PROSPECTUS Dated March 29, 1995 Pricing Supplement No. 5 to
PROSPECTUS SUPPLEMENT Registration Statement No. 33-57833
Dated March 29, 1995 (Subject to Completion, Issued June 8, 1995)
June [ ], 1995
Rule 424(b)(3)
$200,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
Senior Floating Rate Notes
NIKKEI 225 CASH EXCHANGEABLE NOTES DUE SEPTEMBER 30, 1998
Interest payable March 30, June 30, September 30 and December 30
The Nikkei 225 Cash Exchangeable Notes due September 30, 1998 (the "Notes")
are Medium-Term Notes, Series C (Senior Floating Rate Notes) of Morgan Stanley
Group Inc. (the "Company"), as further described below and in the Prospectus
Supplement under "Description of Notes - Floating Rate Notes". Interest will
be computed on an actual/360 basis. The Notes will be exchangeable on certain
dates at the option of the holder but will not otherwise be redeemable by the
Company in whole or in part prior to the Maturity Date.
The Notes are issued in minimum denominations of $1,000 per Note. On any
Exchange Date (as defined herein), the holder of a Note will have the right,
upon completion and acknowledgment of a Notice of Exchange, to exchange the
Note and receive Parity. Parity is an amount of cash in U.S. Dollars equal to
the product of a) _____ (the "Exchange Ratio") and b) the Final Nikkei Value
divided by [84.95] Yen per US $1.00. Due to this method of calculation,
holders of the Notes will not be subject to currency risk related to
fluctuations in the U.S. dollar value of the Nikkei 225 Index, which is quoted
in Japanese Yen. The Exchange Dates will be June 28, 1996, June 30, 1997,
June 30, 1998 and September 29, 1998. The Final Nikkei Value will equal the
arithmetic average closing values (afternoon session) of the Nikkei 225 Index
on the two Nikkei Determination Days (as defined herein) immediately
succeeding the Exchange Date, except the Final Nikkei Value with respect to
the September 29, 1998 Exchange Date (the "Final Exchange Date") will be the
arithmetic average closing values (afternoon session) of the Nikkei 225 Index
on certain scheduled Nikkei Determination Days preceding and excluding the
Maturity Date. (See "Final Nikkei Value" herein.) In the event that Parity
exceeds $1,000 per Note (Par) on the Final Exchange Date, holders of Notes
will automatically be deemed to have exchanged the Notes for Parity on the
Final Exchange Date. The Company will cause Parity to be determined by the
Calculation Agent for Chemical Bank, as Trustee (the "Trustee") under the
Senior Indenture.
An investment in the Notes entails risks not associated with similar
investments in a conventional debt security, as described under "Description
of Notes -- Notes Exchangeable to Commodity Prices, Equity Indices or Other
Factors" in the accompanying Prospectus Supplement.
Application has been made to list the Notes on the New York Stock Exchange
("NYSE"). The NYSE symbol for the Notes is "[ ]."
________________
PRICE 100% AND ACCRUED INTEREST, IF ANY
________________
Capitalized terms not defined above have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY & CO.
Incorporated
INFORMATION CONTAINED IN THIS PRELIMINARY PRICING SUPPLEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED 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.
Principal Amount:.............. $200,000,000
Maturity Date:................. September 30, 1998
Base Rate:..................... LIBOR
LIBOR Currency:................ U.S. Dollars
Index Maturity:................ 3 Months
Spread (Plus or Minus):........ Minus [ ]%
Reference Screen:.............. Telerate Page 3750
Interest Accrual Date:......... June [16], 1995
Initial Interest Rate:......... 1% per annum
Initial Interest Reset Date:... June 30, 1995
Maximum Interest Rate:......... N/A
Minimum Interest Rate:......... 0%
Exchange Dates:................ June 28, 1996, June 30, 1997, June 30,
1998 and September 29, 1998, or if any
such day is not a Business Day the
immediately succeeding day that is a
Business Day. On any Exchange Date, the
holder of a Note will have the right, upon
completion and acknowledgment of a Notice
of Exchange, to exchange the Note and
receive Parity. Parity is an amount of
cash in U.S. Dollars equal to the product
of a) _____ and b) the Final Nikkei Value
divided by [84.95] Yen per US $1.00. The
Company shall cause the Calculation Agent
to provide written notice to the Trustee
at its New York office of the Parity
amount promptly at the opening of business
New York time on the second Business Day
after the second Nikkei Determination Day
immediately succeeding the Exchange Dates
other than the final Exchange Date (if any
holder has exercised such exchange right
on such Exchange Date) and on the Business
Day immediately preceding the Maturity
Date (or any earlier date of maturity).
