------------------------------------
FISCAL 1995 COMPARED WITH FISCAL 1994
(CONTINUED)
Financial advisory fees from merger, acquisition and restructuring
transactions, areas in which the Company maintains a strong global franchise,
benefited from an active worldwide market. The increase in advisory revenues was
due in part to the broad range of strategic advisory services provided to
clients in many of the year's most active industry sectors, including banking
and other financial services, media, telecommunications, health care and
technology.
Equity financing activity was positively affected by favorable market
conditions in both the U.S. and Europe, which included continued strong demand
for initial public offerings, increased corporate restructurings, diminished
concerns about inflation and lower interest rates. The Company increased its
market share for worldwide equity underwriting and lead-managed a number of
innovative and notable transactions.
The increase in debt financing activity reflected favorable market
conditions and a more stable interest rate environment as the Federal Reserve
Board held short-term interest rates constant in the first half of the year and
subsequently reduced short-term interest rates in July as economic growth and
inflation remained stable. Debt underwriting generated primary revenues from
fixed income derivative products of $101 million as compared with $61 million in
fiscal 1994, resulting from increased financing activity by corporations and
sovereign governments, coupled with increased investor demand for structured
investments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SECONDARY REVENUES
- --------------------------------------------------------------------------
FISCAL 1995 Fiscal 1994
(10 MONTHS (12 Months
ENDED Ended
(Dollars in Millions) NOV. 30, 1995) Jan. 31, 1995)
----------------------------------
<S> <C> <C>
Principal trading revenues:
Equities $ 409 $ 510
Fixed income 489 347
Foreign exchange 156 148
Commodities 68 99
----------------------------------
Total principal trading revenues 1,122 1,104
Commissions revenues 419 414
Net interest revenues 396 368
----------------------------------
Total secondary revenues $1,937 $1,886
- --------------------------------------------------------------------------
</TABLE>
Secondary revenues (combined principal trading and trading-related
commissions and net interest revenues) and principal trading revenues, including
from derivatives, both improved. The increase in secondary revenues primarily
reflected improved revenues from trading in equity and fixed income products.
For a discussion of the Company's derivative trading activities, see "Derivative
Financial Instruments" herein.
Equity trading revenues, which reached record levels in fiscal 1994,
remained strong, reflecting increased customer-driven activity as most major
global equity markets rallied, positively impacting revenues from virtually all
types of cash and derivative products. Options and futures benefited from
relatively higher volatilities and increased trading volumes.
Fixed income trading revenues were positively affected by increased
trading volumes as investors returned to the fixed income markets after 1994's
difficult trading environment. The Company's global corporate, emerging market
and high-yield activities produced substantially higher revenue levels as
conditions stabilized globally, including Mexico and the emerging markets.
Revenues from foreign exchange trading improved, primarily attributable to
periods of increased volatility in the first half of 1995, most notably in U.S.
dollar/deutsche
<PAGE> 4
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MORGAN STANLEY 1995 ANNUAL REPORT
mark and U.S. dollar/yen, as well as the subsequent strengthening of the U.S.
dollar versus the yen and the deutsche mark during the latter half of 1995.
Revenues from commodities trading declined, resulting from difficult
market conditions in most energy-related products.
Principal transaction investment revenues aggregating $102 million were
recognized in fiscal 1995 as compared with $139 million in fiscal 1994,
including revenues related to the increase in the carrying value of the
Company's merchant banking investment in Southern Pacific Rail Corporation and
several real estate investments.
Commission revenues strengthened, primarily reflecting higher levels of
activity throughout the ten-month period as market participation by investors
increased. Additionally, increased primary equity activity contributed toward
higher volumes in secondary markets.
Interest and dividend revenues and expense are a function of the level and
mix of total assets, including financial instruments owned and resale and
repurchase agreements, and the prevailing level, term structure and volatility
of interest rates. In fiscal 1995, the continuing effect of a flat yield curve
in the U.S. had a negative impact on the Company's net interest and dividend
revenues. Interest and dividend revenues and expense should be viewed in the
broader context of principal trading results. Decisions relating to principal
transactions in securities are based on an overall review of aggregate revenues
and costs associated with each transaction or series of transactions. This
review includes an assessment of the potential gain or loss associated with a
trade, the interest income or expense associated with financing or hedging the
Company's positions, and potential underwriting, commission or other revenues
associated with related primary or secondary market sales.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSET MANAGEMENT AND ADMINISTRATION
- ------------------------------------------------------------------------------------------------
FISCAL 1995 Fiscal 1994
(10 MONTHS (12 Months
ENDED Ended
(Dollars in Millions) NOV. 30, 1995) Jan. 31, 1995)
--------------------------------
<S> <C> <C>
Asset management and administration revenues $310 $350
- ------------------------------------------------------------------------------------------------
(Dollars in Billions)
Customer assets under management (at fiscal year-ends) $ 55 $ 49
--------------------------------
Customer assets under administration (at fiscal year-ends) $111 $ 90
- ------------------------------------------------------------------------------------------------
</TABLE>
Asset management and administration revenues, which include fees for asset
management and non-interest revenues earned from correspondent clearing and
custody services, reflected growth in both asset management activities and
global clearing and custody services resulting from the Company's continuing
strategic emphasis on these businesses. Customer assets under management
increased, reflecting appreciation in the value of customer portfolios,
particularly in equity funds, as well as continued growth in international and
emerging market funds. Customer assets under administration increased, primarily
reflecting additional assets placed under custody with the Company, as well as
appreciation in the value of customer portfolios.
Subsequent to November 30, 1995, the Company completed its purchase of
MAS, an institutional investment manager with a domestic focus. The purchase
price was approximately $350 million, payable in a combination of cash, notes
and stock of the Company. On a pro forma basis, the combination of MAS with the
Company's asset management business would have increased the Company's assets
under management at November 30, 1995 to approximately $90 billion.
<PAGE> 5
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- --------------------------------------------------------------------------------
FISCAL 1995 COMPARED WITH FISCAL 1994
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Expenses Excluding Interest
- -----------------------------------------------------------------------------------------------------------------
(Dollars in Millions) (Dollars in Thousands)
- ----------------------------------------------------------------------------- ---------------------------------
FISCAL 1995 Fiscal 1994
FISCAL 1995 Fiscal 1994 (10 MONTHS (12 Months
(10 MONTHS (12 Months ENDED Ended
ENDED Ended NOV. 30, 1995) Jan. 31, 1995)
--------------------------------
NOV. 30, 1995) Jan. 31, 1995) PER EMPLOYEE Per Employee
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation and benefits $1,795 $1,733 $194 $179
Occupancy and equipment 276 303 30 31
Brokerage, clearing and
exchange fees 211 230 23 24
Communications 108 122 12 13
Business development 110 165 12 17
Professional services 131 164 14 17
Other 109 131 12 14
Relocation charge -- 59 -- 5
------------------------------------------------------------------------
Total expenses excluding interest $2,740 $2,907 $297 $300
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal 1995's total non-interest expenses decreased from prior-year
levels, primarily due to the Company's change in fiscal year-end, resulting in a
ten-month fiscal period. For a more meaningful comparison with non-interest
expense of prior fiscal years, fiscal 1995 non-interest expenses are discussed
below on an annualized basis. Total non-interest expenses increased in fiscal
1995 on an annualized basis. Within that category, employee compensation and
benefits expense increased, reflecting increased levels of incentive
compensation based on higher revenues and earnings, as well as the annualized
impact of salaries and benefits relating to additional personnel hired during
1994. Excluding fiscal 1994's non-recurring relocation charge discussed below,
other non-interest expenses increased marginally on an annualized basis.
Occupancy and equipment expenses increased $28 million on an annualized basis,
principally reflecting costs associated with the Company's New York relocation.
Brokerage, clearing and exchange fees increased $23 million on an annualized
basis, reflecting increased trade volumes, both domestically and in Europe,
business mix changes and the continued growth in the international component of
the Company's sales and trading activities. These increases in non-interest
expenses on an annualized basis were substantially offset, however, as business
development and professional service expenses decreased $40 million on an
annualized basis, reflecting significantly lower recruiting and travel costs
directly related to the Company's cost-containment initiatives.
Fourth quarter fiscal 1994 expenses include a pre-tax relocation charge of
$59 million relating to the Company's decision to vacate much of its New York
City office space at 1251 Avenue of the Americas and to relocate staff formerly
occupying that space to a new headquarters building at 1585 Broadway. The charge
includes both the remaining post-move lease commitment (expiring in 1998) and
the write-off of the remaining net book value of improvements at the old site.
The relocation charge also includes similar charges relating to the Company's
move of its Tokyo office to newly leased space in 1996; the Tokyo-related
provision consists largely of the write-off of improvements and restoration
costs for the space being vacated. As of November 30, 1995, approximately $33
million of costs relating to the relocation charge have yet to be expended.
<PAGE> 6
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MORGAN STANLEY 1995 ANNUAL REPORT
FISCAL 1994 COMPARED WITH FISCAL 1993
The Company's fiscal 1994 revenues and earnings reflect an industry-wide decline
in client activity, particularly in fixed income products, driven by rising
interest rates and inflation concerns. Amounts for fiscal 1993 are given in
parentheses.
Revenues net of interest expense (net revenues) declined 16% to $3,501
million ($4,156 million), and net income totaled $395 million ($786 million), a
decline of 50%, reflecting non-interest expenses which generally remained at
prior-year levels despite the decline in revenues.
Investment banking revenues decreased 26% to $919 million ($1,238
million), reflecting significantly reduced revenues from debt financing
activity, which were partially offset by increased revenues from merger,
acquisition and restructuring assignments.
The decline in debt financing activity reflected a significant change in
fixed income market conditions in 1994. Higher interest rates, started by the
Federal Reserve Board's early 1994 decision to raise short-term interest rates
in an attempt to curb U.S. inflation and moderate economic growth, discouraged
clients from raising additional capital in the debt market throughout 1994. As
the volume of new issues fell, the market for debt underwriting became
increasingly competitive. Aggregate revenues from debt underwriting fell 69% to
$176 million ($560 million). Within this category, primary revenues generated
from fixed income derivative products decreased to $61 million ($193 million),
resulting from the overall lower level of debt underwriting volume (which
typically is an integral component of primary structured product activity),
coupled with a decrease in investor interest.
Although equity financing activity also was negatively impacted by
difficult market conditions, the Company increased its market share for
worldwide equity underwriting and lead-managed a number of the year's largest
transactions for U.S. issuers. Therefore, despite significant deterioration in
the markets for new equity issues, the Company's revenues from equity
underwriting fell only modestly to $364 million ($380 million).
Financial advisory fees from merger, acquisition and restructuring
transactions benefited from a significant industry-wide increase in corporate
restructuring activity. The Company maintained its strong market position in
this activity as revenues from advisory assignments rose 27% to $379 million
($298 million).
Secondary revenues (combined principal trading, commissions and net
interest revenues) decreased 16% to $2,084 million ($2,492 million). Principal
transaction revenues from trading activities, including derivatives, fell 24% to
$1,104 million ($1,459 million), reflecting substantially lower revenues from
trading in fixed income products.
Equity trading revenues rose 25% to $510 million ($407 million),
reflecting strong client-driven revenues arising from a wide range of cash and
structured equity products in the international markets in which the Company
operates.
Fixed income trading revenues, which declined 56% to $347 million ($788
million), were adversely affected by reduced client activity driven by the
difficult market conditions discussed above. Uncertainty over the direction of
interest rates and a reduced flow of new issues into the secondary markets
coupled with downward pressure on prices discouraged client-driven sales and
trading activity. In December 1994 and January 1995, the devaluation of the
Mexican peso and concerns over Russia's economy created very difficult
conditions in emerging markets. This resulted in lower revenue levels in the
Company's global corporate, emerging market and high-yield activities. U.S.
government debt, foreign sovereign debt, and interest rate and currency
swap-trading activities were not as adversely impacted and therefore comprised a
more significant percentage of fixed income trading revenues in 1994.
Revenues from foreign exchange trading declined 28% to $148 million ($205
million), largely due to reduced client activity and lower market volatility, as
well as a weakening in the U.S. dollar relative to other major currencies.
Revenues from commodities trading rose 68% to $99 million ($59 million),
benefiting from a favorable trading environment in precious metals, energy and
agricultural products during the first half of 1994.
Principal transaction investment revenues aggregating $139 million were
recognized in fiscal 1994 ($158 million), including revenues related to sales of
the Company's investments in equity securities of Agricultural Minerals and
Chemicals Inc. and Coltec Industries.
<PAGE> 7
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- --------------------------------------------------------------------------------
FISCAL 1994 COMPARED WITH FISCAL 1993
(CONTINUED)
Commission revenues increased 14% to $449 million ($393 million),
principally reflecting increased customer activity in the global markets for
equity securities as well as customer activity in new markets, such as Latin
America and Southeast Asia. Note that customer activity results in principal
trading and interest revenues as well as commissions.
Net interest and dividend revenues decreased 17% to $531 million ($640
million), primarily resulting from a substantial flattening of the U.S. yield
curve as short-term rates rose faster than long-term rates throughout much of
1994. The resulting decline in interest rate spreads adversely affected the
profitability of the Company's spread-sensitive businesses, and the flatter
yield curve substantially reduced the savings from the Company's use of swaps to
effectively convert much of its fixed rate debt to floating rate debt (see Note
3 to the Consolidated Financial Statements). Interest and dividend revenues rose
13% to $6,406 million ($5,660 million), and interest expense increased 17% to
$5,875 million ($5,020 million), principally reflecting growth in
interest-bearing assets and liabilities. As noted above in the comparison of
fiscal 1995 with fiscal 1994, interest and dividend revenues and expense reflect
principal trading strategies and should be viewed in the broader context of
principal trading and investment banking results.
Asset management and administration revenues increased 36% to $350 million
($258 million), reflecting growth in both asset management activities and global
clearing and custody services resulting from the Company's strategic emphasis on
these businesses. Customer assets under management increased 4% to $49 billion
($47 billion), reflecting continued growth in international and emerging market
funds. Customer assets under administration increased 25% to $90 billion ($72
billion), primarily reflecting additional assets placed under custody with the
Company.
Despite a 17% year-over-year strategically planned increase in the number
of employees (from 8,273 at January 31, 1994 to 9,685 at January 31, 1995),
total non-interest expenses fell marginally, to $2,907 million ($2,956 million).
Within that total, employee compensation and benefits expense decreased 15% to
$1,733 million ($2,049 million), due in part to reduced levels of incentive
compensation based on lower revenues and earnings. Other non-interest expenses,
excluding the $59 million non-recurring relocation charge, increased 23% to
$1,115 million ($907 million). Business development and professional service
expenses increased $75 million, reflecting significantly increased recruiting
and travel costs directly related to the strategic growth of the Company's
business in existing markets and global expansion into new markets. Occupancy
and equipment expenses increased $55 million, reflecting incremental space costs
related to growth in the number of employees and global expansion, as well as
significantly greater spending for technology equipment. Brokerage, clearing and
exchange fees increased $34 million, reflecting increased trade volumes,
business mix changes and the growing international component of the Company's
sales and trading activities.
LIQUIDITY AND CAPITAL RESOURCES
THE BALANCE SHEET
The Company's total assets increased from $116.7 billion at January 31, 1995 to
$143.8 billion at November 30, 1995, primarily reflecting growth in financial
instruments owned, resale and repurchase agreements, and securities borrowed.
The growth is primarily attributable to the Company's fixed income activities,
most notably U.S. government securities and reverse repurchase agreements used
in both financing activities and in the Company's matched book activities.
Corporate equities inventory increased due to continued client demand for such
securities. Securities borrowed also rose during 1995, reflecting an increase in
collateralized lending to facilitate customer activity. A substantial portion of
the Company's total assets consists of highly liquid marketable securities and
short-term receivables arising principally from securities transactions. The
highly liquid nature of these assets provides the Company with flexibility in
financing and managing its business. Balance sheet leverage ratios are often
<PAGE> 8
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MORGAN STANLEY 1995 ANNUAL REPORT
reviewed by counterparties and creditors in order to evaluate a securities
firm's overall financial risk. Details of ending assets, month-end average
assets and leverage ratios for fiscal 1995 and fiscal 1994 are as follows:
[One Pie Chart--See EDGAR Appendix]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994
------------------------------ -----------------------------
Assets at Average Assets at Average
November 30, Assets for January 31, Assets for
(Dollars in Millions) 1995 Fiscal 1995 1995 Fiscal 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, deposits and receivables $ 10,286 $ 12,690 $ 12,104 $ 14,299
Financial instruments owned 58,600 52,387 47,109 49,236
Securities purchased under
agreements to resell and
securities borrowed 72,955 66,539 55,955 64,921
Property, equipment and
leasehold improvements
and other assets 1,912 1,725 1,526 1,626
------------------------------------------------------------------
Total assets $143,753 $133,341 $116,694 $130,082
------------------------------------------------------------------
Leverage ratios:
Total assets/equity 27.8x 27.8x 25.6x 29.0x
Net assets(1)/equity 18.9x 18.6x 17.7x 19.4x
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net assets represent total assets less the lower of securities purchased
under agreements to resell or securities sold under agreements to
repurchase.
FUNDING AND CAPITAL POLICIES
The Company's Finance and Risk Committee, which includes senior officers from
each of the major capital commitment areas, among other things, establishes the
overall funding and capital policies of the Company, reviews the Company's
performance relative to these policies, allocates capital among business
activities of the Company, monitors the availability of sources of financing,
reviews the foreign exchange risk of the Company, and oversees the liquidity and
interest rate sensitivity of the Company's asset and liability position. See
also "Risk Management" herein. The primary goal of the Company's funding and
liquidity
<PAGE> 9
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- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
activities is to ensure the stability of the Company's funding base and provide
adequate financing sources over a wide range of potential credit ratings and
market environments.
Many of the Company's businesses are capital-intensive. Capital is
required to finance, among other things, the Company's securities inventories,
underwriting, principal investments, merchant banking activities and investments
in fixed assets. As a policy, the Company attempts to maintain sufficient
capital and funding sources in order to have the capacity to finance itself on a
fully collateralized basis at all times, including periods of financial stress.
Currently, the Company believes that it has sufficient capital to meet its
needs. In addition, the Company attempts to maintain total equity, on a
consolidated basis, at least equal to the sum of all its subsidiaries' equity.
Subsidiary equity capital requirements are determined by regulatory
requirements, asset mix, leverage considerations and earnings volatility.
The Company actively manages its consolidated capital position based upon,
among other things, business opportunities, capital availability and rates of
return together with internal capital policies, regulatory requirements and
rating agency guidelines and therefore may, in the future, expand or contract
its capital base to address the changing needs of its businesses. The Company
returns internally generated equity capital which is in excess of the needs of
its businesses through common stock repurchases and dividends.
The Company funds its balance sheet on a global basis. The Company's
funding needs are satisfied from capital, including equity and long-term debt;
medium-term notes; internally generated funds; repurchase agreements; U.S.,
Canadian, French and Euro commercial paper; letters of credit; unsecured bond
borrows; German Schuldschein loans; securities lending; buy/sell agreements;
municipal reinvestments; master notes; deposits; and committed and uncommitted
lines of credit. All repurchase transactions and a portion of the Company's bank
borrowings and securities lending are made on a collateralized basis.
