-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MiDPPUGRHSbD0aaxtYoV110eMHgu3dLivmJtB8JEwvnVjpi7NN0cSVp7BzYW8sVs pZn/xQjr5YPNzdBUyCaIng== 0000950103-96-000983.txt : 19960715 0000950103-96-000983.hdr.sgml : 19960715 ACCESSION NUMBER: 0000950103-96-000983 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960712 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01655 FILM NUMBER: 96594235 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 424B3 1 Subject to Completion, Pricing Supplement dated July 9, 1996 PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 21 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655 Dated May 1, 1996 July , 1996 Rule 424(b)(3) $100,000,000 Morgan Stanley Group Inc. MEDIUM-TERM NOTES, SERIES C % Senior Fixed Rate Notes Due July 31, 2003 NIKKEI 225 PROTECTION STEP-UP EXCHANGEABLE NOTES ------------ Interest payable each January 31 and July 31 ------------ The Nikkei 225 Protection Step-Up Exchangeable Notes due July 31, 2003 (the "Notes") are Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan Stanley Group Inc. (the "Company"), as further described below and in the Prospectus Supplement under "Description of Notes - Fixed Rate Notes." The Notes will bear interest at the rate of % per annum payable on January 31 and July 31 of each year (each an "Interest Payment Date") commencing January 31, 1997. The Notes will be issued in minimum denominations of $1,000 ("Initial Par") and will mature on July 31, 2003. On any Exchange Date (as defined below), the holder of a Note will have the right (the "Exchange Right"), upon completion by the holder and delivery to the Company and the Calculation Agent of an Official Notice of Exchange prior to 11:00 a.m. New York City time on such date, to exchange each $1,000 principal amount of such Note for an amount in U.S. Dollars equal to Parity with respect to such Exchange Date. Parity with respect to each $1,000 principal amount of a Note will be the product of (a) (the "Exchange Ratio") and (b) the Nikkei Dollar Value (as defined herein) on the applicable Nikkei Determination Date (as defined herein). The Exchange Ratio will be set initially so that Parity with respect to each $1,000 principal amount of a Note as determined on the date of this Pricing Supplement will equal $1,000. The Nikkei Dollar Value with respect to any Nikkei Determination Date will be the quotient of (i) the opening value (morning session) of the Nikkei Stock Average (the "Nikkei 225 Index") published by Nihon Keizai Shimbun, Inc. ("NKS") on such Nikkei Determination Date (the "Nikkei Opening Value") divided by (ii) Yen per US $1.00 ("FX Initial"). Due to this method of calculation, the determination of Parity will not be affected by fluctuations in the U.S. Dollar/Japanese Yen exchange rate. The Exchange Dates will be July 31, 1998, July 31, 2000 and July 31, 2002 or, if any such day is not a Business Day, the next succeeding Business Day. At maturity , the holder of a Note will receive, subject to a prior exercise of the Exchange Right with respect to such Note, the greater of (i) the current par amount with respect to each $1,000 principal amount of such Note ("Par"), as adjusted in accordance with the Par Step-up Adjustment described below and (ii) the Nikkei Final Value (as defined herein). On each Exchange Date, subject to any prior exercise of the Exchange Right with respect to a Note, Par shall be adjusted (the "Par Step-up Adjustment") so that Par will be the greater of (i) the then current Par (in the case of the first Exchange Date, Initial Par) and (ii) Parity as determined on the Nikkei Determination Date with respect to such Exchange Date. Subsequent to any Par Step-up Adjustment, interest with respect to each $1,000 principal amount of a Note will accrue on the then current Par, as determined by the Calculation Agent. If, on July 31, 1997, or if such day is not a Nikkei Determination Date, the immediately succeeding Nikkei Determination Date, Parity is equal to $900 or less, then the Exchange Ratio will be increased by 10% to (the "Exchange Ratio Reset"). An investment in the Notes entails risks not associated with similar investments in a conventional debt security, as described under "Risk Factors" on PS-7 through PS-9 herein. Application has been made to list the Notes on the New York Stock Exchange ("NYSE"). The NYSE symbol for the Notes is " ." It is not possible to predict whether the Notes will trade in the secondary market or if such market will be liquid or illiquid. ________________ PRICE 100% AND ACCRUED INTEREST, IF ANY ________________ Agent's Proceeds to Price to Public(1) Commissions(2) Company(1) -------------------- ---------------- ------------- Per Note.... 100% % % Total....... $ $ $ _______________ (1) Plus accrued interest, if any, from July , 1996. (2) The Company has agreed to indemnify the Agent against certain liabilities, including liabilities under the Securities Act of 1933. MORGAN STANLEY & CO. Incorporated Information contained in this preliminary pricing supplement is subject to completion or amendment. These securities may not be delivered prior to the time a final pricing supplement is delivered. This pricing supplement and the accompanying prospectus and prospectus supplement shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. (This page left intentionally blank) Capitalized terms not defined herein have the meanings given to such terms in the accompanying Prospectus Supplement. Principal Amount:................. $ 100,000,000 Maturity Date:.................... July 31, 2003 Interest Rate:.................... % per annum Interest Payment Period:.......... Semi-annually Interest Payment Dates:........... Each January 31 and July 31, commencing January 31, 1997 Specified Currency:............... U.S. Dollars Issue Price:...................... 