The Company practices a funding strategy which is designed to ensure that
the tenor of the Company's liabilities equals or exceeds the expected holding
period of the assets being financed. Short-term funding generally is obtained at
rates related to U.S., Euro or Asian money market rates for the currency
borrowed. Repurchase transactions are effected at negotiated rates. Other
borrowing costs are negotiated depending upon prevailing market conditions (see
Note 2 to the Consolidated Financial Statements).
The Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others from which it draws funds in a
variety of currencies. The volume of the Company's borrowings generally
fluctuates in response to changes in the amount of resale transactions
outstanding, the level of the Company's securities inventories and overall
market conditions. Availability and cost of financing to the Company can vary
depending upon market conditions, the volume of certain trading activities, the
Company's credit ratings and overall availability of credit to the securities
industry. Pursuant to its liquidity policy, the Company attempts to maintain
cash and unhypothecated marketable securities equal to at least 110% of its
outstanding short-term unsecured borrowings. In addition, the Company has in
place a contingency funding strategy which provides a comprehensive one-year
action plan in the event of a severe funding disruption; the plan is updated
annually.
The Company continually seeks to expand its global secured borrowing
capacity. In support of this strategy, Morgan Stanley & Co. Incorporated
("MS&Co."), the Company's U.S. broker-dealer subsidiary, maintains a master
collateral facility. This facility enables MS&Co. to pledge certain collateral
to secure loan arrangements, letters of credit and other financial
accommodations. Morgan Stanley & Co. International Limited ("MSIL"), the
Company's U.K. broker-dealer subsidiary, can secure committed funding from a
syndicate of banks by providing a broad range of collateral under repurchase
agreements.
The Company views long-term debt as a stable source of funding for core
inventories and illiquid assets and therefore maintains a long-term
debt-to-capitalization ratio of at least 60% based upon the current composition
of its balance sheet. In general, fixed assets are financed with fixed rate
long-term debt, and inventories and all current assets are financed with a
combination of short-term funding, floating rate long-term debt, or fixed rate
debt swapped to a floating basis. The Company uses derivative products
(primarily interest rate and currency swaps) to assist in asset
<PAGE> 10
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MORGAN STANLEY 1995 ANNUAL REPORT
and liability management and to reduce borrowing costs (see Note 3 to the
Consolidated Financial Statements).
The Company's reliance on external sources to finance a significant
portion of its day-to-day operations makes access to global sources of financing
important. The cost and availability of financing is generally dependent on the
Company's short-term and long-term debt ratings. In addition, the Company's debt
ratings can have a significant impact on certain trading revenues, particularly
in those businesses where longer term counterparty performance is critical, such
as over-the-counter derivative transactions. The Company's short-term and
long-term senior debt ratings as of January 31, 1996 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short-Term Long-Term
Agency Rating Rating
- --------------------------------------------------------------------------------
<S> <C> <C>
Moody's Investor's Services P1 A1
Standard & Poor's A1+ A+
IBCA A1+ AA-
Thomson BankWatch TBW1 AA
Dominion Bond Rating Service (1) R1 (Middle) n/a
- --------------------------------------------------------------------------------
</TABLE>
(1) Dominion Bond Rating Service rates the Company's Canadian commercial paper
program.
On November 13, 1995, Standard & Poor's Corporation ("S&P") affirmed the
short- and long-term ratings of the Company. In addition, noting the improved
conditions in the securities industry, the Company's diversified lines of
business, global market position and ability to control expenses, S&P revised
the long-term rating outlook for the Company from negative to stable.
As the Company continues its global expansion and as revenues are
increasingly derived from various currencies, foreign currency management is a
key element of the Company's financial policies. The Company benefits from
operating in a number of different currencies because weakness in any particular
currency is often offset by strength in another currency. The Company closely
monitors its exposure to fluctuations in currencies and, where cost-justified,
adopts strategies to reduce the impact of these fluctuations on the Company's
financial performance. These strategies include engaging in various hedging
activities to manage income and cash flows denominated in foreign currencies and
using foreign currency borrowings, when appropriate, to finance investments
outside the U.S.
FISCAL 1995 AND SUBSEQUENT ACTIVITY
During the fiscal year ended November 30, 1995, the Company took several steps
to extend the maturity of its liabilities, reduce its reliance on unsecured
short-term funding and increase its capital. These steps resulted in a net
increase in capital of $2,288 million to $14,345 million at November 30, 1995.
The additions to capital included net issuances of senior notes and subordinated
debt aggregating $1,720 million (including the Notes described below). As of
November 30, 1995, the aggregate outstanding principal amount of the Company's
Senior Indebtedness (as defined in the Company's public debt shelf registration
statements) was approximately $18.5 billion. The Company filed a shelf
registration statement which became effective in March 1995 for up to $4 billion
of additional debt securities, warrants to purchase debt securities, preferred
stock and depositary shares.
In fiscal 1995, MS&Co. issued approximately $263 million of Series C, $96
million of Series D, $82 million of Series E and $25 million of Series F
subordinated notes due in 2001, 2003, 2006 and 2016, respectively (collectively,
the "Notes"), to a group of institutional investors. The Notes have been
structured to qualify as regulatory capital for purposes of the net capital rule
of the Securities and Exchange Commission. In December 1995, an additional $50
million of Series C notes was issued.
In fiscal 1995, the Company and Morgan Stanley Finance plc, a U.K.
subsidiary ("MS plc"), issued 9.00%, 8.40% and 8.20% Capital Units in an
aggregate amount of approximately $513 million. Each Capital Unit consists of
(a) a Subordinated Debenture of MS plc guaranteed by the Company, and (b) a
related Purchase Contract
<PAGE> 11
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- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
issued by the Company requiring the holder to purchase one Depositary Share
representing ownership of a 1/8 interest in a share of the Company's 9.00%,
8.40% and 8.20% Cumulative Preferred Stock, respectively.
Between November 30, 1995 and January 31, 1996, additional debt
obligations (all of which were senior notes) aggregating approximately $524
million were issued. These notes have a weighted average coupon rate of 5.8% and
maturities from 1997 to 2011.
The Company maintains a senior revolving credit agreement with a group of
banks. Under the terms of the credit agreement, the banks are committed to
provide up to $2.5 billion for up to 364 days. Any loans outstanding on the
commitment termination date will mature on the first anniversary of the
commitment termination date.
The Company also maintains a master collateral facility that enables
MS&Co. to pledge certain collateral to secure loan arrangements, letters of
credit and other financial accommodations. As part of this facility, MS&Co. also
maintains a secured committed credit agreement with a group of banks that are
parties to the master collateral facility under which such banks are committed
to provide up to $1 billion for up to 364 days. Any loans outstanding on the
commitment termination date will mature on the first anniversary of the
commitment termination date. Subsequent to November 30, 1995, the credit
agreement was renewed with the commitment increased to $1.25 billion.
Subsequent to November 30, 1995, the Company established a revolving
committed financing facility that enables MSIL to secure committed funding from
a syndicate of banks by providing a broad range of collateral under repurchase
agreements. Such banks are committed to provide up to an aggregate of $1.25
billion available in twelve major currencies for up to 364 days. Any amounts
outstanding on the commitment termination date may, at MSIL's option, be
extended to mature on or before the first anniversary of the commitment
termination date.
There were no borrowings outstanding under any of the foregoing credit,
collateral or committed financing facilities at November 30, 1995; however, the
Company anticipates utilizing these facilities for short-term funding from time
to time (see Note 2 to the Consolidated Financial Statements).
During the fiscal year ended November 30, 1995, the Company repurchased
shares of its common stock at an aggregate cost of $103 million. On January 4,
1996, the Board of Directors authorized the purchase, in the open market or
otherwise, subject to market conditions and certain other factors, of an
additional $400 million of the Company's common stock. Common stock repurchases
between November 30, 1995 and January 31, 1996 aggregated $303 million; the
unused portion of its stock repurchase authorization at such date was
approximately $310 million. The Company also issued shares of common stock
pursuant to employee compensation plans (see Note 8 to the Consolidated
Financial Statements).
Certain assets of the Company, such as real property, equipment, leasehold
improvements, certain equity investments made in connection with the Company's
merchant banking and other principal investment activities, high-yield debt
securities, emerging market debt, and certain collateralized mortgage
obligations and mortgage-related loan products, are not highly liquid. In
connection with its merchant banking and other principal investment activities,
the Company has equity investments (directly or indirectly through funds managed
by the Company) in privately and publicly held companies. As of November 30,
1995, the aggregate carrying value of the Company's equity investments in
privately held companies (including direct investments and partnership
interests) was $156 million, and its aggregate investment in publicly held
companies was $242 million.
In its capacity as an underwriter of and as a market-maker in
mortgage-backed securities, collateralized mortgage obligations and related
instruments, and as a market-maker in commercial, residential and real estate
loan products, the Company takes positions in market segments where liquidity
can vary greatly from time to time. The carrying value of such financial
instruments traded in markets currently experiencing lower levels of liquidity
approximated $1,169 million at November 30, 1995.
In addition, at November 30, 1995, the aggregate value of high-yield debt
securities and emerging market loans and securitized instruments held in
inventory was
<PAGE> 12
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MORGAN STANLEY 1995 ANNUAL REPORT
$1,264 million (a substantial portion of which was subordinated debt) with not
more than 7%, 12% and 9% of all such securities, loans and instruments
attributable to any one issuer, industry or geographic region, respectively.
Non-investment grade securities generally involve greater risk than investment
grade securities due to the lower credit ratings of the issuers, which typically
have relatively high levels of indebtedness and are, therefore, more sensitive
to adverse economic conditions. In addition, the market for non-investment grade
securities and emerging market loans and securitized instruments has been, and
may in the future be, characterized by periods of volatility and illiquidity.
The Company has in place credit and other risk policies and procedures to
control total inventory positions and risk concentrations for non-investment
grade securities and emerging market loans and securitized instruments.
The Company also has commitments to fund certain fixed assets and other
less liquid investments, including at November 30, 1995 approximately $209
million in connection with its merchant banking and other principal investment
activities, and an estimated $80 million for fit-out and related costs
associated with its buildings located in New York City and Tokyo. Additionally,
the Company has provided and will continue to provide financing, including
margin lending and other extensions of credit to clients (including subordinated
loans on an interim basis to leveraged companies associated with its merchant
banking and other principal investment activities), that may subject the Company
to increased credit and liquidity risks.
Subsequent to November 30, 1995, the Company formed Morgan Stanley Bridge
Fund, LLC ("MSBF"), a bridge facility with $600 million in aggregate investment
capacity (including $150 million available from the Company), that will provide
financing, consisting primarily of subordinated loans or debt financing to
clients that require commitments on a timely basis, generally in connection with
strategic and financial acquisitions, leveraged buyouts, recapitalizations and
other special situations. Such financing will generally be provided in
connection with the Company's investment banking and merchant banking
activities.
The Company also has plans to become active in the senior syndicated
lending area in connection with its investment banking activities.
The gross notional and fair value amounts of derivatives used by the
Company for asset and liability management and as part of its trading activities
are summarized in Notes 3 and 5, respectively, to the Consolidated Financial
Statements. See also "Derivative Financial Instruments" herein.
REGULATORY CAPITAL REQUIREMENTS
MS&Co. is a registered broker-dealer and a registered futures commission
merchant and, accordingly, is subject to the minimum net capital requirements of
the Securities and Exchange Commission and the Commodity Futures Trading
Commission. MSIL, a London-based broker-dealer subsidiary, is regulated by the
Securities and Futures Authority ("SFA") in the United Kingdom and, accordingly,
is subject to the Financial Resources Requirements of the SFA. Morgan Stanley
Japan Limited ("MSJL"), a Tokyo-based broker-dealer, is regulated by the
Japanese Ministry of Finance. MS&Co., MSIL and MSJL have consistently operated
in excess of their respective regulatory requirements (see Note 7 to the
Consolidated Financial Statements).
Certain other U.S. and non-U.S. subsidiaries are subject to various
securities, commodities and banking regulations, and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. These subsidiaries have consistently operated
in excess of their applicable local capital adequacy requirements. In addition,
Morgan Stanley Derivative Products Inc., a triple-A rated subsidiary through
which the Company conducts some of its derivatives activities, has established
certain operating restrictions which have been reviewed by various rating
agencies.
EFFECTS OF INFLATION AND CHANGES IN FOREIGN EXCHANGE RATES
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, which may not be readily recoverable in the
price of services offered. To the extent inflation results in rising interest
rates and has other adverse effects upon the securities markets and on the value
of financial instruments, it may adversely affect the Company's financial
position and profitability.
<PAGE> 13
Page 38
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Non-U.S. dollar assets typically are financed by
direct borrowing or swap-based funding in the same currency. Changes in foreign
exchange rates affect non-U.S. dollar revenues as well as non-U.S. dollar
expenses. Those foreign exchange exposures that arise and are not hedged by an
offsetting foreign currency exposure are actively managed by the Company to
minimize risk of loss due to currency fluctuations.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company actively offers to clients and trades for its own account a variety
of financial instruments described as "derivative products" or "derivatives."
These products generally take the form of futures, forwards, options, swaps,
caps, collars, floors, swap options and similar instruments which derive their
value from underlying interest rates, foreign exchange rates or commodity or
equity instruments and indices. All of the Company's trading-related business
units use derivative products as an integral part of their respective trading
strategies, and such products are used extensively to manage the market exposure
that results from a variety of proprietary trading activities (see Note 5 to the
Consolidated Financial Statements). In addition, as a dealer in certain
derivative products, most notably interest rate and currency swaps, the Company
enters into derivative contracts to meet a variety of risk management and other
financial needs of its clients. Given the highly integrated nature of derivative
products and related cash instruments in the determination of overall business
unit profitability and the context in which the Company manages its trading
areas, it is not meaningful to allocate trading revenues between the derivative
and underlying cash instrument components. Moreover, the risks associated with
the Company's derivative activities, including market and credit risks, are
managed on an integrated basis with associated cash instruments in a manner
consistent with the Company's overall risk management policies and procedures
(see "Risk Management" herein). It should be noted that while particular risks
may be associated with the use of derivatives, in many cases derivatives serve
to reduce, rather than increase, the Company's exposure to losses from market,
credit and other risks.
[One Pie Chart--See EDGAR Appendix]
The total notional value of derivative trading contracts outstanding as of
November 30, 1995 was $985 billion (as compared with $835 billion as of January
31, 1995). While these amounts are an indication of the Company's degree of use
of derivatives for trading purposes, they do not represent the Company's
exposure to any market or credit exposure and may be more indicative of customer
utilization of derivatives. The Company's exposure to market risk relates to
changes in interest rates, foreign currency exchange rates or the fair value of
the underlying financial instruments or
<PAGE> 14
Page 39
- --------------------------------------------------------------------------------
MORGAN STANLEY 1995 ANNUAL REPORT
commodities. The Company's exposure to credit risk at any point in time is
represented by the fair value of such contracts reported as assets. Total fair
value outstanding as of November 30, 1995 was $8.0 billion. Approximately 79% of
that credit risk exposure was with counterparties rated single-A or better, and
another 3% was fully collateralized (see Note 5 to the Consolidated Financial
Statements).
The Company also uses derivative products (primarily interest rate and
currency swaps) to assist in asset and liability management and to reduce
borrowing costs (see Note 3 to the Consolidated Financial Statements).
The Company believes that derivatives are valuable tools that can provide
cost-effective solutions to complex financial problems and remains committed to
providing its clients with innovative financial products. In 1994, the Company
established Morgan Stanley Derivative Products Inc., a triple-A rated
subsidiary, to offer derivative products to clients who will enter into
derivative transactions only with triple-A rated counterparties. In addition,
the Company, through its continuing involvement with regulatory, self-regulatory
and industry activities such as the International Swaps and Derivatives
Association Inc. (ISDA), the Group of 30 and the U.S. securities firms'
Derivatives Policy Group, provides leadership in the development of derivative
policies and practices in order to maintain confidence in the markets for
derivative products, which is critical to the Company's ability to assist
clients in meeting their overall financial needs.
RISK MANAGEMENT
Risk is an inherent part of the Company's businesses and activities, and the
extent to which the Company properly and effectively identifies, assesses,
monitors and manages each of the various types of risks involved in its
activities is critical to its soundness and profitability. The Company seeks to
maintain a broad-based portfolio of business activities to help reduce the
impact that volatility in any particular area or related areas may have on its
net revenues as a whole. From an operational perspective, the Company seeks to
identify, assess, monitor and manage, in accordance with defined policies and
procedures, the principal risks involved in each area of business activity:
market risk, credit risk, operational risk and legal risk.
Risk management at the Company is an integrated process with independent
oversight which requires constant communication, judgment and knowledge of
specialized products and markets. The Company's senior management takes an
active role in the risk management process and has developed policies and
procedures that require specific administrative and business functions to assist
in the identification, assessment and control of various risks. In recognition
of the increasingly varied and complex nature of the financial services
business, the Company's risk management policies and procedures are evolutionary
in nature and are subject to ongoing review, modification and revision.
The Company has developed a multi-tiered approach for monitoring and
managing its risk. The Finance and Risk Committee, authorized by the Company's
Board of Directors, is chaired by the Company's Chief Financial Officer and
composed of senior officers with familiarity and expertise in dealing with risk
management principles. It establishes the overall risk management policies of
the Company and reviews the Company's performance relative to these policies
(see also "Liquidity and Capital Resources - Funding and Capital Policies"). The
Firm Risk Manager heads the Firm Risk Management Group (described below) and
assists senior management and the Finance and Risk Committee in establishing,
monitoring and controlling the Company's overall risk profile. With respect to
the Company's major trading businesses, division risk managers monitor and
manage positions, set the overall division risk profile on a worldwide basis
within established market risk limits, review major trading positions and
strategies, and report unusual market and position events. Desk risk managers
perform similar functions with respect to a product area or particular product
at the business unit and trading desk level.
The Firm Risk Management Group, which has operational responsibility for
identifying, monitoring and reporting to senior management on the Company's
exposure to risk, consists of three departments that are all independent of the
Company's business areas: the Market Risk Department monitors the Company's
market risk profile on a worldwide basis, which includes all divisional,
geographic and product-line market risks; the Credit Department manages and
monitors counterparty exposure limits on a worldwide basis; and the Internal
Audit
<PAGE> 15
Page 40
- --------------------------------------------------------------------------------
RISK MANAGEMENT
(CONTINUED)
Department, which also reports to the Audit Committee of the Board of Directors,
assesses the Company's operations and control environment through periodic
examinations of business and operational areas.
Other departments within the Company that also are independent of the
Company's business areas and are actively involved in monitoring the Company's
risk profile include: Controllers, Corporate Treasury, Information Technology,
Legal and Compliance, Tax and Operations. The Company continues to be committed
to employing qualified personnel with appropriate expertise in each of the
various administrative and business areas to implement effectively the Company's
risk management and monitoring systems and processes.
The Company also has certain commitment committees, composed of a cross
section of the Company's senior officers from various disciplines, that are
involved in managing and monitoring the risks associated with the Company's
diverse businesses. The High-Yield Commitment Committee and Equity Commitment
Committee determine whether the Company should participate in a transaction
involving the underwriting or placement of high-yield or equity securities,
respectively, where the Company's capital and reputation may be at risk and
evaluate the potential revenues and risks involved with respect to a particular
transaction.
The Company manages the various risks associated with its activities on a
Company-wide basis, on a divisional level worldwide and on an individual product
basis. Specific market risk guidelines and limits have been approved for the
Company and each trading division of the Company worldwide by the Finance and
Risk Committee and discrete market limits are assigned to business units and
trading desks within trading areas which are compatible with the trading
division limits. The Company may use measures, such as rate sensitivity,
convexity, volatility and time decay measurements, to estimate market risk and
to assess the sensitivity of positions to changes in market conditions. The
Company also regularly uses a variety of measures to help reduce and control the
market risk associated with its market-making and proprietary trading
activities.
The Finance and Risk Committee has also approved Company-wide credit
guidelines which limit the Company's credit exposure to any one counterparty.
Specific credit limits based on the credit guidelines have also been approved by
the Finance and Risk Committee for each type of counterparty (by rating
category) as well as certain inventories of high-yield and emerging market debt.
The Company manages the credit exposure relating to its trading activities by
monitoring the creditworthiness of counterparties and credit limits on an
ongoing basis; entering into master netting agreements and collateral
arrangements with counterparties in appropriate circumstances; and limiting the
duration of exposure.
In addition, the Company's Controllers and Operations Departments monitor
position, profit/loss and balance sheet information through reconciliation
procedures, and business unit profitability, position market prices and aged
positions are analyzed. The Company also has established legal standards and
procedures on a worldwide basis that are designed to ensure compliance with all
applicable statutory and regulatory requirements.
For a detailed discussion of the Company's risk management policies and
procedures, see Item I, Part I, of the Form 10-K.
The Company's division risk managers and the Market Risk Department
evaluate the impact of historical changes in market conditions on the value of
the Company's financial instrument portfolios in order to determine the
potential gains or losses that would arise from normal and abnormal movements in
interest rates, foreign exchange rates, equity prices and commodity prices. This
quantification of potential gains and losses under varying scenarios and
situations is an integral component of the Company's risk management procedures.
The hypothetical results of these analyses, however, are not necessarily
indicative of future results.
Historical results, while also not indicative of future results, provide a
more meaningful measure of the Company's effectiveness in managing the risks
inherent in its various businesses, including market risks related to its global
portfolios of financial instruments. The diversification of the Company's
activities within and across business lines and prudent risk management have
helped the Company reduce volatility in net revenues. The Company's under-
<PAGE> 16
Page 41
- --------------------------------------------------------------------------------
MORGAN STANLEY 1995 ANNUAL REPORT
writing and sales and trading businesses (which include fixed income, equity,
commodities and foreign exchange) historically have been more volatile than its
fee-based businesses (which include investment banking advisory services,
securities services and asset management).
The Company's performance in mitigating volatility is demonstrated by the
following weekly distribution of its underwriting and sales and trading net
revenues for fiscal 1995 and fiscal 1994.
[One Bar Chart--See EDGAR Appendix]
The bars represent the number of weeks in which net revenues from each
activity fell within a particular range.
The Company's management of the volatility in revenues from its
underwriting and sales and trading activities is complemented by its continuing
strategic emphasis on more stable fee-based businesses. The Company's recent
record of lower volatilities and continuing growth in these fee-based businesses
is presented in the charts below, which provide a weekly distribution of
fee-based net revenues for fiscal 1995 and fiscal 1994 and a three-year summary
of fee-based and underwriting and sales and trading net revenues.
[One Bar Chart--See EDGAR Appendix]
<PAGE> 17
Page 42
- --------------------------------------------------------------------------------
[One Bar Chart--See EDGAR Appendix]
POTENTIAL IMPACT OF FINANCIAL ACCOUNTING STANDARDS BOARD EXPOSURE DRAFTS ON THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") released an
exposure draft entitled "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (the "Securitization ED"). The
Securitization ED, among other issues, addresses the accounting for repurchase
and reverse repurchase agreements. The Securitization ED would require that
repurchase transactions with an original maturity of 90 days or longer be
accounted for as a sale of the underlying loan collateral, rather than a
financing transaction. It would also require that an entity record on its
balance sheet the collateral obtained in certain reverse repurchase, securities
borrowed, margin and other collateralized transactions to the extent that such
collateral could be used by the entity to deliver against short sales or as
collateral in financing transactions of its own. A corresponding liability to
return such assets to their actual owners would also be required to be recorded.
The Company does not believe that the accounting proposed in the
Securitization ED reflects the underlying substance of collateralized financing
transactions and has expressed its concerns in a comment letter to the FASB. As
currently proposed, the Company would be required to adopt the Securitization ED
for its fiscal year ended November 30, 1997. The Company believes that if
adopted in its current form, the Securitization ED would not have a material
effect on its results of operations. It would, however, likely have a material
effect on the Consolidated Statement of Financial Condition of the Company and
other companies in the securities industry, but the effect has not been
quantified at this time.
In October 1995, the FASB also released an exposure draft entitled
"Consolidated Financial Statements: Policies and Procedures" (the "Consolidation
ED"). The Consolidation ED, among other things, would significantly change
current consolidation practices with respect to determining which entities are
to be included in a set of consolidated financial statements. The Consolidation
ED could potentially require the Company to consolidate certain of its merchant
banking investments, which, as part of the Company's trading and investment
activities, are currently carried in its consolidated financial statements at
fair value.
The Company believes that application of the Consolidation ED would result
in a confusing and inappropriate financial statement presentation. Compliance
with the proposal would also involve significant incremental resources and
costs. The Company has expressed these concerns in a comment letter to the FASB.
As currently proposed, the Company would be required to adopt the Consolidation
ED for its fiscal year ended November 30, 1998. The Company believes that, if
adopted in its current form, the Consolidation ED would have a material effect
on both its results of operations as well as its financial condition. These
effects, however, have not been quantified at this time.
The Company intends to follow both proposals closely in 1996.
<PAGE> 18
GRAPHICS APPENDIX LIST
EDGAR VERSION
---------------
Form 10-K for the fiscal year ended November 30, 1995, Exhibit 13.3-
(Selected Portions of Morgan Stanley's 1995 Annual Report to Stockholders)
Page 33 -- One pie chart omitted
Page 38 -- One pie chart omitted
Page 41 -- Two bar charts omitted
Page 42 -- One bar chart omitted
TYPESET VERSION
---------------
Form 10-K for the fiscal year ended November 30, 1995, Exhibit 13.3-
(Selected Portions of Morgan Stanley's 1995 Annual Report to Stockholders)
Page 33 -- A pie chart representing the composition of Financial Instruments
Owned on a percentage basis as of November 30, 1995 as follows:
<TABLE>
<S> <C>
Derivative contracts......................... 13.7%
Physical commodities......................... 0.7%
U.S. government and agency securities........ 21.3%
Other sovereign government obligations....... 23.5%
Corporate and other debt..................... 18.3%
Corporate equities........................... 22.5%
</TABLE>
Page 38 -- A pie chart representing the composition of Derivative Financial
Instruments Owned--Net Replacement Cost on a percentage basis as of November 30,
1995 as follows:
<TABLE>
<S> <C>
Foreign exchange forward contracts
and options................................. 23.2%
Mortgage-backed securities, forward
contracts, swaps and options................ 1.5%
Interest rate and currency swaps
and options................................. 47.7%
Other fixed income securities
contracts................................... 1.7%
Commodity forwards, options and swaps........ 8.2%
Equity securities contracts.................. 17.7%
</TABLE>
Page 41 -- A bar chart depicting Distribution of Underwriting and Sales and
Trading Net Revenues (including principal trading, commissions, net interest
revenues and underwriting revenues) for fiscal 1995 (which represents the
ten-month period ended November 30, 1995) and fiscal
<PAGE> 19
1994. The bars in the chart illustrate the number of weeks that such net
revenues fell within the specified dollar ranges for each area presented
below. All dollar amounts are expressed in millions.
<TABLE>
<CAPTION>
$(5) - 0 $0 - 10 $10 - 20 $20 - 40 $40 - 60 More than $60
<S> <C> <C> <C> <C> <C> <C>
Equity 3 19 67 7
Fixed Income 5 12 23 45 8 3
Commodities 20 76
Foreign
Exchange 1 93 2
</TABLE>
Page 41 -- A bar chart depicting Distribution of Fee-Based Net Revenues for
fiscal 1995 (which represents the ten-month period ended November 30, 1995) and
fiscal 1994. The bars in the chart depicting Distribution of Fee-Based Net
Revenues illustrate the number of weeks that such net revenues fell within
specified dollar ranges for each area presented below. All dollar amounts are
expressed in millions.
<TABLE>
<CAPTION>
$0 - 10 $10 - 20 More than $20
<S> <C> <C> <C>
Investment Banking
Advisory Services 65 19 12
Securities Services 96
Asset Management 96
</TABLE>
Page 42 -- A bar chart depicting Net Revenues (excluding merchant banking net
revenues) for fiscal 1993, fiscal 1994 and fiscal 1995 (Fiscal 1995 represents
the ten-month period ended November 30, 1995, annualized). The bars in the chart
depicting Net Revenues illustrate a three-year summary of Fee-Based and
Underwriting and Sales and Trading Net Revenues as follows:
Fee-based net revenues were $.7 billion, $1 billion and $1.2 billion for fiscal
1993, fiscal 1994 and fiscal 1995, respectively. Underwriting and sales and
trading net revenues were $3.4 billion, $2.4 billion and $3 billion for fiscal
1993, fiscal 1994 and fiscal 1995, respectively.
<PAGE> 1
Exhibit 13.4
Page 43
- --------------------------------------------------------------------------------
Report of Independent Auditors
The Stockholders and
Board of Directors of
Morgan Stanley Group Inc.
We have audited the accompanying Consolidated Statement of Financial Condition
of Morgan Stanley Group Inc. as of November 30, 1995 and January 31, 1995 and
the related Consolidated Statements of Income, Cash Flows and Changes in
Stockholders' Equity for the ten-month period ended November 30, 1995 and the
years ended January 31, 1995 and January 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Morgan Stanley
Group Inc. at November 30, 1995 and January 31, 1995, and the consolidated
results of its operations and its cash flows for the ten-month period ended
November 30, 1995 and the years ended January 31, 1995 and January 31, 1994, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
January 4, 1996
43
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, January 31,
(Dollars in Millions, Except Share Data) 1995 1995
----------------------------------
<S> <C> <C>
ASSETS
Cash and interest-bearing equivalents $ 2,471 $ 2,510
Cash and securities deposited with clearing organizations or segregated under
federal and other regulations (securities at fair value of $859 at November
30, 1995 and $1,507 at January 31, 1995) 1,339 2,116
Financial instruments owned:
U.S. government and agency securities 12,480 9,107
Other sovereign government obligations 13,792 12,931
Corporate and other debt 10,690 10,545
Corporate equities 13,185 5,483
Derivative contracts 8,043 8,623
Physical commodities 410 420
Securities purchased under agreements to resell 45,886 35,913
Securities borrowed 27,069 20,042
Receivables:
Customers 3,413 4,823
Brokers, dealers and clearing organizations 1,475 1,376
Interest and dividends 1,082 731
Fees and other 506 548
Property, equipment and leasehold improvements, at cost, net of accumulated
depreciation and amortization of $462 at November 30, 1995
and $364 at January 31, 1995 1,286 1,061
Other assets 626 465
----------------------------------
Total assets $143,753 $116,694
----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
* All amounts have been retroactively adjusted to give effect for a two-for-one
stock split, effected in the form of a 100% stock dividend, which became
effective on January 26, 1996.
See Notes to Consolidated Financial Statements.
<PAGE> 3
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NOVEMBER 30, January 31,
1995 1995
----------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 11,703 $ 10,273
Financial instruments sold, not yet purchased:
U.S. government and agency securities 6,459 6,177
Other sovereign government obligations 8,972 7,251
Corporate and other debt 1,076 1,174
Corporate equities 3,585 3,006
Derivative contracts 7,537 7,322
Physical commodities 71 377
Securities sold under agreements to repurchase 60,738 50,123
Securities loaned 9,340 2,860
Payables:
Customers 13,818 11,588
Brokers, dealers and clearing organizations 1,974 953
Interest and dividends 1,019 825
Other liabilities and accrued expenses 595 458
Accrued compensation and benefits 1,192 938
Long-term borrowings 9,635 8,462
----------------------------------
137,714 111,787
----------------------------------
Capital Units 865 352
----------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 818 819
Common stock, $1.00 par value; authorized 300,000,000 shares; issued
162,838,920 shares at November 30, 1995 and 159,548,556 shares
at January 31, 1995* 163 160
Paid-in capital* 730 626
Retained earnings 3,815 3,338
Cumulative translation adjustments (9) (10)
----------------------------------
Subtotal 5,517 4,933
Less:
Note receivable related to sale of preferred stock to ESOP 89 100
Common stock held in treasury, at cost
(7,635,174 shares at November 30, 1995
and 8,954,990 shares at January 31, 1995)* 254 278
----------------------------------
Total stockholders' equity 5,174 4,555
----------------------------------
Total liabilities and stockholders' equity $ 143,753 $ 116,694
----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
45
<PAGE> 4
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED Fiscal Year Ended Fiscal Year Ended
NOVEMBER 30, January 31, January 31,
(Dollars in Millions, Except Share Data) 1995 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Investment banking $ 1,211 $ 919 $ 1,238
Principal transactions:
Trading 1,122 1,104 1,459
Investments 102 139 158
Commissions 437 449 393
Interest and dividends 5,939 6,406 5,660
Asset management and administration 310 350 258
Other 3 9 10
---------------------------------------------------------------
Total revenues 9,124 9,376 9,176
Interest expense 5,501 5,875 5,020
---------------------------------------------------------------
Net revenues 3,623 3,501 4,156
---------------------------------------------------------------
Expenses excluding interest:
Compensation and benefits 1,795 1,733 2,049
Occupancy and equipment 276 303 248
Brokerage, clearing and exchange fees 211 230 196
Communications 108 122 100
Business development 110 165 134
Professional services 131 164 120
Other 109 131 109
Relocation charge -- 59 --
---------------------------------------------------------------
Total expenses excluding interest 2,740 2,907 2,956
---------------------------------------------------------------
Income before income taxes 883 594 1,200
Provision for income taxes 283 199 414
---------------------------------------------------------------
Net income $ 600 $ 395 $ 786
---------------------------------------------------------------
Preferred stock dividend requirements $ 54 $ 65 $ 55
---------------------------------------------------------------
Earnings applicable to common shares (1) $ 546 $ 330 $ 731
---------------------------------------------------------------
Average common and common equivalent shares
outstanding (1) (2) 156,912,678 157,793,216 152,416,576
---------------------------------------------------------------
Primary earnings per share (2) $ 3.48 $ 2.09 $ 4.80
---------------------------------------------------------------
Fully diluted earnings per share (2) $ 3.33 $ 2.02 $ 4.58
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
(2) All share and per share amounts have been retroactively adjusted to give
effect for a two-for-one stock split, effected in the form of a 100% stock
dividend, which became effective on January 26, 1996.
See Notes to Consolidated Financial Statements.
<PAGE> 5
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED Fiscal Year Ended Fiscal Year Ended
NOVEMBER 30, January 31, January 31,
(Dollars in Millions) 1995 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 600 $ 395 $ 786
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Non-cash charges included in net income:
Deferred income taxes (111) (128) (266)
Compensation payable in common
or preferred stock 165 116 408
Depreciation and amortization 107 104 64
Relocation charge -- 59 --
Changes in assets and liabilities:
Cash and securities deposited with
clearing organizations or segregated
under federal and other regulations 777 (1,454) 726
Financial instruments owned, net of
financial instruments sold, not yet
purchased (9,098) (1,086) 445
Securities borrowed, net of
securities loaned (547) (3,063) (3,601)
Receivables and other assets 813 1,076 (2,889)
Payables and other liabilities, net of
deferred liabilities 3,947 258 4,614
-----------------------------------------------------------
Net cash (used for) provided by operating activities (3,347) (3,723) 287
Cash flows from investing activities:
Net payments for:
Property, equipment and leasehold improvements (336) (415) (290)
-----------------------------------------------------------
Net cash used for investing activities (336) (415) (290)
Cash flows from financing activities:
Net proceeds related to short-term borrowings 1,430 1,707 878
Securities sold under agreements to repurchase,
net of securities purchased under agreements
to resell 642 1,451 (3,803)
Proceeds from:
Issuance of preferred stock -- -- 194
Issuance of common stock 79 20 27
Issuance of long-term borrowings 2,402 2,955 3,355
Issuance of Capital Units 513 230 122
Payments for:
Repurchases of common stock (103) (287) (245)
Repayments of long-term borrowings (1,196) (1,202) (636)
Cash dividends (123) (151) (134)
-----------------------------------------------------------
Net cash provided by (used for) financing activities 3,644 4,723 (242)
-----------------------------------------------------------
Net (decrease) increase in cash and
interest-bearing equivalents (39) 585 (245)
Cash and interest-bearing equivalents, at
beginning of period 2,510 1,925 2,170
-----------------------------------------------------------
Cash and interest-bearing equivalents, at end of period $ 2,471 $ 2,510 $ 1,925
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash payments for income taxes totaled $233 million, $657 million and $299
million in fiscal 1995, fiscal 1994 and fiscal 1993, respectively.
Cash payments for interest approximated interest expense for all periods.
See Notes to Consolidated Financial Statements.
47
<PAGE> 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Common
(Dollars in Millions) Stock Stock(1)
---------------------------
<S> <C> <C>
Balance, January 31, 1993 $ 621 $154
Issuance of 7-3/8% Cumulative Preferred Stock 200 --
Conversion of ESOP Preferred Stock (1) --
Issuance of common stock -- 2
Repurchases of common stock -- --
Compensation payable in common stock -- --
ESOP shares allocated, at cost -- --
Net income -- --
Cash dividends -- --
Translation adjustments -- --
------------------------------------------------------------------------------
Balance, January 31, 1994 820 156
Conversion of ESOP Preferred Stock (1) --
Issuance of common stock -- 2
Repurchases of common stock -- --
Compensation payable in common stock -- 2
ESOP shares allocated, at cost -- --
Net income -- --
Cash dividends -- --
Translation adjustments -- --
------------------------------------------------------------------------------
Balance, January 31, 1995 819 160
Conversion of ESOP Preferred Stock (1) --
Issuance of common stock -- 3
Repurchases of common stock -- --
Compensation payable in common stock -- --
ESOP shares allocated, at cost -- --
Net income -- --
Cash dividends -- --
Translation adjustments -- --
---------------------------
Balance, November 30, 1995 $ 818 $163
- -------------------------------------------------------------------------------
</TABLE>
(1) All amounts have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend,
which became effective on January 26, 1996.
See Notes to Consolidated Financial Statements.