100% Initial Par....................... $1,000 per Note Settlement Date (Original Issue Date):............................ July , 1996 Book Entry Note or Certificated Note:............................. Book-Entry Note Senior Note or Subordinated Note:. Senior Note Minimum Denominations:............ $1,000 Trustee:.......................... Chemical Bank Exchange Right:................... On any Exchange Date, the holder of a Note will have the right, upon completion by the holder and delivery to the Company and the Calculation Agent of an Official Notice of Exchange (in the form of Annex A attached hereto) prior to 11:00 a.m. New York City time on such date, to exchange each $1,000 principal amount of such Note for an amount in U.S. Dollars equal to Parity on the Nikkei Determination Date with respect to such Exchange Date, as determined by the Calculation Agent. Such payment will be made five Business Days after such Nikkei Determination Date, subject to delivery of such Note to the Trustee on the Exchange Date. Par Step-up Adjustment:........... On each Exchange Date, subject to the prior exercise of the Exchange Right with respect to a Note, the existing par amount with respect to each $1,000 principal amount of such Note ("Par") shall be adjusted so that Par will be the greater of (i) the then current Par (in the case of the first Exchange Date, Initial Par) and (ii) Parity as determined by the Calculation Agent on the Nikkei Determination Date with respect to such Exchange Date. Subsequent to any Par Step-Up Adjustment, interest with respect to each $1,000 principal amount of a Note will accrue on the then current Par. If Parity as so determined exceeds the then current Par, notice of the adjustment to Par shall promptly be sent by first-class mail to the Trustee and The Depository Trust Company, New York, New York (the "Depositary"). Parity:........................... Parity as of any Nikkei Determination Date with respect to each $1,000 principal amount of a Note will be the product of (i) the Exchange Ratio and (ii) the Nikkei Dollar Value on such Nikkei Determination Date. Exchange Ratio:................... , subject to adjustment as described below under "Exchange Ratio Reset" and "Discontinuance of the Index." Exchange Ratio Reset:............. If, on July 31, 1997, or if such day is not a Nikkei Determination Date, the immediately succeeding Nikkei Determination Date, Parity is equal to $900 or less, then the Exchange Ratio will be increased by 10% to , subject to any adjustments as described under "Discontinuance of the Index" herein. Notice of any such adjustment shall promptly be sent by first-class mail to the Trustee and the Depositary. Exchange Dates:................... July 31, 1998, July 31, 2000 and July 31, 2002, or if any such day is not a Business Day the immediately succeeding Business Day. Nikkei Determination Date:........ A Trading Day on which a Market Disruption Event has not occurred. See "Market Disruption Event" below. The Nikkei Determination Date with respect to any Exchange Date shall be the Nikkei Determination Date next succeeding such Exchange Date. Trading Day:...................... A Business Day which is also a day on which the Tokyo Stock Exchange ("TSE") and the Osaka Securities Exchange ("OSE") are each open for business. Business Day:..................... Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York or Tokyo. Nikkei Dollar Value:.............. With respect to any Nikkei Determination Date, the quotient of (i) the applicable Nikkei Opening Value divided by (ii) FX Initial. Nikkei Opening Value:............. The opening value (morning session) of the Nikkei 225 Index, published by NKS, with respect to a Nikkei Determination Date. FX Initial:....................... Japanese Yen ("Yen ") per U.S. $1.00. Amount Payable at Maturity:....... At maturity, the holder of each $1,000 principal amount of a Note will receive, subject to a prior exercise of the Exchange Right with respect to such Note, the greater of (i) Par and (ii) the Nikkei Final Value. Nikkei Final Value:............... The Nikkei Final Value will be determined by the Calculation Agent and will equal the arithmetic average of the products (each a "Product") of (i) the Nikkei Dollar Value and (ii) the Exchange Ratio, each as determined on the first 15 Nikkei Determination Dates during the Calculation Period (each a "Final Determination Date"). See "Market Disruption Event," "Adjustments to the Index" and "Discontinuance of the Index" below. Calculation Period:............... The period from and including June 25, 2003 to and including the second scheduled Trading Day prior to the Maturity Date. Delivery of Payments:............. Upon an exercise of the Exchange Right or at maturity, the Company shall cause the Calculation Agent to deliver to the Trustee for delivery to the holders the cash to which the holders are entitled. All dollar amounts resulting from the calculation of the payment amounts due upon exchange or at maturity will be rounded to the nearest cent with one-half cent being rounded upwards. The Company shall cause the Calculation Agent to provide written notice to the Trustee at its New York office of the amount to be paid (i) with respect to any exchange promptly at the opening of business New York time on the second Business Day following the Nikkei Determination Date with respect to the applicable Exchange Date and (ii) with respect to payments at maturity, prior to 10:30 a.m. (New York time) on the Business Day immediately prior to the maturity of the Notes. Calculation Agent:................ Morgan Stanley & Co. Incorporated ("MS & Co."). All determinations made by the Calculation Agent shall be at the sole discretion of the Calculation Agent and shall, in the absence of manifest error, be conclusive for all purposes and binding on the Company and holders of the Notes. Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the Notes, including with respect to certain adjustments to the value of the Nikkei 225 Index and the Exchange Ratio, certain determinations and judgments that the Calculation Agent must make in determining the Nikkei Dollar Value, the Nikkei Final Value or whether a Market Disruption Event has occurred and, under certain circumstances, the determination of the Nikkei Dollar Value during the Calculation Period. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. Market Disruption Event:.......... "Market Disruption Event" means the occurrence or existence of both of the following events on a Trading Day that would otherwise be a Nikkei Determination Date, as determined by the Calculation Agent: (i) a suspension or absence of trading on the TSE of 20% or more of the Underlying Stocks which then comprise the Nikkei 225 Index (or a Successor Index, as defined below) for more than two hours of trading or during the one-half hour period preceding the close of trading on the TSE; or the suspension or material limitation on the Singapore International Monetary Exchange Ltd. (the "SIMEX"), the OSE and the other major securities markets for trading in futures or options contracts related to the Nikkei 225 Index or a Successor Index taken as a whole, during the one-half hour period preceding the close of trading on the applicable exchange, in each case as determined by the Calculation Agent in its sole discretion; and (ii) a determination by the Calculation Agent in its sole discretion that the event described in clause (i) above materially interfered with the ability of the Company of any of its affiliates to unwind all or a material portion of the hedge with respect to the Notes. For purposes of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or option contract will not constitute a Market Disruption Event, (3) a suspension of trading in a futures or options contract on the Nikkei 225 Index or a Successor Index by the TSE, the OSE or other major securities market related to such contract by reason of (x) a price change exceeding limits set by such exchange or market, (y) an imbalance of orders relating to such contracts or (z) a disparity in bid and ask quotes relating to such contracts will constitute a suspension or material limitation of trading in futures or options contracts related to the Nikkei 225 Index or such Successor Index and (4) a "suspension, absence or material limitation of trading" on the SIMEX, OSE or a major securities market on which futures or options contracts related to the Nikkei 225 Index or a Successor Index are traded will not include any time when the SIMEX, OSE or such securities market, as the case may be, itself is closed for trading under ordinary circumstances. For purposes of determining the Nikkei Final Value if, as of any Trading Day within the Calculation Period (the "Trigger Date"), the number of Trading Days within the Calculation Period does not exceed the amount by which 15 exceeds the number of previous Final Determination Dates, the Calculation Agent shall weight the Product for each succeeding Final Determination Date during the Calculation Period to ratably distribute the intended weight of any Trading Day on or after the Trigger Date on which a Market Disruption Event occurs (a "Non-Determination Date") across the remaining Final Determination Dates. Accordingly, if a Market Disruption Event occurs on or after the Trigger Date, the weightings of the Products for the Final Determination Dates will be calculated as follows: (A) each Final Determination Date preceding the first Non-Determination Date on or after the Trigger Date will receive a weighting of 1/15 and (B) each Final Determination Date following a Non-Determination Date will receive a weighting that equals a fraction (i) the numerator of which will be the fraction that equals 1 minus the sum of the weights of all preceding Final Determination Dates and (ii) the denominator of which will be the number of Trading Days from and including such Final Determination Date to and including the last Trading Day in the Calculation Period; provided that if, due to Market Disruption Events, there are no Nikkei Determination Dates following a Non-Determination Date and prior to the end of the Calculation Period, then the last Trading Day in the Calculation Period shall be deemed to be a Final Determination Date, notwithstanding the occurrence of a Market Disruption Event and the Nikkei Dollar Value for such deemed Final Determination Date shall be determined by the Calculation Agent. The Calculation Agent shall promptly give notice to the holders of the Notes, by publication in The Wall Street Journal (or another newspaper of general circulation), if a Market Disruption Event shall have occurred on any day that would otherwise have been a relevant Nikkei Determination Date. Risk Factors:..................... An investment in the Notes entails significant risks not associated with similar investments in a conventional debt security. The interest rate applicable to the Notes is less than that which