<PAGE> 7
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note Receivable Common Stock
Cumulative Related to Sale Held in
Paid-in Retained Translation of Preferred Treasury,
(Dollars in Millions) Capital(1) Earnings Adjustments Stock to ESOP at Cost Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1993 $ 474 $ 2,442 $ (2) $(116) $(139) $ 3,434
Issuance of 7-3/8% Cumulative Preferred Stock (6) -- -- -- -- 194
Conversion of ESOP Preferred Stock 1 -- -- -- -- 0
Issuance of common stock (131) -- -- -- 156 27
Repurchases of common stock -- -- -- -- (245) (245)
Compensation payable in common stock 401 -- -- -- -- 401
ESOP shares allocated, at cost -- -- -- 7 -- 7
Net income -- 786 -- -- -- 786
Cash dividends -- (134) -- -- -- (134)
Translation adjustments -- -- (1) -- -- (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1994 739 3,094 (3) (109) (228) 4,469
Conversion of ESOP Preferred Stock 1 -- -- -- -- 0
Issuance of common stock 18 -- -- -- -- 20
Repurchases of common stock -- -- -- -- (287) (287)
Compensation payable in common stock (132) -- -- -- 237 107
ESOP shares allocated, at cost -- -- -- 9 -- 9
Net income -- 395 -- -- -- 395
Cash dividends -- (151) -- -- -- (151)
Translation adjustments -- -- (7) -- -- (7)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 626 3,338 (10) (100) (278) 4,555
Conversion of ESOP Preferred Stock 1 -- -- -- -- 0
Issuance of common stock 76 -- -- -- -- 79
Repurchases of common stock -- -- -- -- (103) (103)
Compensation payable in common stock 27 -- -- -- 127 154
ESOP shares allocated, at cost -- -- -- 11 -- 11
Net income -- 600 -- -- -- 600
Cash dividends -- (123) -- -- -- (123)
Translation adjustments -- -- 1 -- -- 1
--------------------------------------------------------------------------------
Balance, November 30, 1995 $ 730 $ 3,815 $ (9) $ (89) $(254) $ 5,174
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 8
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Morgan Stanley
Group Inc. and its U.S. and international subsidiaries (collectively, the
"Company"), including Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan
Stanley & Co. International Limited ("MSIL").
The Company, through its subsidiaries, provides a wide range of financial
services on a global basis. Its businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring, real estate,
project finance and other corporate finance advisory activities; merchant
banking and other principal investment activities; brokerage and research
services; asset management; the trading of foreign exchange and commodities as
well as derivatives on a broad range of asset categories, rates and indices; and
global custody, securities clearance services and securities lending. These
services are provided to a large and diversified group of clients and customers,
including corporations, governments, financial institutions and individual
investors.
All material intercompany accounts and transactions have been eliminated
in consolidation. Certain amounts in the Consolidated Financial Statements for
prior years have been reclassified to conform with the fiscal 1995 presentation.
CHANGE IN FISCAL YEAR-END
On February 28, 1995, the Board of Directors approved a change in the Company's
fiscal year-end from January 31 to November 30. This change became effective for
the fiscal period ended November 30, 1995, and, accordingly, this report
includes the results for the ten-month period from February 1, 1995 through
November 30, 1995 ("fiscal 1995"), as well as those for the fiscal years ended
January 31, 1995 and January 31, 1994 ("fiscal 1994" and "fiscal 1993,"
respectively).
FINANCIAL INSTRUMENTS USED FOR TRADING AND INVESTMENT
Financial instruments, including derivatives, used in the Company's trading
activities are recorded at fair value, and unrealized gains and losses are
reflected in trading revenues. Interest revenue and expense arising from
financial instruments used in trading activities are reflected in the
Consolidated Statement of Income as interest income or expense. The fair values
of the trading positions generally are based on listed market prices. If listed
market prices are not available or if liquidating the Company's positions would
reasonably be expected to impact market prices, fair value is determined based
on other relevant factors, including dealer price quotations and price
quotations for similar instruments traded in different markets, including
markets located in different geographic areas. Fair values for certain
derivative contracts are derived from pricing models which consider current
market and contractual prices for the underlying financial instruments or
commodities, as well as time value and yield curve or volatility factors
underlying the positions. Purchases and sales of financial instruments are
recorded in the accounts on trade date. Unrealized gains and losses arising from
the Company's dealings in over-the-counter ("OTC") financial instruments,
including derivative contracts related to financial instruments and commodities,
are presented in the accompanying Consolidated Statement of Financial Condition
on a net-by-counterparty basis consistent with Financial Accounting Standards
Board ("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts."
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried in the Consolidated
Financial Statements at their original cost; the carrying value of such
investments is adjusted upward only when changes in the underlying fair values
are readily ascertainable, generally as evidenced by substantial transactions
occurring in the marketplace which directly affect their value. Downward
adjustments relating to such equity securities are made in the event that the
Company determines that the eventual realizable value is less than the carrying
value. Loans made in connection with such activities are carried at unpaid
principal balances plus accrued interest less reserves, if deemed necessary, for
estimated losses.
<PAGE> 9
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS USED FOR ASSET AND LIABILITY MANAGEMENT
The Company uses interest rate and currency swaps to manage the interest rate
and currency exposure arising from certain borrowings. Swaps used to hedge debt
are designated as hedges and are matched to the debt as to notional amount and
maturity. The periodic receipts or payments from each swap are recognized
ratably over the term of the swap as an adjustment to interest expense. Gains
and losses resulting from the termination of hedge contracts prior to their
stated maturity are recognized ratably over the remaining life of the instrument
being hedged. The Company also uses foreign exchange forward contracts to manage
the currency exposure relating to its net monetary investment in non-U.S. dollar
functional currency operations. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, the gain or loss from revaluing these
contracts is deferred and reported within cumulative translation adjustments in
stockholders' equity, net of tax effects, with the related unrealized amounts
due from or to counterparties included in receivables from or payables to
brokers, dealers and clearing organizations.
COLLATERALIZED SECURITIES TRANSACTIONS
Securities purchased under agreements to resell and securities sold under
agreements to repurchase (principally government and agency securities) are
treated as financing transactions and are carried at the amounts at which the
securities will subsequently be resold or reacquired as specified in the
respective agreements; such amounts include accrued interest. Reverse repurchase
and repurchase agreements are presented net-by-counterparty in the accompanying
Consolidated Statement of Financial Condition where net presentation is
consistent with FASB Interpretation No. 41, "Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements." It is the Company's
policy to take possession of securities purchased under agreements to resell.
The Company monitors the fair value of the underlying securities as compared
with the related receivable or payable, including accrued interest, and, as
necessary, requests additional collateral. Where deemed appropriate, the
Company's agreements with third parties specify its rights to request additional
collateral.
Securities borrowed and securities loaned are carried at the amounts of
cash collateral advanced and received in connection with the transactions. The
Company measures the fair value of the securities borrowed and loaned against
the cash collateral on a daily basis. Additional cash is obtained as necessary
to ensure such transactions are adequately collateralized.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations having non-U.S. dollar functional
currencies are translated at year-end rates of exchange, and the income
statements are translated at weighted average rates of exchange for the year. In
accordance with SFAS No. 52, gains or losses resulting from translating foreign
currency financial statements, net of hedge gains or losses and related tax
effects, are reflected in cumulative translation adjustments, a separate
component of stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in net income.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation of property and equipment is provided on a straight-line basis over
the estimated useful lives of the related assets. Amortization of leasehold
improvements is provided on a straight-line basis over the lesser of the
estimated useful life of the asset or, where applicable, the remaining life of
the lease.
COMMON SHARE DATA
Earnings per share is based on the weighted average number of common shares and
share equivalents outstanding and gives effect to preferred stock dividend
requirements. Common share and stock option share data for all periods presented
have been retroactively adjusted throughout the Consolidated Financial
Statements to reflect a two-for-one
51
<PAGE> 10
===============================================================================
common stock split, effected in the form of a 100% stock dividend, declared on
January 4, 1996 and payable on January 26, 1996 to holders of record on January
16, 1996.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased and not held
for resale, with an original maturity of three months or less, to be
interest-bearing equivalents for purposes of this statement.
INCOME TAXES
Income taxes are provided in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the calculation of deferred taxes using the
asset and liability method. Under this method, deferred tax balances must be
adjusted to reflect enacted changes in income tax rates, and deferred taxes
generally must be provided on all book and tax basis differences.
NOTE 2 SHORT-TERM BORROWINGS
Short-term funding is generally obtained at rates related to U.S., Euro or Asian
money rates for the currency and term borrowed and includes loans payable on
demand. Secured borrowings included in these loans, which may fluctuate
significantly from time to time, were $29 million and $2,694 million at November
30, 1995 and January 31, 1995, respectively. Short-term borrowings at November
30, 1995 and January 31, 1995 also included commercial paper of $8,412 million
and $5,228 million, respectively, with approximate weighted average interest
rates of 5.9% and 6.3%, respectively.
The Company maintains a senior revolving credit agreement with a group of
banks. Under the terms of the credit agreement, the banks are committed to
provide up to $2.5 billion for up to 364 days. Any loans outstanding on the
commitment termination date will mature on the first anniversary of the
commitment termination date. The agreement contains restrictive covenants which
require, among other things, that the Company maintain stockholders' equity of
at least $3,391 million as of November 30, 1995.
The Company maintains a master collateral facility that enables MS&Co. to
pledge certain collateral to secure loan arrangements, letters of credit and
other financial accommodations. As part of this facility, MS&Co. maintains a
secured committed credit agreement with a group of banks that are parties to the
master collateral facility under which such banks are committed to provide up to
$1 billion for up to 364 days. Any loans outstanding on the commitment
termination date will mature on the first anniversary of the commitment
termination date. The credit agreement contains restrictive covenants which
require, among other things, that MS&Co. maintain specified levels of
consolidated stockholders' equity and Net Capital, as defined. Subsequent to
November 30, 1995, the credit agreement was renewed with the commitment
increased to $1.25 billion.
Subsequent to November 30, 1995, the Company established a revolving
committed financing facility that enables MSIL to secure committed funding from
a syndicate of banks by providing a broad range of collateral under repurchase
agreements. Such banks are committed to provide up to an aggregate of $1.25
billion available in twelve major currencies for up to 364 days. Any amounts
outstanding on the commitment termination date may, at MSIL's option, be
extended to mature on or before the first anniversary of the commitment
termination date. The facility agreements contain restrictive covenants which
require, among other things, that MSIL maintain specified levels of
Shareholders' Equity and Financial Resources, each as defined.
There were no borrowings outstanding under any of the foregoing facilities
at November 30, 1995; however, the Company anticipates utilizing these
facilities for short-term funding from time to time.
<PAGE> 11
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 3 LONG-TERM BORROWINGS
MATURITIES AND TERMS
Long-term borrowings at fiscal year-end consist of the following:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Dollar Non-U.S. Dollar (1)
------------------------------------ ----------------------
Index/ NOV. 30, Jan. 31,
Fixed Floating Equity Fixed Floating 1995 1995
(Dollars in Millions) Rate Rate Linked Rate Rate TOTAL Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Due in fiscal 1995 $ -- $ -- $-- $-- $-- $ -- $1,059
Due in fiscal 1996 496 401 83 12 337 1,329 1,797
Due in fiscal 1997 636 1,430 160 56 422 2,704 1,470
Due in fiscal 1998 354 599 30 299 142 1,424 583
Due in fiscal 1999 356 200 21 211 -- 788 791
Due in fiscal 2000 60 10 -- -- -- 70 20
Thereafter 2,937 -- 26 337 20 3,320 2,742
-------------------------------------------------------------------------------------------
Total $4,839 $2,640 $320 $915 $921 $9,635 $8,462
-------------------------------------------------------------------------------------------
Weighted average
coupon at fiscal year-end 7.8% 6.0% n/a 5.9% 4.5% 6.8% 7.0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Weighted average coupon was calculated utilizing non-U.S. dollar interest
rates.
MEDIUM TERM NOTES
Included in the table above are medium term notes of $2,882 million at November
30, 1995 and $2,774 million at January 31, 1995. The effective weighted average
interest rate on all medium term notes was 6.2% in fiscal 1995. Maturities of
these notes range from fiscal 1996 through fiscal 2023.
STRUCTURED DEBT
U.S. dollar index/equity linked debt includes various structured instruments
whose payments and redemption values are linked to the performance of a specific
index (i.e., Standard & Poor's 500), a basket of stocks or a specific equity
security. To minimize the exposure resulting from movements in the underlying
equity position or index, the Company has entered into various equity swap
contracts and purchased options which effectively convert the borrowing costs
into floating rates based upon London Interbank Offered Rates ("LIBOR").
OTHER DEBT
U.S. dollar contractual floating rate debt bears interest based on a variety of
money market indices, including LIBOR and Fed Funds rates. Non-U.S. dollar
contractual floating rate debt bears interest based on Euro floating rates.
Included in the Company's long-term debt are subordinated notes of $1,298
million at November 30, 1995 and $832 million at January 31, 1995. The effective
weighted average interest rate on these subordinated notes was 7.0% in fiscal
1995. Maturities of the subordinated notes range from fiscal 1999 to fiscal
2016.
Certain of the Company's long-term debt is redeemable prior to maturity at
the option of the holder. These notes contain certain provisions which
effectively
53
<PAGE> 12
================================================================================
enable noteholders to put the notes back to the Company and therefore are
scheduled in the foregoing table to mature in fiscal 1996 and fiscal 1997. The
stated maturities of these notes, which aggregate $540 million, are from 1998 to
2000.
In fiscal 1995, MS&Co., the Company's U.S. broker-dealer subsidiary,
issued approximately $263 million of 6.81% fixed rate subordinated Series C
notes, $96 million of 7.03% fixed rate subordinated Series D notes, $82 million
of 7.28% fixed rate subordinated Series E notes and $25 million of 7.82% fixed
rate subordinated Series F notes. These notes have maturities from 2001 to 2016.
The terms of such notes contain restrictive covenants which require, among other
things, that MS&Co. maintain specified levels of Consolidated Tangible Net Worth
and Net Capital, each as defined. In December 1995, MS&Co. issued an additional
$50 million of Series C notes.
ASSET AND LIABILITY MANAGEMENT
A substantial portion of the Company's fixed rate long-term debt is used to fund
highly liquid marketable securities and short-term receivables arising from
securities transactions. The Company uses interest rate swaps to more closely
match the duration of this debt to the duration of the assets being funded and
to minimize interest rate risk. These swaps effectively convert certain of the
Company's fixed rate debt into floating rate obligations. In addition, for
non-U.S. dollar currency debt that is not used to fund assets in the same
currency, the Company has entered into currency swaps which effectively convert
the debt into U.S. dollar obligations. The Company's use of swaps for asset and
liability management reduced its interest expense and effective average
borrowing rate as follows:
<TABLE>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<CAPTION>
FISCAL Fiscal Fiscal
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net reduction in interest expense from swaps
for the fiscal year $ 22 $ 93 $ 93
Weighted average coupon of long-term
debt at fiscal year-end(1) 6.8% 7.0% 6.0%
Effective average borrowing rate for
long-term debt after swaps at fiscal year-end(1) 6.5% 6.7% 4.2%
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Included in the weighted average and effective average calculations are
non-U.S. dollar interest rates.
The effective weighted average interest rate on the Company's index/equity
linked notes, which are not included in the table above, was 6.0% in fiscal 1995
after giving effect to the related hedges.
<PAGE> 13
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
The table below summarizes the notional or contract amounts of these swaps
by maturity and weighted average interest rates to be received and paid as of
November 30, 1995:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Dollar Non-U.S. Dollar (1)
------------------------------------ ----------------------
Receive Receive Receive Receive
Fixed Floating Index/ Fixed Floating NOV. 30, Jan. 31,
Pay Pay Equity Pay Pay 1995 1995
(Dollars in Millions) Floating Floating Linked Floating Floating(2) TOTAL Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturing in fiscal 1995 $ -- $ -- $ -- $ -- $ -- $ -- $ 359
Maturing in fiscal 1996 494 106 69 12 -- 681 601
Maturing in fiscal 1997 636 -- 160 56 386 1,238 569
Maturing in fiscal 1998 269 154 30 299 108 860 354
Maturing in fiscal 1999 156 200 21 211 -- 588 572
Maturing in fiscal 2000 60 10 -- -- -- 70 10
Thereafter 1,025 -- 26 337 -- 1,388 1,275
------------------------------------------------------------------------------------
Total $2,640 $ 470 $ 306 $ 915 $ 494 $4,825 $ 3,740
------------------------------------------------------------------------------------
Weighted average at
fiscal year-end(3)
Receive rate 7.6% 5.4% n/a 5.9% 3.4%
Pay rate 6.1% 6.4% n/a 5.3% 6.3%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The differences between the receive rate and the pay rate may reflect
differences in the rate of interest associated with the underlying currency.
(2) These amounts include currency swaps used to effectively convert debt
denominated in one currency into obligations denominated in another
currency.
(3) The table was prepared under the assumption that interest rates remain
constant at year-end levels. The variable interest rates to be received or
paid will change to the extent that rates fluctuate. Such changes may be
substantial. Variable rates presented generally are based on LIBOR or
Treasury bill rates.
As noted above, the Company uses interest rate and currency swaps to
modify the terms of its existing debt. Activity during the periods in the
notional value of the swap contracts used by the Company for asset and liability
management (and the unrecognized gain (loss) at period end) are summarized in
the table below:
<TABLE>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
<CAPTION>
FISCAL Fiscal
(Dollars in Millions) 1995 1994
-------------------------
<S> <C> <C>
Notional value at beginning of period $ 3,740 $ 3,649
Additions 1,546 931
Matured (359) (859)
Terminated (108) --
Effect of foreign currency translation on non-U.S. dollar
notional values 6 19
-------------------------
Notional value at fiscal year-end $ 4,825 $ 3,740
-------------------------
Unrecognized gain (loss) at fiscal year-end $ 225 $ (3)
- ----------------------------------------------------------------------------------------
</TABLE>
The Company also uses interest rate swaps to modify certain of its
repurchase financing agreements. The Company had interest rate swaps with
notional values of approximately $2.1 billion and $3.8 billion as of November
30, 1995 and January 31, 1995, respectively, and unrecognized gains (losses) of
approximately $45 million and $(47) million as
55
<PAGE> 14
==============================================================================
of November 30, 1995 and January 31, 1995, respectively, for such purpose. The
unrecognized gains (losses) on these swaps were offset by unrecognized (losses)
gains on certain of the Company's repurchase financing agreements.
The estimated fair value of the Company's long-term debt, based on rates
available to the Company at November 30, 1995 for debt with similar terms and
maturities, and the aggregate carrying value of this debt are presented in the
following table:
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
NOV. 30, Jan. 31,
(Dollars in Millions) 1995 1995
----------------------------
<S> <C> <C>
Fair value of long-term debt $ 9,954 $8,334
Unrecognized (loss) gain (319) 128
----------------------------
Carrying value of long-term debt $ 9,635 $8,462
- --------------------------------------------------------------------------------
</TABLE>
NOTE 4 COMMITMENTS AND CONTINGENCIES
LEASES AND RELATED COMMITMENTS
The Company incurred rent expense under operating leases in the amounts of $97
million, $113 million and $101 million in fiscal 1995, fiscal 1994 and fiscal
1993, respectively. Minimum remaining rental payments, excluding amounts related
to the Company's termination of certain leased office space as described below,
are approximately as follows:
<TABLE>
- ----------------------------------------------------
- ----------------------------------------------------
<CAPTION>
Fiscal Year (Dollars in Millions)
---------------------
<S> <C>
1996 $116
1997 98
1998 84
1999 60
2000 52
Thereafter 241
- ----------------------------------------------------
</TABLE>
Rentals are subject to periodic escalation charges.
During 1995, the Company relocated the majority of its New York City
employees from existing leased space at 1221 and 1251 Avenue of the Americas to
space in the Company's buildings at 1585 Broadway and 750 Seventh Avenue that
were purchased in fiscal 1993 and fiscal 1994, respectively. The total
investment in these two buildings will aggregate approximately $700 million,
which is being capitalized and depreciated over the useful lives of the
individual assets comprising the investment.
During fiscal 1994, the Company recognized a pre-tax charge of $59 million
($39 million after tax, which reduced primary and fully diluted earnings per
share by $.25 and $.24, respectively). The charge was in connection with the
Company's move to the New York City facilities and to new leased office space in
Tokyo. The charge specifically covers the Company's termination of certain
leased office space and the write-off of remaining leasehold improvements in
both cities.
OTHER COMMITMENTS AND CONTINGENCIES
The Company had approximately $2.2 billion of letters of credit outstanding at
November 30, 1995 to satisfy various collateral requirements.
Financial instruments sold, not yet purchased represent obligations of the
Company to deliver specified financial instruments at contracted prices, thereby
creating commitments to purchase the securities in the market at prevailing
prices. Consequently, the Company's ultimate obligation to satisfy the sale of
financial instruments sold, not yet purchased may exceed the amounts recognized
in the Consolidated Statement of Financial Condition.
The Company also has commitments to fund certain fixed assets and other
less liquid investments, including at November 30, 1995 approximately $209
million in connection with its merchant banking and other principal investment
activities, and an estimated $80 million for fit-out and related costs
associated with its buildings located in New York City and Tokyo. Additionally,
the Company has provided and will continue to provide financing, including
margin lending and other extensions of credit to clients (including subordinated
loans on an interim basis to leveraged companies associated with its merchant
<PAGE> 15
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
banking and other principal investment activities), that may subject the Company
to increased credit and liquidity risks.
The Company and its subsidiaries have been named as defendants in certain
legal actions and have been involved in certain investigations and proceedings
in the ordinary course of business. It is the opinion of management, based on
current knowledge and after consultation with counsel, that the outcome of such
matters will not have a material adverse effect on the Company's Consolidated
Financial Statements contained herein.
NOTE 5 TRADING ACTIVITIES
TRADING REVENUES
The Company manages its trading businesses by product groupings and therefore
has established distinct, worldwide business units having responsibility for
equity, fixed income, foreign exchange and commodities products. Because of the
integrated nature of the markets for such products, each product area trades
cash instruments as well as related derivative products (i.e., options, swaps,
futures, forwards and other contracts with respect to such underlying
instruments or commodities). Revenues related to trading are summarized below by
business unit. The "Total" column includes all trading revenues plus the portion
of those commission and interest revenues and expenses which result from trading
activities. Commissions and Net Interest (interest revenues less interest
expense) as reported in the Company's Consolidated Statement of Income also
include results from the Company's securities services business and other
business activities:
<TABLE>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<CAPTION>
(Dollars in Millions) Trading Commissions Net Interest Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1995
Equities $ 409 $367 $ 103 $ 879
Fixed Income 489 52 306 847
Foreign Exchange 156 -- 3 159
Commodities 68 -- (16) 52
-----------------------------------------------------
Trading-related revenues 1,122 419 396 1,937
Securities services and other -- 18 42 60
-----------------------------------------------------
$1,122 $437 $ 438 $1,997
-----------------------------------------------------
FISCAL 1994
Equities $ 510 $351 $ (60) $ 801
Fixed Income 347 60 419 826
Foreign Exchange 148 1 4 153
Commodities 99 2 5 106
-----------------------------------------------------
Trading-related revenues 1,104 414 368 1,886
Securities services and other -- 35 163 198
-----------------------------------------------------
$1,104 $449 $ 531 $2,084
-----------------------------------------------------
FISCAL 1993
Equities $ 407 $312 $ 7 $ 726
Fixed Income 788 54 544 1,386
Foreign Exchange 205 1 (1) 205
Commodities 59 1 13 73
-----------------------------------------------------
Trading-related revenues 1,459 368 563 2,390
Securities services and other -- 25 77 102
-----------------------------------------------------
$1,459 $393 $ 640 $2,492
- ---------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 16
================================================================================
The Company's trading activities are both client-driven and proprietary.
The Company enters into specific contracts and carries inventories to meet the
needs of its clients. Its trading portfolios also are managed with a view toward
the risk and profitability of the portfolios to the Company. The nature of the
equities, fixed income, foreign exchange and commodities activities conducted by
the Company, including the use of derivative products in these businesses, and
the market, credit and concentration risk management policies and procedures
covering these activities, are discussed below.
EQUITIES
The Company makes markets and trades in the global secondary markets for
equities and convertible debt and is a dealer in equity warrants, exchange
traded and OTC equity options, index futures, equity swaps and other
sophisticated equity derivatives. The Company's activities as a dealer primarily
are client-driven, with the objective of meeting clients' needs while earning a
spread between the premiums paid or received on its contracts with clients and
the cost of hedging such transactions in the cash or forward market or with
other derivative transactions. The Company limits its market risk related to
these contracts, which stems primarily from underlying equity/index price and
volatility movements, by employing a variety of hedging strategies, such as
delta hedging (delta is a measure of a derivative contract's price movement
based on the movement of the price of the security or index underlying the
contract). The Company also takes proprietary positions in the global equity
markets by using derivatives, most commonly futures and options, in addition to
cash positions, intending to profit from market price and volatility movements
in the underlying equities or indices positioned.
Equity option contracts give the purchaser of the contract the right to
buy (call) or sell (put) the equity security or index underlying the contract at
an agreed-upon price (strike price) during or at the conclusion of a specified
period of time. The seller (writer) of the contract is subject to market risk,
and the purchaser is subject to market risk (to the extent of the premium paid)
and credit risk. Equity swap contracts are contractual agreements whereby one
counterparty receives the appreciation (or pays the depreciation) on an equity
investment in return for paying another rate, often based upon equity index
movements or interest rates. The counterparties to the Company's equity
transactions include commercial banks, investment banks, broker-dealers,
investment funds and industrial companies.
FIXED INCOME
The Company is a market-maker for U.S. and non-U.S. government securities,
corporate bonds, money market instruments, medium-term notes and Eurobonds,
high-yield securities, emerging market debt, mortgage- and other asset-backed
securities, preferred stock and tax-exempt securities. In addition, the Company
is a dealer in interest rate and currency swaps and other related derivative
products, OTC options on U.S. and foreign government bonds and mortgage-backed
forward agreements ("TBA"), options and swaps. In this capacity, the Company
facilitates asset and liability management for its customers in interest rate
and currency swaps and related products and OTC government bond options.
Swaps used in fixed income trading are, for the most part, contractual
agreements to exchange interest payment streams (i.e., an interest rate swap may
involve exchanging fixed for floating interest payments) or currencies (i.e., a
currency swap may involve exchanging yen for U.S. dollars in one year at an
agreed-upon exchange rate). The Company profits by earning a spread between the
premium paid or received for these contracts and the cost of hedging such
contracts. The Company seeks to manage the market risk of its swap portfolio,
which stems from interest rate and currency movements and volatility, by using
modeling that quantifies the sensitivity of its portfolio to movements in
interest rates and currencies, and by adding positions to or selling positions
from its portfolio as needed to minimize such sensitivity. Typically, the
Company adjusts its positions by entering into additional swaps or interest rate
and foreign currency futures, foreign currency forwards and underlying
government bonds. The Company manages the risk related to its option portfolio
by using a
<PAGE> 17
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MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
variety of hedging strategies such as delta hedging, which includes the use of
futures and forward contracts to hedge market risk. The Company also is involved
in using debt securities to structure products with multiple risk/return factors
designed to suit investor objectives.
The Company is an underwriter of and a market-maker in mortgage-backed
securities and collateralized mortgage obligations ("CMO") as well as
commercial, residential and real estate loan products. The Company also
structures mortgage-backed swaps for its clients, enabling them to derive the
cash flows from an underlying mortgage-backed security without purchasing the
cash position. It earns the spread between the premium inherent in the swap and
the cost of hedging the swap contract through the use of cash positions or TBA
contracts. The Company also uses TBAs in its role as a dealer in mortgage-backed
securities and facilitates customer trades by taking positions in the TBA
market. Typically, these positions are hedged by offsetting TBA contracts or
underlying cash positions. The Company profits by earning the bid-offer spread
on such transactions. Further, the Company uses TBAs to ensure delivery of
underlying mortgage-backed securities in its CMO issuance business. As is the
case with all mortgage-backed products, market risk associated with these
instruments results from interest rate fluctuations and changes in mortgage
prepayment speeds. The counterparties to the Company's fixed income transactions
include investment advisors, commercial banks, insurance companies, investment
funds and industrial companies.
FOREIGN EXCHANGE
The Company is a market-maker in a number of foreign currencies. In this
business, it actively trades currencies in the spot and forward markets earning
a dealer spread. The Company seeks to manage its market risk by entering into
offsetting positions. The Company conducts an arbitrage business in which it
seeks to profit from inefficiencies between the futures, spot and forward
markets. The Company also makes a market in foreign currency options. This
business largely is client-driven and involves the purchasing and writing of
European and American style options and certain sophisticated products to meet
specific client needs. The Company profits in this business by earning spreads
between the options' premiums and the cost of the hedging of such positions. The
Company limits its market risk by using a variety of hedging strategies,
including the buying and selling of the currencies underlying the options based
upon the options' delta equivalent. Foreign exchange option contracts give the
purchaser of the contract the right to buy (call) or sell (put) the currency
underlying the contract at an agreed-upon strike price at or over a specified
period of time. Forward contracts and futures represent commitments to purchase
or sell the underlying currencies at a specified future date at a specified
price. The Company also takes proprietary positions in major currencies to
profit from market price and volatility movements in the currencies positioned.
The majority of the Company's foreign exchange business relates to major
foreign currencies such as deutsche marks, yen, pound sterling, French francs,
Swiss francs, lire and Canadian dollars. The balance of the business covers a
broad range of other currencies. The counterparties to the Company's foreign
exchange transactions include commercial banks, investment banks,
broker-dealers, investment funds and industrial companies.
COMMODITIES
The Company, as a major participant in the world commodities markets, trades in
physical metals, electricity, energy products (principally oil and natural gas)
and soft commodities as well as a variety of derivatives related to these
commodities such as futures, forwards and exchange traded and OTC options and
swaps. Through these activities, the Company provides clients with a ready
market to satisfy end users' current raw material needs and facilitates their
ability to hedge price fluctuations related to future inventory needs. The
former activity at times requires the positioning of physical commodities.
59
<PAGE> 18
================================================================================
Derivatives on those commodities, such as futures, forwards and options, often
are used to hedge price movements in the underlying physical inventory. The
Company profits as a market-maker in physical commodities by capturing the bid
and offer spread inherent in the physical markets.
To facilitate hedging for its clients, the Company often is required to
take positions in the commodity markets in the form of forward, option and swap
contracts involving oil, natural gas and electricity. The Company generally
hedges these positions by using a variety of hedging techniques such as delta
hedging, whereby the Company takes positions in the physical markets and/or
positions in other commodity derivatives such as futures and forwards to offset
the market risk in the underlying derivative. The Company profits from this
business by earning a spread between the premiums paid or received for these
derivatives and the cost of hedging such derivatives.
The Company also maintains proprietary trading positions in commodity
derivatives, including futures, forwards and options in addition to physical
commodities, to profit from price and volatility movements in the underlying
commodities markets.
Forward, option and swap contracts on commodities are structured similarly
to like-kind derivative contracts for cash financial instruments. The
counterparties to OTC commodity contracts include precious metals producers,
refiners and consumers as well as shippers, central banks, and oil, gas and
electricity producers.
RISK MANAGEMENT
Risk management at the Company is an integrated process with independent
oversight which requires constant communication, judgment and knowledge of
specialized products and markets. The Company's senior management takes an
active role in the risk management process and has developed policies and
procedures that require specific administration and business functions to assist
in the identification, assessment and control of various risks. The Company has
developed a control infrastructure to manage and monitor each type of risk on a
global basis throughout the Company. In recognition of the increasingly varied
and complex nature of the financial services business, the Company's risk
management policies and procedures are evolutionary in nature and are subject to
ongoing review, modification and revision.
The Company has developed a multi-tiered approach for monitoring and
managing its risks. The Finance and Risk Committee, authorized by the Company's
Board of Directors, is chaired by the Company's Chief Financial Officer and
composed of senior officers with familiarity and expertise in dealing with risk
management principles. It establishes the overall risk management policies of
the Company, reviews the Company's performance relative to these policies,
allocates capital among business activities of the Company, monitors the
availability of sources of financing, reviews the foreign exchange risk of the
Company, and oversees liquidity and interest rate sensitivity of the Company's
asset and liability position. The Firm Risk Manager heads the Firm Risk
Management Group (described below) and assists senior management and the Finance
and Risk Committee in establishing, monitoring and controlling the Company's
overall risk profile. With respect to the Company's major trading divisions
(fixed income, equity, commodities and foreign exchange), division risk managers
monitor and manage positions and set the overall division risk profile within
established market risk limits, review major trading positions and strategies,
and report unusual market and position events. Desk risk managers perform
similar functions with respect to a product area or particular product at the
business unit and trading desk level.
The Firm Risk Management Group has operational responsibility for
identifying, monitoring and reporting to senior management on the Company's
exposure to risk. The Firm Risk Management Group includes three departments that
are all independent of the Company's business areas: the Market Risk Department
monitors the Company's
<PAGE> 19
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MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
market risk profile, which includes all divisional, geographic and product-line
market risks; the Credit Department manages and monitors counterparty exposure
limits on a worldwide basis; the Internal Audit Department, which also reports
to the Audit Committee of the Board of Directors, assesses the Company's
operations and control environment through periodic examinations of business and
operational areas.
Other departments within the Company, which are independent of the
Company's business areas, that are also actively involved in monitoring the
Company's risk profile include: Controllers, Corporate Treasury, Information
Technology, Legal and Compliance, Tax and Operations.
In addition, the Company has certain commitment committees that are
involved in managing and monitoring the risks associated with the Company's
diverse businesses. These committees are composed of a cross-section of the
Company's senior officers from various disciplines. The High-Yield Commitment
Committee and Equity Commitment Committee determine whether the Company should
participate in a transaction involving the underwriting or placement of
high-yield or equity securities, respectively, where the Company's capital and
reputation may be at risk, and evaluate the potential revenues and risks
involved with respect to a particular transaction.
MARKET RISK
Market risk refers to the risk that a change in the level of one or more market
prices, rates, indices, volatilities, correlations or other market factors, such
as liquidity, will result in losses for a specified position or portfolio.
The Company manages the market risk associated with its trading activities
Company-wide, on a divisional level worldwide and on an individual product
basis. Specific market risk guidelines and limits have been approved for the
Company and each trading division of the Company worldwide by the Finance and
Risk Committee. Discrete market risk limits are assigned to business units and
trading desks within trading areas which are compatible with the trading
division limits. Division risk managers, desk risk managers, and the Market Risk
Department all monitor market risk measures against limits.
The Company may use measures, such as rate sensitivity, convexity,
volatility and time decay measurements, to estimate market risk and to assess
the sensitivity of positions to changes in market conditions. Trading divisions
generally make use of valuation and risk models. Stress testing, which measures
the impact on the value of existing portfolios of specified changes in market
factors, for certain products is performed periodically and reviewed by division
risk managers and the Market Risk Department. The Company also regularly uses a
variety of measures to help reduce and control the market risk associated with
its market-making and proprietary trading activities.
CREDIT RISK
The Company's exposure to credit risk arises from the possibility that a
counterparty to a transaction might fail to perform under its contractual
commitment, resulting in the Company incurring losses. The Finance and Risk
Committee has approved Company-wide credit guidelines which limit the Company's
credit exposure to any one counterparty. Specific credit risk limits based on
the credit guidelines have also been approved by the Finance and Risk Committee
for each type of counterparty (by rating category) as well as certain
inventories of high-yield and emerging market debt. The Credit Department
administers the credit limits among trading divisions.
The Credit Department has procedures to monitor credit exposures, and all
counterparties of the Company are reviewed periodically to assess financial
soundness. In addition to monitoring credit limits, the Company manages the
credit exposure relating to its trading activities by entering into master
netting agreements and collateral
61
<PAGE> 20
================================================================================
arrangements with counterparties in appropriate circumstances, and limiting the
duration of exposure. In certain cases, the Company also may close out
transactions or assign them to other counterparties to mitigate credit risk.
CONCENTRATION RISK
The Company is subject to concentration risk by holding large positions in
certain types of securities or commitments to purchase securities of a single
issuer, including sovereign governments and other entities, issuers located in a
particular country or geographic area, public and private issuers involving
developing countries or issuers engaged in a particular industry. Financial
instruments owned by the Company include U.S. government and agency securities
and securities issued by other sovereign governments (principally Japan,
Germany, France and Italy), which, in the aggregate, represented approximately
18% of the Company's total assets at November 30, 1995. In addition,
substantially all of the collateral held by the Company for resale agreements or
bonds borrowed, which together represented approximately 37% of the Company's
total assets at November 30, 1995, consists of securities issued by the U.S.
government, federal agencies or non-U.S. governments. Positions taken and
commitments made by the Company, including positions taken and underwriting and
financing commitments made in connection with its merchant banking activities,
often involve substantial amounts and significant exposure to individual issuers
and businesses, including non-investment grade issuers. The Company seeks to
limit concentration risk through the use of the systems and procedures described
in the preceding discussions of market and credit risk.
CUSTOMER ACTIVITIES
The Company's customer activities involve the execution, settlement, custody and
financing of various securities and commodities transactions on behalf of
customers. Customer securities activities are transacted on either a cash or
margin basis. Customer commodities activities, which include the execution of
customer transactions in commodity futures transactions (including options on
futures), are transacted on a margin basis.
The Company's customer activities may expose it to off-balance sheet
credit risk. The Company may have to purchase or sell financial instruments at
prevailing market prices in the event of the failure of a customer to settle a
trade on its original terms or in the event cash and securities in customer
margin accounts are not sufficient to fully cover customer losses. The Company
seeks to control the risks associated with customer activities by requiring
customers to maintain margin collateral in compliance with various regulations
and Company policies.
NOTIONAL/CONTRACT AMOUNTS AND FAIR VALUES OF DERIVATIVES
The gross notional or contract amounts of derivative instruments and fair value
(carrying amount) of the related assets and liabilities at November 30, 1995 and
January 31, 1995, as well as the average fair value of those assets and
liabilities for the period ended November 30, 1995 and the year ended January
31, 1995, are presented in the table which follows. Fair value represents the
cost of replacing these instruments and is further described in Note 1. Future
changes in interest rates, foreign currency exchange rates or the market values
of the financial instruments, commodities or indices underlying these contracts
may ultimately result in cash settlements exceeding fair value amounts
recognized in the Consolidated Statement of Financial Condition. Assets
represent unrealized gains on purchased exchange traded and OTC options and
other contracts (including interest rate, foreign exchange and other forward
contracts and swaps) in gain positions net of any unrealized losses owed to
these counterparties on offsetting positions in situations where netting is
consistent with FASB Interpretation No. 39. Similarly, liabilities rep-
<PAGE> 21
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MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
resent net amounts owed to counterparties. These amounts will vary based on
changes in the fair values of underlying financial instruments and/or the
volatility of such underlying instruments:
<TABLE>
<CAPTION>
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal Year-End Fiscal Year-End Average
Gross Notional/ Fair Values(2) Fair Values(2)(3)
Contract Amount --------------------------- --------------------------
Assets Liabilities Assets Liabilities
--------------------------- --------------------------
1995 1994 (Dollars in Billions, at fiscal year-end)(1) 1995 1994 1995 1994 1995 1994 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 401 $ 299 Interest rate and currency swaps
and options (including caps,
floors and swap options) $ 3.8 $3.9 $3.8 $2.2 $ 3.7 $3.8 $3.8 $ 2.4
260 170 Foreign exchange forward and
futures contracts and options 1.9 1.1 1.9 1.3 2.0 1.3 2.2 1.5
21 39 Mortgage-backed securities forward
contracts, swaps and options 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1
199 235 Other fixed income securities
contracts (including futures
contracts and options) 0.1 0.4 0.4 0.6 0.3 0.7 0.3 1.3
57 57 Equity securities contracts (including
equity swaps, futures contracts,
and warrants and options) 1.4 1.1 0.8 1.2 1.5 1.1 0.9 1.1
47 35 Commodity forwards, futures,
options and swaps 0.7 1.9 0.5 1.9 1.0 1.8 0.9 1.7
- -------------------------------------------------------------------------------------------------------------------------------
$ 985 $ 835 Total $ 8.0 $8.6 $7.5 $7.3 $ 8.6 $8.8 $8.2 $ 8.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has a limited number of leveraged transactions. The notional
amounts of derivatives have been adjusted to reflect the effects of
leverage, where applicable.