would be payable on a conventional fixed-rate debt security if the Company were to issue such a security on the Settlement Date. The market value for the Notes will be affected by a number of factors independent of the creditworthiness of the Company and the value of the Nikkei 225 Index, including, but not limited to, the volatility of the Nikkei 225 Index, whether or not the Exchange Ratio Reset is triggered the time remaining to any Exchange Date or the maturity of the Notes and market interest rates in the U.S. and Japan. In addition, the value of the Nikkei 225 depends on a number of interrelated factors, including economic, financial and political events, over which the Company has no control. The historical experience of the Nikkei 225 Index should not be taken as an indication of its future performance during the term of any Note. Although the application has been made to list the Notes on the NYSE, it is not possible to predict whether the Notes will trade in the secondary market or if such market will be liquid or illiquid. To the extent any holders exercise their rights to exchange Notes and receive Parity, the number of Notes outstanding will decrease, which could result in a decrease in the liquidity of the Notes. Because the Nikkei Dollar Value with respect to an Exchange Date will be determined after such date, a holder of a Note will not be able to determine, on such Exchange Date, the opening value of the Nikkei 225 Index that will be used in calculating the Nikkei Dollar Value and Parity (and will thus be unable to determine with certainty such amounts at the time a Notice of Exchange is submitted). In addition, any downward movement in the level of the Nikkei 225 Index between the Exchange Date on which the holder of a Note submits a Notice of Exchange and the time at which the Nikkei Dollar Value with respect to such Exchange Date is determined will result in such Parity being a lower amount than anticipated by such holder based on the level of the Nikkei 225 Index most recently reported prior to exercise. See "Exchange Right" above. Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the Notes, including with respect to certain adjustments to the value of the Nikkei 225 Index and to the Exchange Ratio, certain determinations and judgments the Calculation Agent must make in determining the Nikkei Dollar Value, the Nikkei Final Value and whether a Market Disruption Event has occurred and, under certain circumstances, the determination of the Nikkei Dollar Value during the Calculation Period. See "Nikkei Final Value, "Market Disruption Event," "Adjustments to the Index" and "Discontinuance of the Index." NKS is under no obligation to continue the calculation or dissemination of the Nikkei 225 Index. In the event that NKS discontinues or suspends calculation or publication of the Nikkei 225 Index or that the calculation of the Nikkei 225 Index is changed in a material respect, the Calculation Agent may calculate a stock average comparable to the Nikkei 225 Index and the Nikkei Dollar Value, Parity and Nikkei Final Value shall be calculated based on such comparable index at each Exchange Date. See "Adjustments to the Index," "Market Disruption Event" and "Discontinuance of the Index" below. The Company, the Calculation Agent and the Trustee disclaim all responsibility for the calculation or other maintenance of or any adjustments to the Nikkei 225 Index. Upon the occurrence of certain events described under "Discontinuance of the Index," a Successor Index (which will also relate to the trading of equity securities in Japan) will be substituted for the Nikkei 225 Index as the basis of the calculation of the Nikkei Dollar Value, Parity and the Nikkei Final Value, as applicable. In the event that a Successor Index is substituted for the Nikkei 225 Index, no assurance can be given as to whether the Nikkei Dollar Value, Parity and the Nikkei Final Value, as applicable, calculated on the basis of such Successor Index will be more than, less than or equal to the Nikkei Dollar Value, Parity and Nikkei Final Value which would have resulted had such substitution not occurred. Although this Pricing Supplement sets forth procedures for making adjustments to the calculation of the Nikkei Dollar Value and Nikkei Final Value under certain circumstances, a discontinuance of the publication of the Nikkei 225 Index or an adjustment to its method of calculation may adversely affect trading in the Notes. The Nikkei 225 Index does not reflect the payment of dividends on the stocks underlying it and therefore the yield to maturity of the Notes based on the Nikkei 225 Index will not produce the same yield as if such underlying stocks were purchased and held for a similar period. Furthermore, an investment in the Underlying Stocks (as defined below) would, unlike the calculation of Parity with respect to the Notes, be affected by fluctuations in the exchange rate between the Japanese Yen and the investment currency of the holder of the Notes. It is suggested that prospective investors who consider purchasing the Notes should reach an investment decision only after carefully considering the suitability of the Notes in light of their particular circumstances. Investors should also consider the tax consequences of investing in the Notes. See "United States Federal Taxation" below. The Nikkei 225 Index:............. Unless otherwise stated, all information herein relating to the Nikkei 225 Index has been derived from the Stock Market Indices Data Bank published by NKS and other publicly-available sources. Such information reflects the policies