(2) These amounts represent carrying value (exclusive of collateral) at
November 30, 1995 and January 31, 1995, respectively, and do not include
receivables or payables related to exchange traded futures contracts.
(3) Amounts are calculated using a monthly average.
The gross notional or contract amounts of these instruments are indicative
of the Company's degree of use of derivatives for trading purposes but do not
represent the Company's exposure to market or credit risk. Credit risk arises
from the failure of a counterparty to perform according to the terms of the
contract. The Company's exposure to credit risk at any point in time is
represented by fair value of the contracts reported as assets. These amounts are
presented on a net-by-counterparty basis consistent with FASB Interpretation No.
39, but are not reported net of collateral, which the Company obtains with
respect to certain of these transactions to reduce its exposure to credit
losses. The Company monitors the creditworthiness of counterparties to these
transactions on an ongoing basis and requests additional collateral when deemed
necessary. The Company believes that the ultimate settlement of the transactions
outstanding at November 30, 1995 will not have a material effect on the
Company's financial condition.
63
<PAGE> 22
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The remaining maturities of the Company's swaps and other derivative
products at November 30, 1995 and January 31, 1995 are summarized in the
following table, showing notional values by year of expected maturity:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Less than 1 to 3 3 to 5 Greater than
(Dollars in Billions) 1 Year Years Years 5 Years Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOVEMBER 30, 1995
Interest rate and currency swaps
and options (including caps,
floors and swap options) $ 97 $138 $ 74 $ 92 $ 401
Foreign exchange forward and
futures contracts and options 253 4 3 -- 260
Mortgage-backed securities forward
contracts, swaps and options 16 -- 2 3 21
Other fixed income securities
contracts (including futures
contracts and options) 142 34 16 7 199
Equity securities contracts
(including equity swaps,
futures contracts, and
warrants and options) 54 3 -- -- 57
Commodity forwards, futures
options and swaps 38 7 2 -- 47
-----------------------------------------------------------
Total $ 600 $186 $ 97 $102 $ 985
-----------------------------------------------------------
Percent of total 61% 19% 10% 10% 100%
-----------------------------------------------------------
JANUARY 31, 1995
Interest rate and currency swaps
and options (including caps,
floors and swap options) $ 74 $108 $ 68 $ 49 $ 299
Foreign exchange forward and
futures contracts and options 163 7 -- -- 170
Mortgage-backed securities forward
contracts, swaps and options 35 1 1 2 39
Other fixed income securities
contracts (including futures
contracts and options) 152 68 15 -- 235
Equity securities contracts
(including equity swaps,
futures contracts, and
warrants and options) 50 5 1 1 57
Commodity forwards, futures
options and swaps 30 4 1 -- 35
-----------------------------------------------------------
Total $ 504 $193 $ 86 $ 52 $ 835
-----------------------------------------------------------
Percent of total 61% 23% 10% 6% 100%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
The credit quality of the Company's trading-related derivatives at
November 30, 1995 and January 31, 1995 is summarized in the table below, showing
the fair value of the related assets by counterparty credit rating. The actual
credit ratings are determined by external rating agencies or by equivalent
ratings used by the Company's Credit Department:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Collater-
alized Other
Non- Non-
Invest- Invest-
ment ment
(Dollars in Millions) AAA AA A BBB Grade Grade Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NOVEMBER 30, 1995
Interest rate and currency swaps
and options (including caps, floors
and swap options) $ 660 $1,269 $ 1,148 $535 $ 88 $ 141 $ 3,841
Foreign exchange forward contracts
and options 548 531 674 83 -- 27 1,863
Mortgage-backed securities forward
contracts, swaps and options 23 31 36 7 12 14 123
Other fixed income securities
contracts (including options) 25 33 33 42 -- 4 137
Equity securities contracts (including
equity swaps, warrants and options) 612 98 232 143 178 159 1,422
Commodity forwards, options and swaps 103 129 152 126 -- 147 657
-----------------------------------------------------------------
Total $1,971 $2,091 $ 2,275 $936 $ 278 $ 492 $ 8,043
-----------------------------------------------------------------
Percent of total 25% 26% 28% 12% 3% 6% 100%
-----------------------------------------------------------------
JANUARY 31, 1995
Interest rate and currency swaps
and options (including caps, floors
and swap options) $ 723 $1,617 $ 965 $182 $ 294 $ 78 $ 3,859
Foreign exchange forward contracts
and options 409 345 251 76 -- 46 1,127
Mortgage-backed securities forward
contracts, swaps and options 14 69 75 28 -- 22 208
Other fixed income securities
contracts (including options) 302 26 42 26 -- 19 415
Equity securities contracts (including
equity swaps, warrants and options) 379 188 217 188 145 18 1,135
Commodity forwards, options and swaps 300 216 667 490 -- 206 1,879
-----------------------------------------------------------------
Total $2,127 $2,461 $ 2,217 $990 $ 439 $ 389 $ 8,623
-----------------------------------------------------------------
Percent of total 25% 29% 26% 11% 5% 4% 100%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 24
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NOTE 6 PREFERRED STOCK AND CAPITAL UNITS
Preferred stock is composed of the following issues:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Shares Outstanding at Balance at
----------------------- -----------------------
NOV. 30, Jan. 31, NOV. 30, Jan. 31,
(Dollars in Millions) 1995 1995 1995 1995
-----------------------------------------------------
<S> <C> <C> <C> <C>
ESOP Convertible Preferred Stock,
liquidation preference $35.88 3,758,133 3,795,588 $ 135 $ 136
9.36% Cumulative Preferred Stock, stated value $25 5,500,000 5,500,000 138 138
7-3/8% Cumulative Preferred Stock, stated value $200 1,000,000 1,000,000 200 200
8.88% Cumulative Preferred Stock, stated value $200 975,000 975,000 195 195
8-3/4% Cumulative Preferred Stock, stated value $200 750,000 750,000 150 150
-----------------------------------------------------
Total $ 818 $ 819
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Each issue of preferred stock ranks in parity with all other preferred
stock.
The Company has Capital Units outstanding which were issued by the Company
and Morgan Stanley Finance plc, a U.K. subsidiary ("MS plc"). A Capital Unit
consists of (a) a Subordinated Debenture of MS plc in the principal amount of
$25 guaranteed by the Company and having maturities from 2013 to 2015, and (b) a
related Purchase Contract issued by the Company, which may be accelerated by the
Company beginning approximately one year after the issuance of each Capital
Unit, requiring the holder to purchase one Depositary Share representing
ownership of a 1/8 interest in the Company's Cumulative Preferred Stock. The
aggregate amount of Capital Units outstanding was $865 million and $352 million
at November 30, 1995 and January 31, 1995, respectively.
The estimated fair value of the Capital Units was $872 million and $308
million at November 30, 1995 and January 31, 1995, respectively.
NOTE 7 COMMON STOCK AND STOCKHOLDERS' EQUITY
During the period ended November 30, 1995, the Company repurchased or acquired
shares of its common stock at an aggregate cost of $103 million. The Company's
unused portion of its stock repurchase authorization at November 30, 1995 was
approximately $213 million. On January 4, 1996, the Board of Directors
authorized the purchase, in the open market or otherwise, subject to market
conditions and certain other factors, of an additional $400 million of the
Company's common stock.
MS&Co. is a registered broker-dealer and a registered futures commission
merchant and, accordingly, is subject to the minimum net capital requirements of
the Securities and Exchange Commission ("SEC"), the New York Stock Exchange
("NYSE") and the Commodity Futures Trading Commission. MS&Co. has consistently
operated in excess of these requirements with aggregate net capital, as defined,
totaling $1,332 million at November 30, 1995, which exceeded the amount required
by $1,134 million. MSIL, a London-based broker-dealer subsidiary, is subject to
the capital requirements of the Securities and Futures Authority, and Morgan
Stanley Japan Limited ("MSJL"), a Tokyo-based broker-dealer, is subject to the
capital requirements of the Japanese Ministry of Finance. MSIL and MSJL have
consistently operated in excess of their respective regulatory capital
requirements.
Certain other U.S. and non-U.S. subsidiaries are subject to various
securities, commodities and banking regulations, and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. These subsidiaries have consistently operated
in excess of their local capital adequacy requirements.
<PAGE> 25
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MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
Advances, dividend payments and other equity withdrawals from MS&Co.,
MSIL, MSJL and other regulated subsidiaries are restricted by the regulations of
the SEC, NYSE, other regulatory agencies and by subordinated noteholders and
certain banks. Morgan Stanley Derivative Products Inc., the Company's triple-A
rated derivative products subsidiary, also has established certain operating
restrictions which have been reviewed by various rating agencies. At November
30, 1995, approximately $1,630 million of equity of the Company's subsidiaries
may be restricted as to the payment of dividends and advances.
Cumulative translation adjustments include gains or losses resulting from
translating foreign currency financial statements from their respective
functional currencies to U.S. dollars, net of hedge gains or losses and related
tax effects. The Company uses foreign currency contracts and designates certain
non-U.S. dollar currency debt as hedges to manage the currency exposure relating
to its net monetary investments in non-U.S. dollar functional currency
subsidiaries. Increases or decreases in the value of the Company's net foreign
investments generally are tax-deferred for U.S. purposes, but the related hedge
gains and losses are taxable currently. Therefore, the gross notional amounts of
the contracts and debt designated as hedges exceed the Company's net foreign
investments to result in effective hedging on an after-tax basis. The Company
attempts to protect its net book value from the effects of fluctuations in
currency exchange rates on its net monetary investments in non-U.S. dollar
subsidiaries by selling the appropriate non-U.S. dollar currency in the forward
market. However, under some circumstances, the Company may elect not to hedge
its net monetary investments in certain foreign operations due to market
conditions, including the availability of various currency contracts at
acceptable costs. Information relating to the hedging of the Company's net
monetary investments in non-U.S. dollar functional currency subsidiaries and
their effects on cumulative translation adjustments is summarized below:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
NOV. 30, Jan. 31,
(Dollars in Millions) 1995 1995
----------------------
<S> <C> <C>
Net investment in non-U.S. dollar functional
currency subsidiaries $1,243 $ 1,122
----------------------
Gross notional amounts of foreign exchange contracts
and non-U.S. dollar debt designated as hedges(1) $2,082 $ 1,960
----------------------
Cumulative translation adjustments resulting from
net investments in subsidiaries with a non-U.S. dollar
functional currency $ 185 $ 188
Cumulative translation adjustments resulting from
realized or unrealized gains or losses on hedges,
net of tax (194) (198)
---------------------
Total cumulative translation adjustments $ (9) $ (10)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Notional amounts represent the contractual currency amount translated at
respective fiscal year-end spot rates.
NOTE 8 EMPLOYEE COMPENSATION PLANS
The Company has adopted a variety of compensation plans for certain of its
employees. These plans are designed to facilitate a pay-for-performance policy,
provide compensation commensurate with other leading financial service industry
companies and align the interests of employees with the long-term interests of
the Company's stockholders. The following summarizes these plans.
CAPITAL ACCUMULATION PLAN
Under the Capital Accumulation Plan ("CAP"), vested units consisting of
unsecured rights to receive payments based on notional interests in existing and
future risk-capital
67
<PAGE> 26
================================================================================
investments made directly or indirectly by the Company ("CAP
Units") are granted to key employees. The value of the CAP Units awarded for
services rendered in fiscal 1995, fiscal 1994 and fiscal 1993 was approximately
$9 million, $14 million and $15 million, respectively, all of which relate to
vested units.
CARRIED INTEREST PLAN
Under the Carried Interest Plan, certain key employees effectively participate
in a portion of the Company's realized gains from certain of its equity
investments in merchant banking transactions. Compensation expense for fiscal
1995, fiscal 1994 and fiscal 1993 related to this plan aggregated $10 million,
$24 million and $29 million, respectively.
REAL ESTATE FUND PLANS
On September 26, 1995, the Board of Directors approved the adoption of the
Morgan Stanley Real Estate Compensation Plan and the Morgan Stanley Real Estate
Profits Participation Plan. Under these plans, select employees and consultants
may participate in certain gains realized by the Company's real estate funds.
Compensation expense relating to these plans was $9 million for fiscal 1995.
EQUITY INCENTIVE COMPENSATION PLAN
Pursuant to the 1988 Equity Incentive Compensation Plan ("EICP"), stock units
representing employees' rights to receive unrestricted common shares ("Stock
Units") are awarded annually to key employees; compensation expense for all such
awards (including those subject to forfeiture) recorded in fiscal 1995, fiscal
1994 and fiscal 1993 was determined based on the fair value of the Company's
common stock as defined in the plan.
Stock Units generally will convert to shares of the Company's common stock
within five or 10 years from grant (or earlier in the event of the holder's
death or retirement, as defined). Holders of Stock Units generally have all the
rights of a common stockholder, subject to restrictions on transfer of ownership
of the units for the five- or 10-year period. Holders of the Stock Units
generally will forfeit ownership only in certain limited situations, including
termination for cause during the restriction period. In addition, holders of the
Stock Units having a 10-year restriction period, which were first awarded in
respect of fiscal 1992 services, will forfeit ownership of a portion of their
Stock Units if their employment is terminated before the end of the 10-year
restriction period.
Activity related to Stock Units accrued pursuant to the EICP is as
follows:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Stock Units
-----------------------------------------------
FISCAL 1995(1) Fiscal 1994(1) Fiscal 1993(1)
-----------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of period 27,828,734 24,035,010 13,626,330
Awarded 3,776,284 4,515,630 10,682,806
Issued as unrestricted shares(2) (395,122) (362,548) (165,654)
Forfeited (287,720) (359,358) (108,472)
-----------------------------------------------
Outstanding at end of period 30,922,176 27,828,734 24,035,010
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Approximately 29%, 24% and 21% of the Stock Units awarded in fiscal 1995,
fiscal 1994 and fiscal 1993, respectively, were subject to a 10-year
restriction period.
(2) Amounts represent awards of Stock Units exchanged for unrestricted common
shares.
On May 2, 1991, the Company's stockholders approved the reservation of
48,000,000 shares of common stock for awards under the Company's equity-based
employee benefit plans. At November 30, 1995, approximately 5,000,000 shares
reserved for future awards under such employee benefit plans remain (net of
fiscal 1995 awards).
<PAGE> 27
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
STOCK OPTION AWARDS
The Company's 1986 Stock Option Plan provides for the granting of stock options
having an exercise price not less than the fair value of the Company's common
stock (as defined in the plan) on the date of grant. Such options generally
become exercisable over a three-year period and expire 10 years from the date of
the grant. The EICP also provides for the award of options; options awarded
under this plan are exercisable at a price equal to the fair value of the
Company's common stock (as defined in the plan) and will generally expire seven
years (for options awarded for fiscal 1993 service and prior) or 10 years (for
options awarded for fiscal 1995 and fiscal 1994 service) from grant.
Exercise prices for all options deemed outstanding at November 30, 1995,
January 31, 1995 and January 31, 1994 ranged from $9.42 to $37.93. The following
table sets forth activity relating to the number of shares covered by stock
options:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994 Fiscal 1993
-----------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of period 24,709,000 14,493,848 15,134,974
Granted 124,360 11,277,708 1,212,000
Exercised (3,215,456) (991,056) (1,812,428)
Forfeited (184,784) (71,500) (40,698)
-----------------------------------------------
Options outstanding at end of period 21,433,120 24,709,000 14,493,848
-----------------------------------------------
Options exercisable at end of period 15,045,750 18,274,658 13,845,148
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has also established a worldwide profit sharing plan and an
employee stock ownership plan for the benefit of substantially all its U.S.
employees. The following summarizes these plans:
PROFIT SHARING PLAN
The Company has a qualified non-contributory profit sharing plan covering
substantially all its U.S. employees and also provides cash payment of profit
sharing to employees of its international subsidiaries. Contributions are made
at the discretion of management based upon the financial performance of the
Company. Total profit sharing expense for fiscal 1995, fiscal 1994 and fiscal
1993 (excluding Company contributions to the Employee Stock Ownership Plan,
which increased in fiscal 1995) was $10 million, $23 million and $21 million,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
In July 1990, the Company's Board of Directors authorized the establishment of a
$140 million leveraged employee stock ownership plan, funded through an
independently managed trust. The Morgan Stanley Group Inc. and Subsidiaries
Employee Stock Ownership Plan ("ESOP") was established to broaden internal
ownership in the Company and allow it to provide benefits to its employees in a
cost-effective manner. Each of the 3,758,133 preferred shares outstanding at
November 30, 1995 is held by the ESOP trust, is convertible into two shares of
the Company's common stock and is entitled to annual dividends of $2.78 per
share. The ESOP trust funded its stock purchase through a loan of $140 million
from the Company. The ESOP trust note, due September 19, 2010 (extendable at the
option of the ESOP trust to September 19, 2015), bears a 10-3/8% interest rate
per annum with principal payable without penalty on or before the due date. The
ESOP trust expects to make principal and interest payments on the note from
funds provided by dividends on the shares of convertible preferred stock and
contributions from the Company. The note receivable from the ESOP trust is
reflected as a reduction in the Company's stockholders' equity.
Contributions to the ESOP by the Company and allocation of ESOP shares to
employees are made annually at the discretion of the Board of Directors. The
cost of shares allocated to participants' accounts amounted to $11 million in
fiscal 1995, $10 million in fiscal 1994 and $7 million in fiscal 1993. The ESOP
debt service costs for fiscal 1995, fiscal 1994 and fiscal 1993 were paid from
69
<PAGE> 28
===============================================================================
dividends received on preferred stock held by the plan and from Company
contributions. Shares allocated to employees generally may not be withdrawn
until the employee's death, disability, retirement or termination. Upon
withdrawal, each share of ESOP preferred stock generally will be converted into
two shares of the Company's common stock. If the fair value of such two common
shares at conversion is less than the $35.88 liquidation value of an ESOP
preferred share, the Company will pay the withdrawing employee the difference in
additional common shares or cash.
NOTE 9 EMPLOYEE BENEFIT PLANS
The Company sponsors various pension plans for the majority of its worldwide
employees. It provides certain other postretirement benefits, primarily health
care and life insurance, to eligible employees. The Company also provides
certain benefits to former or inactive employees prior to retirement. The
following summarizes these plans:
PENSION PLANS
Substantially all of the employees of the Company and its U.S. affiliates are
covered by a non-contributory pension plan qualified under Section 401(a) of the
Internal Revenue Code (the "Qualified Plan"). Two unfunded supplementary plans
(the "Supplemental Plans") cover certain executives. In addition to the
Qualified Plan and the Supplemental Plans (collectively, the "U.S. Plans"), the
Company also maintains a separate pension plan which covers substantially all
employees of the Company's U.K. subsidiaries (the "U.K. Plan"). Eight other
international subsidiaries also have pension plans covering substantially all of
their employees. These pension plans generally provide pension benefits that are
based on each employee's years of credited service and compensation during the
final years of employment. The Company's policy is to fund the accrued cost of
the Qualified Plan, the U.K. Plan and the other international plans currently.
Liabilities for benefits payable under the Supplemental Plans are accrued by the
Company and are funded when paid to the beneficiaries.
Pension expense for fiscal 1995, fiscal 1994 and fiscal 1993 includes the
following components:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) Fiscal 1995 Fiscal 1994 Fiscal 1993
--------------------------------------
<S> <C> <C> <C>
U.S. Plans
Service cost, benefits earned during the period $ 6 $ 8 $ 6
Interest cost on projected benefit obligation 11 11 10
Return on plan assets (34) 1 (16)
Difference between actual and expected return on assets 22 (15) 3
Net amortization (3) (3) (4)
--------------------------------------
Total U.S. Plans 2 2 (1)
U.K. Plan
Service cost, benefits earned during the period 6 6 5
Interest cost on projected benefit obligation 3 2 2
Return on plan assets (5) -- (10)
Difference between actual and expected return on assets 2 (3) 8
--------------------------------------
Total U.K. Plan 6 5 5
Other international plans 5 5 3
--------------------------------------
Total pension expense $ 13 $ 12 $ 7
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
The following table provides the assumptions used in determining the
projected benefit obligation for the U.S. Plans and the U.K. Plan as of November
30, 1995 and January 31, 1995:
<TABLE>
<CAPTION>
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
November 30, 1995 January 31, 1995
------------------------ ------------------------
U.S. Plans U.K. Plan U.S. Plans U.K. Plan
---------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average
discount rate 7.5% 9.0% 8.5% 9.0%
Rate of increase in future
compensation levels 5.0% 7.0% 5.0% 7.0%
Expected long-term rate of
return on plan assets 9.0% 9.0% 9.0% 9.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status of the U.S. Plans and the
U.K. Plan as of November 30, 1995 and January 31, 1995:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
November 30, 1995 January 31, 1995
------------------------------------ -----------------------------------
U.S. Plans U.K. Plan U.S. Plans U.K. Plan
----------------------- --------- ----------------------- ---------
Qualified Supplemental Qualified Supplemental
(Dollars in Millions) Plan Plans Plan Plans
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
vested benefit obligation $ (100) $(24) $(31) $ (75) $(19) $ (25)
----------------------------------------------------------------------------
Accumulated benefit obligation $ (112) $(44) $(31) $ (84) $(34) $ (25)
Effect of future salary increases (33) (16) (8) (22) (12) (6)
----------------------------------------------------------------------------
Projected benefit obligation (145) (60) (39) (106) (46) (31)
Plan assets at fair market
value (primarily listed stocks
and bonds) 192 -- 43 160 -- 35
----------------------------------------------------------------------------
Projected benefit obligation
less than or (in excess of)
plan assets 47 (60) 4 54 (46) 4
Unrecognized net (gain) or loss (3) 9 (13) (9) (2) (11)
Unrecognized prior service cost (1) (1) -- (1) (1) --
Unrecognized net (asset)
obligation at January 1, 1987,
net of amortization (13) 5 -- (16) 5 --
----------------------------------------------------------------------------
Prepaid (accrued) pension
cost at fiscal year-end $ 30 $(47) $ (9) $ 28 $(44) $ (7)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE> 30
================================================================================
POSTRETIREMENT BENEFITS
The Company's obligation for certain postretirement benefits provided to
eligible employees is accounted for in accordance with SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions."
The net postretirement benefit cost consists of the following components:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) Fiscal 1995 Fiscal 1994 Fiscal 1993
--------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the period $ 1 $2 $ 2
Interest cost on accumulated postretirement benefit obligation 2 2 2
--------------------------------------
Net postretirement benefit cost $ 3 $4 $ 4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table provides information on the status of the Company's
postretirement benefit plans as of November 30, 1995 and January 31, 1995:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Nov. 30, Jan. 31,
(Dollars in Millions) 1995 1995
----------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(13) $ (10)
Fully eligible active plan participants (5) (4)
Other active plan participants (17) (14)
----------------------
Total (35) (28)
Unrecognized net loss 7 2
----------------------
Accrued postretirement benefit cost $(28) $ (26)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined utilizing
a discount rate of 7.5% at November 30, 1995 and 8.5% at January 31, 1995, and
by applying the provisions of the Company's medical plans, the established
maximums and sharing of costs, the relevant actuarial assumptions and the health
care cost trend rates which are projected at 11.0% and which grade down to 7.0%
in 2000 and decrease further to 5.5% in 2040.
The effect of a 1% change in the assumed cost trend rate would change the
accumulated postretirement benefit obligation by approximately $4 million as of
November 30, 1995 and would change the net periodic postretirement benefit cost
by $1 million for fiscal 1995.
POSTEMPLOYMENT BENEFITS
Effective February 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Among its provisions, SFAS No. 112
establishes accounting standards for employers who provide benefits to former or
inactive employees after employment but before retirement. Postemployment
benefits include, but are not limited to, salary continuation, supplemental
unemployment benefits, severance benefits, disability-related benefits, and
continuation of benefits such as health care benefits and life insurance
coverage. The effect of the adoption of SFAS No. 112 was not material to the
Company's fiscal 1995 or fiscal 1994 Consolidated Financial Statements.
<PAGE> 31
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 10 INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
(Dollars in Millions) 1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 180 $ 165 $ 266
U.S. state and local 103 142 175
Non-U.S. 111 20 239
---------------------------------
394 327 680
---------------------------------
Deferred:
U.S. federal (40) (75) (161)
U.S. state and local (33) (64) (97)
Non-U.S. (38) 11 (8)
---------------------------------
(111) (128) (266)
---------------------------------
Provision for income taxes $ 283 $ 199 $ 414
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table reconciles the provision to the U.S. federal statutory
income tax rate:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
(Dollars in Millions) 1995 1994 1993
---------------------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
U.S. state and local income taxes, net of
U.S. federal income tax benefits 5.1 8.5 4.2
Lower tax rates applicable to non-U.S. earnings (8.6) (9.1) (5.7)
Reduced tax rate applied to dividends (0.5) (0.6) (0.6)
Other 1.0 (0.3) 1.6
---------------------------------
Effective income tax rate 32.0% 33.5% 34.5%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Lower tax rates applicable to non-U.S. earnings include the benefit of
foreign tax credits utilized against U.S. federal income taxes. The Company
intends to permanently reinvest earnings of international subsidiaries or
repatriate such earnings only when it is tax effective to do so. U.S. federal
income taxes that would be payable upon repatriation are estimated to be $504
million. Under SFAS No. 109, deferred income taxes reflect the net tax effects
of temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
73
<PAGE> 32
================================================================================
will be in effect when such differences are expected to reverse. Significant
components of the Company's deferred tax assets and liabilities as of November
30, 1995 and January 31, 1995 are as follows:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Nov. 30, Jan. 31,
(Dollars in Millions) 1995 1995
----------------------
<S> <C> <C>
Deferred tax assets:
Employee compensation and benefit plans $ 585 $ 467
Accrued expenses not yet deductible for tax purposes 21 51
----------------------
Total deferred tax assets 606 518
----------------------
Deferred tax liabilities:
Valuation of inventory, investments and receivables 245 260
Depreciation and amortization 28 65
Other 31 6
----------------------
Total deferred tax liabilities 304 331
----------------------
Net deferred tax assets $ 302 $ 187
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's income tax provision excludes a currency hedging-related
income tax provision of $3 million in fiscal 1995, as well as income tax
benefits of $72 million in fiscal 1994 and $57 million in fiscal 1993, credited
directly to the cumulative translation adjustments component of consolidated
stockholders' equity. Also not included in the Company's income tax provision
are income tax benefits of $38 million in fiscal 1995, $9 million in fiscal 1994
and $13 million in fiscal 1993, attributable to the vesting of Stock Unit awards
and the exercise of stock options, credited directly to paid-in capital; and $9
million in fiscal 1995, $10 million in fiscal 1994 and $8 million in fiscal
1993, attributable to Stock Unit and ESOP dividends, credited directly to
retained earnings.
<PAGE> 33
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 11 GEOGRAPHIC AREA DATA
The Company's business activities are highly integrated and constitute a single
industry segment for purposes of SFAS No. 14. Total revenues, net revenues,
income before taxes and identifiable assets of the Company's operations by
geographic area are as follows:
<TABLE>
<CAPTION>
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
Total Revenues Net Revenues
---------------------------------- -----------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
(Dollars in Millions) 1995 1994 1993 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International
Europe $ 3,856 $ 3,942 $ 4,617 $ 1,018 $ 776 $ 1,466
Asia 649 603 468 565 475 396
---------------------------------------------------------------------------
Total 4,505 4,545 5,085 1,583 1,251 1,862
North America 8,553 8,332 6,341 2,264 2,516 2,538
Eliminations (3,934) (3,501) (2,250) (224) (266) (244)
---------------------------------------------------------------------------
Total $ 9,124 $ 9,376 $ 9,176 $ 3,623 $ 3,501 $ 4,156
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Income before Taxes Identifiable Assets
---------------------------------- -----------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International
Europe $ 262 $ 11 $ 720 $ 85,393 $ 65,110 $ 63,279
Asia 186 56 24 17,363 18,413 15,910
---------------------------------------------------------------------------
Total 448 67 744 102,756 83,523 79,189
North America 435 527 456 139,801 120,360 100,483
Eliminations -- -- -- (98,804) (87,189) (82,430)
---------------------------------------------------------------------------
Total $ 883 $ 594 $ 1,200 $143,753 $116,694 $ 97,242
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Because of the international nature of the financial markets and the
resulting geographic integration of the Company's business, the Company manages
its business with a view to the profitability of the enterprise as a whole, and,
as such, profitability by geographic area is not necessarily meaningful.
NOTE 12 SUBSEQUENT EVENT
On January 3, 1996, the Company completed its purchase of Miller Anderson &
Sherrerd, LLP, an institutional investment manager, for approximately $350
million, payable in a combination of cash, notes and common stock of the
Company.
75
<PAGE> 34
================================================================================
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 13 QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995(1)
-------------------------------------------------------------------------------------------
Month Quarter Quarter Quarter
Ended Ended Ended Ended
(Dollars in Millions, Feb. 28, May 31, Aug. 31, Nov. 30,
Except Share Data) 1995 1995 1995 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Investment banking $ 80 $ 273 $ 355 $ 503
Principal transactions:
Trading 114 438 352 218
Investments -- (6) 69 39
Commissions 37 131 130 139
Interest and dividends 588 1,742 1,899 1,710
Asset management
and administration 31 88 96 95
Other 1 1 1 --
-------------------------------------------------------------------------------------------
Total revenues 851 2,667 2,902 2,704
Interest expense 558 1,656 1,751 1,536
-------------------------------------------------------------------------------------------
Net revenues 293 1,011 1,151 1,168
-------------------------------------------------------------------------------------------
Expenses excluding interest:
Compensation and benefits 138 475 575 607
Occupancy and equipment 27 80 84 85
Brokerage, clearing and
exchange fees 20 66 64 61
Communications 11 34 31 32
Business development 14 34 30 32
Professional services 14 40 37 40
Other 11 31 32 35
Relocation charge -- -- -- --
-------------------------------------------------------------------------------------------
Total expenses
excluding interest 235 760 853 892
-------------------------------------------------------------------------------------------
Income before income
taxes 58 251 298 276
Provisions for income taxes 20 85 89 89
-------------------------------------------------------------------------------------------
Net income $ 38 $ 166 $ 209 $ 187
-------------------------------------------------------------------------------------------
Earnings applicable to
common shares(2) $ 33 $ 150 $ 192 $ 171
-------------------------------------------------------------------------------------------
Per common share:(3)
Primary earnings(4) $ 0.22 $ 0.95 $ 1.23 $ 1.08
Fully diluted earnings(4) $ 0.21 $ 0.91 $ 1.17 $ 1.04
Cash dividends $ -- $ 0.16 $ 0.16 $ 0.16
Book value $ 24.13 $ 25.19 $ 26.34 $ 28.18
Average common and
equivalent shares(2)(3) 154,037,668 157,595,614 157,236,918 158,415,826
Stock price range(3)(5) $30 7/16-33 11/16 $33 1/16-39 13/16 $37 15/16-43 7/16 $41 7/8-49 3/4
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1994(1)
----------------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
(Dollars in Millions, April 30, July 31, Oct. 31, Jan. 31,
Except Share Data) 1994 1994 1994 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Investment banking $ 260 $ 211 $ 190 $ 258
Principal transactions:
Trading 258 300 297 249
Investments 10 23 82 24
Commissions 119 112 104 114
Interest and dividends 1,561 1,525 1,714 1,606
Asset management
and administration 81 89 95 85
Other 3 2 3 1
----------------------------------------------------------------------------------------
Total revenues 2,292 2,262 2,485 2,337
Interest expense 1,404 1,349 1,575 1,547
----------------------------------------------------------------------------------------
Net revenues 888 913 910 790
----------------------------------------------------------------------------------------
Expenses excluding interest:
Compensation and benefits 440 460 460 373
Occupancy and equipment 68 74 79 82
Brokerage, clearing and
exchange fees 58 59 56 57
Communications 29 28 31 34
Business development 39 41 41 44
Professional services 41 39 41 43
Other 29 30 32 40
Relocation charge -- -- -- 59
----------------------------------------------------------------------------------------
Total expenses
excluding interest 704 731 740 732
----------------------------------------------------------------------------------------
Income before income
taxes 184 182 170 58
Provisions for income taxes 67 61 52 19
----------------------------------------------------------------------------------------
Net income $ 117 $ 121 $ 118 $ 39
----------------------------------------------------------------------------------------
Earnings applicable to
common shares(2) $ 101 $ 104 $ 102 $ 23
----------------------------------------------------------------------------------------
Per common share:(3)
Primary earnings(4) $ 0.64 $ 0.66 $ 0.65 $ 0.15
Fully diluted earnings(4) $ 0.61 $ 0.63 $ 0.63 $ 0.15
Cash dividends $ 0.15 $ 0.15 $ 0.15 $ 0.15
Book value $ 23.34 $ 23.76 $ 24.21 $ 24.89
Average common and
equivalent shares(2)(3) 159,657,342 159,211,010 156,708,032 155,068,008
Stock price range(3)(5) $30 7/16-39 3/4 $27 13/16-31 1/8 $29 11/16-34 7/8 $27 5/8-32 9/16
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1995's quarterly periods reflect the change in the Company's
fiscal year-end (see Note 1). Since fiscal 1995 consists of the
ten-month period from February 1, 1995 to November 30, 1995, the first
quarter consists only of the results for the month ended February 28,
1995. Fiscal 1994's quarterly periods are presented based upon the
previous fiscal year-end date.
(2) Amounts shown are used to calculate primary earnings per share.
(3) Amounts shown have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend,
which became effective on January 26, 1996.
(4) Summation of the quarters' earnings per common share does not equal the
annual amounts due to the averaging effect of the number of shares and
share equivalents throughout the year.
(5) Prices represent the range of sales per share on the New York Stock
Exchange for the periods indicated. The number of stockholders of
record at November 30, 1995 approximated 1,235. The number of
beneficial owners of common stock is believed to exceed this number.
<PAGE> 1
Exhibit 21
MORGAN STANLEY GROUP INC. SUBSIDIARIES
As of February 15, 1996
<TABLE>
<CAPTION>
YEAR OF
JURISDICTION OF INCORPORATION/
INCORPORATION FORMATION
<S> <C> <C>
MORGAN STANLEY GROUP INC. Delaware 1975
Fourth Street Development Co. Incorporated Delaware 1990
Fourth Street Ltd. Delaware 1990
Jolter Investments Inc. Delaware 1989
Morgan Rundle Inc. Delaware 1978
MR Ventures Inc. Delaware 1982
Morgan Stanley Advisory Partnership Inc. Delaware 1985
Morgan Stanley Asset Management Inc. Delaware 1980
Morgan Stanley Asset Management Holdings Inc. Delaware 1995
*Miller Anderson & Sherrerd, LLP Pennsylvania 1971
Morgan Stanley Baseball, Inc. Delaware 1989
Morgan Stanley Capital Group Inc. Delaware 1984
Morgan Stanley Capital I Inc. Delaware 1985
Morgan Stanley Capital (Jersey) Limited Jersey, Channel Is. 1987
Morgan Stanley Capital Partners III, Inc. Delaware 1993
Morgan Stanley Capital Services Inc. Delaware 1985
Morgan Stanley Commercial Mortgage Capital, Inc. Delaware 1994
Morgan Stanley Commodities Management, Inc. Delaware 1992
Morgan Stanley Derivative Products Inc. Delaware 1994
Morgan Stanley Developing Country Debt II, Inc. Delaware 1991
Morgan Stanley Emerging Markets Inc. Delaware 1990
Morgan Stanley Equity (C.I.) Limited Jersey, Channel Is. 1995
Morgan Stanley Equity Investors Inc. Delaware 1988
Morgan Stanley Finance (Jersey) Limited Jersey, Channel Is. 1990
Morgan Stanley Insurance Agency Inc. Delaware 1985
Morgan Stanley (Jersey) Limited Jersey, Channel Is. 1986
Morgan Stanley LEF I, Inc. Delaware 1989
Morgan Stanley Leveraged Capital Fund Inc. Delaware 1985
Morgan Stanley Leveraged Equity Fund II, Inc. Delaware 1987
Morgan Stanley Capital Partners Asia Limited Hong Kong 1992
Morgan Stanley Leveraged Equity Holdings Inc. Delaware 1987
Morgan Stanley Market Products Inc. Delaware 1987
Morgan Stanley Mortgage Capital Inc. New York 1984
Morgan Stanley Real Estate Investment Management Inc. Delaware 1990
Morgan Stanley Real Estate Fund, Inc. Delaware 1989
MSREF I, L.L.C. Delaware 1995
MSREF I-CO, L.L.C. Delaware 1995
Morgan Stanley Real Estate Investment Management II, Inc. Delaware 1994
MSREF II-CO, L.L.C. Delaware 1995
Morgan Stanley Realty Incorporated Delaware 1969
Brooks Harvey & Co., Inc. Delaware 1971
Morgan Stanley Realty of California Inc. California 1970
Morgan Stanley Realty of Illinois Inc. Delaware 1989
Brooks Harvey of Florida, Inc. Florida 1978
Brooks Harvey & Co. of Hawaii, Inc. Delaware 1981
Morgan Stanley Realty Japan Ltd. Japan 1991
BH-MS Realty Inc. Delaware 1983
BH-MS Leasing Inc. Delaware 1983
BH-Sartell Inc. Delaware 1983
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
MORGAN STANLEY GROUP INC. (CONTINUED)
The Morgan Stanley Scholarship Fund Inc.