of NKS and are subject to change at the discretion of NKS. The Nikkei 225 Index is a stock index calculated, published and disseminated by NKS that measures the composite price performance of selected Japanese stocks. The Nikkei 225 Index currently is based on 225 highly capitalized underlying stocks (the "Underlying Stocks") trading on the TSE representing a broad cross-section of Japanese industries. All 225 Underlying Stocks are stocks listed in the First Section of the TSE. Stocks listed in the First Section are among the most actively traded stocks on the TSE. The Nikkei 225 Index is a modified, price-weighted index (i.e., an Underlying Stock's weight in the index is based on its price per share rather than the total market capitalization of the issuer) which is calculated by (i) multiplying the per share price of each Underlying Stock by the corresponding weighting factor for such Underlying Stock (a "Weight Factor"), (ii) calculating the sum of all these products and (iii) dividing such sum by a divisor (the "Divisor"). The Divisor, initially set in 1949 at 225, was 9.952 as of July 4, 1996 and is subject to periodic adjustments as set forth below. Each Weight Factor is computed by dividing Yen50 by the par value of the relevant Underlying Stock, so that the share price of each Underlying Stock when multiplied by its Weight Factor corresponds to a share price based on a uniform par value of Yen50. The stock prices used in the calculation of the Nikkei 225 Index are those reported by a primary market for the Underlying Stocks (currently the TSE). The level of the Nikkei 225 Index is calculated once per minute during TSE trading hours. In order to maintain continuity in the Nikkei 225 Index in the event of certain changes due to non-market factors affecting the Underlying Stocks, such as the addition or deletion of stocks, substitution of stocks, stock dividends, stock splits or distributions of assets to stockholders, the Divisor used in calculating the Nikkei 225 Index is adjusted in a manner designed to prevent any instantaneous change or discontinuity in the level of the Nikkei 225 Index. Thereafter, the Divisor remains at the new value until a further adjustment is necessary as the result of another change. As a result of such change affecting any Underlying Stock, the Divisor is adjusted in such a way that the sum of all share prices immediately after such change multiplied by the applicable Weight Factor and divided by the new Divisor (i.e., the level of the Nikkei 225 Index immediately after such change) will equal the level of the Nikkei 225 Index immediately prior to the change. An Underlying Stock may be deleted or added by NKS. Any stock becoming ineligible for listing in the First Section of the TSE due to any of the following reasons will be deleted from the Underlying Stocks: (i) bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition of the issuer by, another company, (iii) delisting of such stock, (iv) transfer of such stock to the "Seiri-Post" because of excess debt of the issuer or because of any other reason or (v) transfer of such stock to the Second Section. Upon deletion of a stock from the Underlying Stocks, NKS will select a suitable replacement for such deleted Underlying Stock in accordance with certain criteria. In an exceptional case, a newly listed stock in the First Section of the TSE that is recognized by NKS to be representative of a market may be added to the Underlying Stocks. In such a case, an existing Underlying Stock with low trading volume and not representative of a market will be deleted by NKS. Use of the Nikkei 225 Index:...... The use of and reference to the Nikkei 225 Index in connection with the Notes has been consented to by NKS, the publisher of the Nikkei 225. All rights to the Nikkei 225 Index are owned by NKS. The Company, the Calculation Agent and the Trustee disclaim all responsibility for the calculation or other maintenance of or any adjustments to the Nikkei 225 Index. In addition, NKS has no relationship to the Company or the Notes; it does not sponsor, endorse, authorize, sell or promote the Notes, and has no obligation or liability in connection with the administration, marketing or trading of the Notes or with the calculation of the value of the Nikkei Dollar Value and the Nikkei Final Value, as described above. Historical Data on Nikkei 225 Index: NKS first calculated and published the Nikkei 225 Index in 1970. The following table sets forth the high and low daily opening values of the Nikkei 225 Index for each quarter, in the period from January 1, 1991 through July 5, 1996, as published by NKS. However, neither the Company nor the Agent makes any representation as to the accuracy of such information. The historical experience of the Nikkei 225 Index should not be taken as an indication of its future performance, and no assurance can be given as to the level of the Nikkei 225 Index on the relevant Nikkei Determination Date corresponding to each Exchange Date or the calculation of the Nikkei Final Value. Daily Opening Values in Japanese Yen ----------------------------------------------------- End of High Low Quarter --------------- --------------- --------------- 1991: 1st Quarter........ 27,065.97 22,403.07 26,211.76 2nd Quarter........ 26,994.77 23,575.21 23,575.21 3rd Quarter........ 24,136.50 21,485.62 23,958.86. 4th Quarter........ 25,167.13 21,552.44 22,507.97 1992: 1st Quarter........ 23,781.24 19,615.11 19,741.77 2nd Quarter........ 19,325.47 15,785.13 15,785.13 3rd Quarter........ 18,902.85 14,337.52 17,759.73 4th Quarter........ 17,718.36 16,011.33 17,254.04 1993: 1st Quarter........ 19,054.21 16,291.36 18,942.18 2nd Quarter........ 21,116.55 18,595.52 19,537.40 3rd Quarter........ 21,163.82 19,593.26 20,097.61 4th Quarter........ 20,489.65 16,113.41 17,309.23 1994: 1st Quarter........ 20,692.97 17,376.54 19,500.00 2nd Quarter........ 21,515.60 19,161.63 20,417.58 3rd Quarter........ 20,846.77 19,501.60 19,647.53 4th Quarter........ 20,107.12 18,727.75 19,717.86 1995: 1st Quarter........ 19,724.76 15,804.60 16,567.52 2nd Quarter........ 17,121.12 14,511.48 14,511.48 3rd Quarter........ 18,780.61 14,498.25 18,045.63 4th Quarter........ 19,990.13 17,379.93 19,882.00 1996: 1st Quarter........ 21,321.84 19,735.30 21,300.94 2nd Quarter........ 22,651.53 21,208.20 22,554.51 3rd Quarter through July 8, 1996....... 22,568.43 22,148.11 22,148.11 Nikkei 225 Index Underlying Stocks:........................ A list of the issuers of the Underlying Stocks constituting the Nikkei 225 Index is available from the Nikkei Economic Electronic Databank System and from the Stock Market Indices Data Book published by NKS. NKS may delete, add or substitute any stock underlying the Nikkei 225 Index. Adjustments to the Index:...... If at any time the method of calculating the Nikkei 225 Index, or the value thereof, is changed in a material respect, or if the Nikkei 225 Index is in any other way modified so that the Nikkei 225 Index does not, in the reasonable opinion of the Calculation Agent, fairly represent the value of the Nikkei 225 Index had such changes or modifications not been made (except for changes in the Underlying Stocks by NKS, as described above under "The Nikkei 225 Index"), then, from and after such time, the Calculation Agent shall, at the close of business in New York, New York, on each date that the opening value (morning session) of the Nikkei 225 Index is to be calculated to determine the Nikkei Opening Value, Nikkei Dollar Value and the Nikkei Final Value, as applicable, make such adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a calculation of a value of a stock index comparable to the Nikkei 225 Index as if such changes or modifications had not been made, and calculate such opening value with reference to the Nikkei 225 Index, as adjusted. Accordingly, if the method of calculating the Nikkei 225 Index is modified so that the value of the Nikkei 225 Index is a fraction or a multiple of what it would have been if it had not been modified (e.g., due to a split in the Nikkei 225 Index), then the Calculation Agent shall adjust the Nikkei 225 Index in order to arrive at a value of the Nikkei 225 Index as if it had not been modified (e.g., as if such split had not occurred). The Calculation Agent shall promptly give notice to the holders of the Notes of such adjusted value. Discontinuance of the Index:... If the NKS discontinues publication of the Nikkei 225 Index and NKS or another entity publishes a successor or substitute index that the Calculation Agent determines, in its sole discretion, within two Nikkei Determination Dates of such discontinuance, to be comparable to the Nikkei 225 Index (any such index referred to hereinafter as a "Successor Index"), then, upon the Calculation Agent's notification of such determination to the Trustee and the Company, the Calculation Agent will substitute the Successor Index as calculated by the NKS or such other entity for the Nikkei 225 Index, as the case may be, and calculate the Nikkei Dollar Value and the Nikkei Final Value as described above under "Exchange Right," "Exchange Ratio Reset," "Par Step-up Adjustment" and "Nikkei Final Value." After such substitution, the Exchange Ratio would be modified as follows: New Exchange Ratio = Original Exchange Ratio x Most Recent Nikkei 225 Value ---------------------------- Successor Index Value where "Most Recent Nikkei 225 Value" and "Successor Index Value" are the opening levels (morning session) of the respective indexes on the day of such substitution; provided that if the Successor Index is first published on the Trading Day immediately following the discontinuance of the Nikkei 225 Index, the Successor Index Value shall be the closing level (afternoon session) on such first publication day and the "Most Recent Nikkei 225 Value" will be based on the final published value of the Nikkei 225 Index. Upon any selection by the Calculation Agent of a Successor Index, the Company shall cause notice thereof and of any adjustment to the Exchange Ratio to be given to holders of the Notes. If NKS discontinues publication of the Nikkei 225 Index and a Successor Index is not selected, within two Nikkei Determination Dates of such discontinuance, by the Calculation Agent (or such Successor Index is no longer published on any of the Nikkei Determination Dates), the value to be substituted for the Nikkei 225 Index for any such Nikkei Determination Date used to calculate the Nikkei Dollar Value or the Nikkei Final Value, as applicable, with respect to all succeeding Nikkei Determination Dates, will be the final published opening level (morning session) of the Nikkei 225 Index (or such Successor Index) prior to such discontinuance. Any determination by the Calculation Agent that there is no successor or substitute index comparable to the Nikkei 225 Index will be final. If a Successor Index is selected, such Successor Index shall be substituted for the Nikkei 225 Index for all purposes, including for purposes of determining whether a Market Disruption Event exists. Notwithstanding these alternative arrangements, discontinuance of the publication of the Nikkei 225 Index may adversely affect trading in