(Not-for-Profit) Delaware 1985
Morgan Stanley Services Inc. Delaware 1988
Morgan Stanley Technical Services Inc. Delaware 1989
Morgan Stanley Technical Services MB/VC Inc. Delaware 1993
Morgan Stanley Trust Company New York 1992
MS Prospect & Co. Delaware 1993
Morgan Stanley Venture Capital Inc. Delaware 1984
Morgan Stanley Venture Capital II, Inc. Delaware 1992
Morgan Stanley Ventures Inc. Delaware 1984
Morstan Development Company, Inc. Delaware 1971
Moranta, Inc. Georgia 1979
Porstan Development Company, Inc. Oregon 1982
MS 10020, Inc. Delaware 1994
MS Financing Inc. Delaware 1986
Morgan Stanley 750 Building Corp. Delaware 1994
MS Tokyo Properties Ltd. Japan 1989
MS Holdings Incorporated Delaware 1995
MS SP Urban Horizons, Inc. Delaware 1996
MS Urban Horizons, Inc. Delaware 1994
MS Venture Capital (Japan) Inc. Delaware 1989
MSAM/Kokusai, Inc. Delaware 1995
MSBF Inc. Delaware 1995
MSCP III Holdings, Inc. Delaware 1994
MSPL Co. Inc. Delaware 1990
MSREF II, Inc. Delaware 1994
MSREF II, L.L.C. Delaware 1995
MS/USA Leasing Inc. Delaware 1993
PG Holdings, Inc. Delaware 1991
PG Investors, Inc. Delaware 1991
PG Investors II, Inc. Delaware 1996
Pierpont Power, Inc. New York 1987
Romley Computer Leasing Inc. Delaware 1985
Strategic Investments I, Inc. Delaware 1996
MORGAN STANLEY & CO. INCORPORATED Delaware 1969
HRJ Corporation Delaware 1986
Morgan Stanley Flexible Agreements Inc. Delaware 1992
Morgan Stanley Securities Trading Inc. Delaware 1986
Morgan Stanley Stock Loan Inc. Delaware 1986
MS Securities Services Inc. Delaware 1981
NRSD Corporation Delaware 1988
Prime Dealer Services Corp. Delaware 1994
MORGAN STANLEY INTERNATIONAL INCORPORATED Delaware 1963
Bank Morgan Stanley AG Switzerland 1973
Morgan Stanley AOZT Russia 1994
Morgan Stanley Asia (China) Limited Hong Kong 1991
Morgan Stanley Asia Holdings I Inc. Delaware 1990
Morgan Stanley Asia Holdings II Inc. Delaware 1990
Morgan Stanley Asia Holdings III Inc. Delaware 1990
Morgan Stanley Asia Holdings IV Inc. Delaware 1990
Morgan Stanley Asia Holdings V Inc. Delaware 1990
Morgan Stanley Asia Holdings VI Inc. Delaware 1990
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
MORGAN STANLEY GROUP INC. (CONTINUED)
MORGAN STANLEY INTERNATIONAL INCORPORATED (CONTINUED)
Morgan Stanley Asia Pacific (Holdings) Limited Cayman Islands 1995
Morgan Stanley Asia Regional (Holdings) I LLC Cayman Islands 1995
Morgan Stanley Asia Limited Hong Kong 1984
Morgan Stanley Futures (Hong Kong) Limited Hong Kong 1988
Morgan Stanley Hong Kong Securities Limited Hong Kong 1988
Morgan Stanley Pacific Limited Hong Kong 1987
Morgan Stanley Asia Regional (Holdings) II LLC Cayman Islands 1995
Morgan Stanley Asia Regional (Holdings) III LLC Cayman Islands 1995
Morgan Stanley Asia Regional (Holdings) IV LLC Cayman Islands 1995
**Morgan Stanley Japan (Holdings) Ltd. Cayman Islands 1984
Morgan Stanley Japan Limited Hong Kong 1993
Morgan Stanley Asia Pacific (Holdings) I Limited Cayman Islands 1995
Morgan Stanley Asia (Singapore) Pte Ltd Rep. of Singapore 1992
Morgan Stanley Asia (Taiwan) Ltd. Rep. of China 1990
Morgan Stanley Asset & Investment Trust Management Co., Limited Japan 1987
Morgan Stanley Asset Management Singapore Limited Rep. of Singapore 1990
Morgan Stanley Australia Limited Australia 1989
Morgan Stanley Bank Luxembourg S.A. Luxembourg 1989
Morgan Stanley Canada Limited Canada 1982
Morgan Stanley Capital SA France 1989
Morgan Stanley Capital Group (Singapore) Pte Ltd Rep. of Singapore 1990
Morgan Stanley Capital (Luxembourg) S.A. Luxembourg 1993
Morgan Stanley Developing Country Debt, Ltd. Bermuda 1991
Morgan Stanley Financial Services Beteiligungs GmbH Germany 1993
Morgan Stanley Futures (Singapore) Pte Ltd Rep. of Singapore 1992
Morgan Stanley Group (Europe) Plc England 1988
Morgan Stanley Asset Management Limited England 1986
Morgan Stanley Capital Group Limited England 1993
Morgan Stanley (Europe) Limited England 1993
Morgan Stanley Finance plc England 1993
Morgan Stanley Properties Limited England 1986
Morgan Stanley Property Management (UK) Limited England 1987
Morgan Stanley Services (UK) Limited England 1993
Morgan Stanley UK Group England 1976
Morgan Stanley & Co. International Limited England 1986
Morgan Stanley International Nominees Limited England 1994
Morgan Stanley & Co. Limited England 1988
Morgan Stanley Securities Limited England 1986
Morstan Nominees Limited England 1986
MS Leasing UK Limited England 1991
MS Volatility Fund N.V. Netherlands Antilles 1993
Morgan Stanley Holding (Deutschland) GmbH Germany 1990
Morgan Stanley Bank AG Germany 1986
Morgan Stanley Hong Kong Nominees Limited Hong Kong 1988
Morgan Stanley International Insurance Ltd. Bermuda 1995
Morgan Stanley Latin America Incorporated Delaware 1994
Morgan Stanley do Brasil Limitada Brazil 1995
MS Carbocol Advisors Incorporated Delaware 1995
MS Ferrovias Advisors Incorporated Delaware 1995
Morgan Stanley Mauritius Company Limited Mauritius 1993
***Morgan Stanley Asset Management India Private Limited India 1993
***Morgan Stanley India Securities Private Limited India 1995
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
MORGAN STANLEY GROUP INC. (CONTINUED)
MORGAN STANLEY INTERNATIONAL INCORPORATED (CONTINUED)
Morgan Stanley Offshore Investment Company Ltd. Cayman Islands 1987
Morgan Stanley Overseas Services (Jersey) Limited Jersey, Channel Is. 1986
Morgan Stanley S.A. France 1992
Morgan Stanley SICAV Management S.A. Luxembourg 1988
Morgan Stanley South Africa (Pty) Limited South Africa 1994
Morgan Stanley (Structured Products) Jersey Limited Jersey, Channel Is. 1994
Morgan Stanley Wertpapiere GmbH Germany 1989
MS Italy (Holdings) Inc. Delaware 1990
Banca Morgan Stanley SpA Italy 1990
MS LDC, Ltd. Delaware 1991
MSL Incorporated Delaware 1976
</TABLE>
- ------------------------------
* 95% owned by Morgan Stanley Asset Management Holdings Inc., 3% owned by MSL
Incorporated and 2% owned by MS Holdings Incorporated
** 25% owned by Morgan Stanley Asia Pacific (Holdings) I Limited
*** 25% owned by non-Morgan Stanley entities
4
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Morgan Stanley Group Inc. of our report dated January 4, 1996, included in
the 1995 Annual Report to Shareholders of Morgan Stanley Group Inc.
Our audits also included the financial statement schedule of Morgan Stanley
Group Inc. listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-58611, Form S-3 No. 33-57833, Form S-3 No. 33-51067, Form S-3
No. 33-51413, Form S-8 No. 33-13177, Form S-8 No. 33-37652, Form S-8 No.
33-18184, and Form S-8 No. 33-42464) of Morgan Stanley Group Inc. and in the
related Prospectuses of our report dated January 4, 1996, with respect to the
consolidated financial statements and schedule of Morgan Stanley Group Inc.
included and incorporated by reference in this Annual Report on Form 10-K for
the period ended November 30, 1995.
/s/ Ernst & Young LLP
New York, New York
February 23, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE DIRECTORS OF MORGAN STANLEY GROUP INC.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-42464) pertaining to the Morgan Stanley UK Group Profit Sharing
Scheme and in the related Prospectus of our report dated 23 February 1996, with
respect to the financial statements of the Morgan Stanley UK Group Profit
Sharing Scheme included in this Annual Report on Form 10-K for the year ended 31
December 1995.
/s/ Ernst & Young
Chartered Accountants
Registered Auditor
London
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> FEB-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 3,810
<RECEIVABLES> 6,476
<SECURITIES-RESALE> 45,886
<SECURITIES-BORROWED> 27,069
<INSTRUMENTS-OWNED> 58,600
<PP&E> 1,286
<TOTAL-ASSETS> 143,753
<SHORT-TERM> 11,703
<PAYABLES> 17,406
<REPOS-SOLD> 60,738
<SECURITIES-LOANED> 9,340
<INSTRUMENTS-SOLD> 27,700
<LONG-TERM> 9,635
0
818
<COMMON> 163
<OTHER-SE> 4,193
<TOTAL-LIABILITY-AND-EQUITY> 143,753
<TRADING-REVENUE> 1,122
<INTEREST-DIVIDENDS> 5,939
<COMMISSIONS> 437
<INVESTMENT-BANKING-REVENUES> 1,211
<FEE-REVENUE> 310
<INTEREST-EXPENSE> 5,501
<COMPENSATION> 1,795
<INCOME-PRETAX> 883
<INCOME-PRE-EXTRAORDINARY> 883
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 600
<EPS-PRIMARY> 3.48<F1>
<EPS-DILUTED> 3.33<F1>
<FN>
<F1>Amounts have been retroactively adjusted to give effect for a
two-for-one stock split, effected in the form of a 100% stock dividend, which
became effective on January 26, 1996
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
MORGAN STANLEY UK GROUP PROFIT
SHARING SCHEME
Report and Financial Statements
31 December 1995 and 1994
<PAGE> 2
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE MORGAN STANLEY GROUP INC. UK PROFIT SHARING COMMITTEE
AND PARTICIPANTS IN THE MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
We have audited the accompanying statement of financial condition of the Morgan
Stanley UK Group Profit Sharing Scheme as of 31 December 1995 and 1994 and the
related statement of income and changes in plan equity for the years ended 31
December 1995, 1994 and 1993. These financial statements are the responsibility
of the Scheme's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Scheme as of 31 December
1995 and 1994 and the income and changes in plan equity for the years ended 31
December 1995, 1994 and 1993 in conformity with United States generally accepted
accounting principles.
/s/ Ernst & Young
Chartered Accountants
Registered Auditor
London
February 23, 1996
3
<PAGE> 3
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
STATEMENT OF THE FINANCIAL CONDITION
at 31 December 1995
<TABLE>
<CAPTION>
1995 1994
Notes $ $
<S> <C> <C> <C>
ASSETS
Investments at market value Morgan Stanley
Group Inc. Common Stock 2,3 13,189,121 8,096,334
Amounts due from trustee 9,466 43,112
Employee contributions receivable 2,737,363 2,371,487
---------- ----------
15,935,950 10,510,933
========== ==========
LIABILITIES AND PLAN EQUITY
Dividend income, net of withholding taxes, payable
to participants 9,465 41,020
Taxes withheld in respect of dividend income - 2,090
Plan equity 15,926,485 10,467,823
---------- ----------
15,935,950 10,510,933
========== ==========
</TABLE>
See notes to the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 4
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
for the years ended 31 December 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
Notes $ $ $
<S> <C> <C> <C> <C>
CASH DIVIDEND
Distribution from Morgan Stanley Group
Inc. Common Stock 160,989 167,520 127,435
Less: United States tax withheld 24,148 25,105 19,115
---------- ----------- ----------
NET DIVIDENDS 136,841 142,415 108,320
Gain on sale/transfer of Morgan Stanley Group
Inc. Common Stock 2 518,552 183,380 465,762
Change in unrealised appreciation of
investments 3 3,158,900 (1,791,131) 1,287,954
EMPLOYEE CONTRIBUTIONS
Current year 2,737,495 2,371,487 1,834,116
---------- ----------- ----------
INCOME FOR THE YEAR 6,551,788 906,151 3,696,152
Less: Dividend income payable to participants 128,791 134,006 100,238
Income tax payable 8,050 8,409 8,082
Withdrawals disbursed to employees 828,659 289,513 486,901
Value of shares transferred to employees 127,626 97,680 403,774
---------- ----------- ----------
INCREASE IN PLAN EQUITY 5,458,662 376,543 2,697,157
PLAN EQUITY AT 1 JANUARY 10,467,823 10,091,280 7,394,123
---------- ----------- ----------
PLAN EQUITY AT END OF YEAR 15,926,485 10,467,823 10,091,280
========== =========== ==========
</TABLE>
See notes to the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 5
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
SCHEME DESCRIPTION
On 12 November 1987, the Morgan Stanley UK Group Profit Sharing Scheme was
established in the United Kingdom by a trust deed made between Morgan Stanley
Group Inc., its subsidiary Morgan Stanley UK Group and Noble Lowndes Settlement
Trustees Limited. The scheme allows employees of Morgan Stanley UK Group to
accumulate pre-tax profit share contributions in the form of shares of Morgan
Stanley Group Inc. common stock.
ELIGIBILITY
Full time employees of Morgan Stanley UK Group with at least one year of
service, commencing from the first of the month after the date of joining, are
eligible to participate in the scheme. Employees may elect to participate in the
scheme for the full amount of their profit share, up to a maximum of the lesser
of 10% of UK base salary or (pound)8,000.
FUNDING POLICY
Amounts invested by employees are invested by Noble Lowndes Settlement Trustees
Limited, as trustee, in Morgan Stanley Group Inc. shares which are held by the
trustee in their name on the employee's behalf. Shares in respect of the
previous qualifying period are appropriated to employees within two weeks of 31
December (the qualifying date). Trustee fees and brokerage commissions are borne
by Morgan Stanley UK Group, the employer.
During the first two years after allocation (the Retention Period) certain
statutory restrictions apply limiting members' ability to deal in or withdraw
their shares. After the Retention Period, members may withdraw their shares or
instruct the trustees to sell their shares and withdraw the cash proceeds. The
cost of withdrawals from the scheme is determined on a first in first out basis
within the relevant employee allocation.
TAXATION
The United Kingdom Board of Inland Revenue has approved the scheme under
Schedule 9, UK Finance Act 1978 and the scheme is thus exempt from taxation.
Employee contributions to the scheme are not liable to income tax if shares are
held by the Trustees for at least five years after appropriation. If employees'
shares are sold prior to the end of the five year period, some or all of the
income tax benefits are lost.
1. ACCOUNTING POLICIES
FOREIGN CURRENCIES
Monetary assets and liabilities denominated in currencies other than US dollars
are translated at the rate of exchange ruling at the balance sheet date except
for employee contributions receivable, which are translated at the rate ruling
at
- --------------------------------------------------------------------------------
6
<PAGE> 6
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
the time of share purchase, which occurs shortly after the balance sheet
date. Transactions in foreign currencies are translated at the approximate rate
of exchange ruling at the date of the transaction.
VALUATION OF INVESTMENTS
The investments are recorded at market value based on the closing market prices
on the New York Stock Exchange.
DIVIDEND INCOME
Dividend income is recorded when the applicable dividends are declared.
Dividends are received net of US withholding tax and are allocated to
participants according to their shareholdings.
- --------------------------------------------------------------------------------
7
<PAGE> 7
Morgan Stanley UK Group Profit Sharing Scheme
------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
2. CHANGES IN HOLDINGS OF MORGAN STANLEY GROUP INC COMMON STOCK
<TABLE>
<CAPTION>
Number Average cost Total
of shares per share cost
<S> <C> <C> <C>
At 1 January 1993 108,335 34.219 3,707,162
Add: Purchase, January 1993 23,947 55.995 1,340,903
------- ------ ---------
132,282 38.161 5,048,065
Less: Sales of shares during the year (8,474) 15.436 (130,802)
Transfer of shares during the year (7,099) 41.430 (294,111)
------- ------ ---------
At 31 December 1993 116,709 39.613 4,623,152
Add: Purchase, January 1994 26,280 69.791 1,834,116
------- ------ ---------
142,989 45.159 6,457,268
Less: Sales of shares during the year (4,297) 25.933 (111,436)
Transfer of shares during the year (1,466) 63.013 (92,377)
------- ------ ---------
At 31 December 1994 137,226 45,570 6,253,455
Add: Purchase January 1995 39,564 59.944 2,371,619
------- ------ ---------
176,790 48.787 8,625,074
Less: Sales of shares during the year (11,518) 28.562 (328,974)
Transfer of shares during the year (1,686) 64.507 (108,759)
------- ------ ---------
At 31 December 1995 163,586 50.049 8,187,341
======= ====== =========
</TABLE>
Each stock purchase was made in one transaction representing more than
5% of the current value of the scheme at the beginning of the year.
------------------------------------------------------------------------
8
<PAGE> 8
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
Sale/transfer of shares in Morgan Stanley Group Inc Common Stock:
<TABLE>
<CAPTION>
1995 1994 1993
$ $ $
<S> <C> <C> <C>
Aggregate proceeds of sales 828,659 289,513 486,901
Aggregate cost of sales (328,974) (111,436) (130,802)
-------- -------- --------
Net gain on sales 499,685 178,077 356,099
-------- -------- --------
Aggregate proceeds of transfers 127,626 97,680 403,774
Aggregate cost of transfers (108,759) (92,377) (294,111)
-------- -------- --------
Net gain on transfers 18,867 5,303 109,663
-------- -------- --------
518,552 183,380 465,762
======== ======== ========
</TABLE>
Cost has been determined on a first in, first out basis within the relevant
employee allocation.
- --------------------------------------------------------------------------------
9
<PAGE> 9
Morgan Stanley UK Group Profit Sharing Scheme
----------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
3. CHANGE IN UNREALISED APPRECIATION OF INVESTMENTS
At 31 December 1995 the closing price on the New York Stock Exchange for
Morgan Stanley Group Inc common stock was $80.625 per share.
<TABLE>
<CAPTION>
Average
Number cost Total
of shares per share cost
<S> <C> <C> <C>
Market value at 31 December 1995 163,586 80.625 13,189,121
Average cost at 31 December 1995 163,586 50.049 8,187,342
-----------
Unrealised appreciation at 31 December 1995 5,001,779
Unrealised appreciation at 31 December 1994 1,842,879
-----------
Increase in unrealised appreciation 3,158,900
===========
Market value at 31 December 1994 137,226 59.000 8,096,334
Average cost at 31 December 1994 137,226 45.570 6,253,455
-----------
Unrealised appreciation at 31 December 1994 1,842,879
Unrealised appreciation at 31 December 1993 3,634,010
-----------
Decrease in unrealised appreciation (1,791,131)
===========
Market value at 31 December 1993 116,709 70.750 8,257,162
Average cost at 31 December 1993 116,709 39.613 4,623,152
-----------
Unrealised appreciation at 31 December 1993 3,634,010
Unrealised appreciation at 31 December 1992 2,346,056
-----------
Increase in unrealised appreciation 1,287,954
===========
</TABLE>
4. NUMBER OF PARTICIPANTS
- --------------------------------------------------------------------------------
10
<PAGE> 10
Morgan Stanley UK Group Profit Sharing Scheme
-----------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1995, 1994 and 1993
There were 543 participants as of 31 December 1995, 548 participants as of 31
December 1994 and 406 participants as of 31 December 1993.
5. SUBSEQUENT EVENT
On 4 January 1996 a two for one stock split was declared on Morgan Stanley
Group Inc. shares.
- --------------------------------------------------------------------------------
11