the Notes. Recent Developments - Legal Proceedings:................... On June 11, 1996, an adversary proceeding was commenced by Orange County, California and its Treasurer-Tax Collector against Morgan Stanley in the United States Bankruptcy Court for the Central District of California in County of Orange and Moorlach v. Morgan Stanley & Co., Inc. The adversary proceeding is related to Orange County's Chapter 9 bankruptcy proceeding pending before the same court. The complaint asserts that Orange County, acting through its former Treasurer-Tax Collector, entered into various reverse repurchase agreements and other transactions with Morgan Stanley which were beyond the County's authority or ultra vires and, therefore, void. The complaint also asserts that Morgan Stanley allowed Orange County to enter into unsuitable transactions. In addition, the complaint alleges that Morgan Stanley violated the automatic stay provisions of the Bankruptcy Code when it liquidated the County's collateral and closed out certain reverse repurchase transactions subsequent to the County's December 6, 1994 bankruptcy filing. The complaint asserts claims based on ultra vires, setoff, equitable subordination, restitution, enforcement of the automatic stay, avoidance of post-petition transfers and negligence and seeks compensatory damages in an unspecified amount, declaratory and injunctive relief, restitution, interest, various costs and attorney's fees. Use of Proceeds and Hedging:... The net proceeds to be received by the Company from the sale of the Notes will be used for general corporate purposes and, in part, by the Company or one or more of its affiliates in connection with hedging the Company's obligations under the Notes. On or prior to the date of this Pricing Supplement, the Company, through its subsidiaries and others, will hedge its anticipated exposure in connection with the Notes by the purchase and sale of the component stocks of the Nikkei 225 Index, options contracts listed on the OSE linked to the Nikkei 225 Index, futures or options contracts listed on the SIMEX linked to the Nikkei 225 Index, over-the-counter options linked to the Nikkei 225 Index and/or, in the event of a substitution of a Successor Index for the Nikkei 225 Index, futures or options contracts listed on the SIMEX or OSE linked to the Successor Index (as defined herein), listed options linked to any Successor Index, over-the-counter options linked to any Successor Index, the component stocks of any Successor Index or positions in any other instruments that it may wish to use in connection with such hedging. The Company, through its subsidiaries, is likely to modify its hedge position through the life of the Notes by purchasing and selling such instruments and any other instrument that it may wish to use in connection with such hedging. Although the Company has no reason to believe that its hedging activity will have a material impact on the price of such stocks, option contracts on the OSE, futures or options contracts on SIMEX, and/or instruments on or linked to any Successor Index, if applicable, there can be no assurance that the Company will not affect such prices as a result of its hedging activities. See also "Use of Proceeds" in the accompanying Prospectus Supplement. United States Federal Taxation: The following discussion is based on the opinion of Davis Polk & Wardwell, special tax counsel to the Company. This discussion supplements the "United States Federal Taxation" section in the accompanying Prospectus Supplement. Any limitations on disclosure and any defined terms contained therein are equally applicable to the discussion below. This discussion also does not deal with holders other than initial holders of the Notes who are accrual basis taxpayers and purchase Notes at the Issue Price. Prospective investors are urged to consult their tax advisors as to the possible consequences of holding the Notes. United States Holders. The Notes will be treated as debt for United States federal income tax purposes. Although Treasury regulations addressing the treatment of contingent debt instruments were released on June 11, 1996, such regulations, which generally would require current accrual of contingent amounts and would affect the character of gain on the sale, exchange or retirement of a Note, by their terms apply only to debt instruments issued on or after August 13, 1996. Under existing general United States federal income tax principles, an accrual basis taxpayer may be required to include all or a portion of any such contingent amount in income at the time such amount becomes fixed and determinable, which is on the Nikkei Determination Date with respect to each Exchange Date, and with respect to the Maturity Date is on the last Final Determination Date in the Calculation Period used as a reference in the calculation of the Nikkei Final Value for such Note. It is unclear under existing law whether payments of contingent amounts in excess of the Notes' principal amount will be treated as ordinary or capital in character. The Company currently intends to treat such amounts as interest income and to report such amounts accordingly. Prospective investors should consult with their tax advisors regarding the tax treatment of the contingent amounts payable on the Note. United States Holders that have acquired debt instruments that are similar to the Notes and have accounted for such debt instruments in a consistent manner (including under proposed, but subsequently withdrawn, Treasury regulations) may be deemed to have established a method of tax accounting. In such instance, the United States Holder would be required to apply such method of tax accounting to the Notes, unless consent of the Commissioner of the Service is obtained to change such method. Any gain or loss recognized on the sale or exchange of a Note prior to its retirement will be treated as capital in character. There can be no assurance that the ultimate tax treatment of the Notes would not differ significantly from the description herein. See also "United States Federal Taxation" in the accompanying Prospectus Supplement. Foreign Holders. As used herein, the term "Foreign Holder" means a beneficial owner of a Note that is for United States federal income tax purposes (i) a nonresident alien individual, (ii) a corporation, partnership or other entity that was not created or organized in or under the laws of the United States or any political subdivision thereof or (iii) a nonresident alien or foreign fiduciary or grantor of a trust or estate. The following summary does not deal with persons subject to special rules, such as persons other than Foreign Holders, nonresident alien individuals that have lost United States citizenship or that have ceased to be treated as resident aliens, corporations that are treated as foreign or domestic personal holding companies, controlled foreign corporations, or passive foreign investment companies and Foreign Holders that are owned or controlled by persons subject to United States income tax. A Foreign Holder will generally not be subject to United States federal income taxes, including withholding taxes, on payments of principal, premium, if any, or interest on a Note, or any gain arising from the sale or disposition of a Note provided that (i) any such income is not effectively connected with the conduct of a trade or business within the United States, (ii) such Foreign Holder is not a person who owns (directly or by attribution) ten percent or more of the total combined voting power of all classes of stock of the Company, (iii) the Foreign Holder (if an individual) is not present in the United States 183 days or more during the taxable year of the disposition, and (iv) the Foreign Holder does not have a "tax home" (as defined in section 911(d)(3) of the Code) or an office or other fixed place of business in the United States. The 31% "backup" withholding and information reporting requirements will generally not apply to payments by the Company or its agents of principal, premium, if any, and interest on a Note, and to proceeds of the sale or redemption of a Note before maturity, with respect to a Foreign Holder. Foreign Holders of Notes should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an exemption therefrom, and the procedure for obtaining such an exemption, if available. Any amounts withheld from a payment to a Foreign Holder under the backup withholding rules will be allowed as a credit against such Holder's United States federal income tax liability and may entitle such Holder to a refund, provided that the required information is furnished to the Service. A Note held by an individual who at the time of his death is not a citizen or domiciliary of the United States will not be subject to United States federal estate tax as a result of such individual's death, provided that (i) interest paid to such individual on such Note would not be effectively connected with the conduct by such individual of a trade or business within the United States and (ii) such individual is not a person who owns (directly or by attribution) ten percent or more of the total combined voting power of all classes of stock of the Company. ANNEX A OFFICIAL NOTICE OF EXCHANGE Dated: [On any Exchange Date on or after July 31, 1998] Morgan Stanley Group Inc. 1585 Broadway New York, New York 10036 Morgan Stanley & Co. Incorporated, as Calculation Agent 1585 Broadway New York, New York 10036 (Attn: James Jurney) Fax: 212-761-0028 Dear Sirs: The undersigned holder of the Nikkei 225 Protection Step Up Exchangeable Notes Due July 31, 2003 of Morgan Stanley Group Inc. (the "Notes") hereby irrevocably elects to exercise with respect to the principal amount of Notes indicated below, as of the date hereof (provided that this letter is received before 11:00 a.m. New York time on any Exchange Date), the Exchange Right as described in Pricing Supplement No. 21 dated July , 1996 (the "Pricing Supplement") to the Prospectus Supplement dated May 1, 1996 and the Prospectus dated May 1, 1996 related to Registration Statement No. 333-01655. Capitalized terms not defined herein have the meanings given to such terms in the Pricing Supplement. Please date and acknowledge receipt of this notice in the place provided below on the date of receipt, and fax a copy to the fax number indicated. Upon receipt of this notice, the Company will deliver five Business Days after the Nikkei Determination Date with respect to such Exchange Date, an amount in dollars, as determined by the Calculation Agent and as described in the Pricing Supplement under "Exchange Right." Very truly yours, ___________________________________ [Name of Holder] By: _______________________________ [Title] ___________________________________ [Fax No.] ___________________________________ Principal Amount of Notes surrendered for exchange Receipt of the above Official Notice of Exchange is hereby acknowledged MORGAN STANLEY GROUP INC., as Issuer MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent By:__________________________________________________________ Title: Date and time of acknowledgement_____________________________ -----END PRIVACY-ENHANCED MESSAGE-----