In the event that Parity exceeds $1,000
per Note (Par) on the Final Exchange Date,
holders of Notes will automatically be
deemed to have exchanged the Notes for
Parity on the Final Exchange Date. In the
case of each Exchange Date other than the
Final Exchange Date, a holder exercising
such exchange right will receive payment
of Parity on the third Business Day after
the second Nikkei Determination Day
immediately succeeding such Exchange Date.
Holders deemed to have automatically
exercised their exchange right on the
Final Exchange Date, will receive payment
of Parity on the Maturity Date. 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.
Exchange Ratio.................
Interest Payment Dates:........ Each March 30, June 30, September 30 and
December 30, commencing June 30, 1995, or if
any such day is not a Business Day the
immediately succeeding day that is a Business
Day, unless (except in the case of September
30, 1998) such succeeding Business Day falls
in the next calendar month in which case such
Interest Payment Date shall be the first
preceding day that is a Business Day.
Interest Payment Period:....... Quarterly, except for the period commencing
on the Interest Accrual Date and ending June
30, 1995.
Interest Reset Period:......... The period from and including June 30, 1995
to but excluding September 30, 1995 and each
successive period beginning on, and
including, an Interest Payment Date and
ending on, but including, the next succeeding
Interest Payment Date.
Interest Reset Dates:.......... The first Interest Payment Date and each
successive Interest Payment Date thereafter.
Specified Currency:............ U.S. Dollars
Issue Price:................... 100%
Settlement Date (Original Issue
Date):....................... June [16], 1995
Book Entry Note or Certificated
Note:........................ Book Entry Note
Senior Note or Subordinated
Note:........................ Senior Note
Minimum Denominations:......... $1,000
Calculation Agent:............. Morgan Stanley & Co. Incorporated
Trustee:....................... Chemical Bank
Final Nikkei Value:............ The arithmetic average of the closing
values (afternoon session) of the Nikkei
225 Index (the "Nikkei 225") calculated
and published by Nihon Keizai Shimbun,
Inc. ("NKS") on the two Nikkei
Determination Days immediately succeeding
the Exchange Date, except the Final Nikkei
Value with respect to the September 29,
1998 Exchange Date (the "Final Exchange
Date") will be the arithmetic average of
the closing values (afternoon session) on
the first two Nikkei Determination Days
during the period of 10 Business Days
preceding, and excluding, the Maturity
Date on which, without giving effect to
any Market Disruption Events, the Tokyo
Stock Exchange ("TSE") and the Osaka
Securities Exchange ("OSE") would be
scheduled to be open for business;
provided that if, due to Market Disruption
Events, there are no Nikkei Determination
Days during such period, then the Final
Nikkei Value with respect to the Final
Exchange Date shall be the closing value
(afternoon session) of the Nikkei 225 on
the day first preceding the Maturity Date
on which such closing value was calculated
and published. See "Adjustments to
Index," "Market Disruption Event" and
"Discontinuance of the Index" below.
Nikkei Determination Day:...... A Business Day which is also a day on which
the TSE and the OSE are each open for
business and on which a Market Disruption
Event has not occurred. See "Market
Disruption Event" below.
The Nikkei 225 Index:.......... All information regarding the Nikkei 225 set
forth herein, including, without limitation,
its make-up, method of calculation and
changes in its components, has been derived
from publicly available information.
Characteristics
The Nikkei Stock Average (the "Nikkei
Average" or the "Nikkei 225") is one of
Japan's major stock market indices. Nihon
Keizai Shimbun, Inc. continues to calculate
and published the Nikkei 225 since 1970.
The Nikkei Average is an average price
adjusted by the Dow method, which is regarded
as being suitable for monitoring the level
of the stock market and its changes.
The constituents of the Nikkei Average are
225 actively traded stocks listed on the 1st
section of the Tokyo Stock Exchange ("TSE").
Since October 1991, constituents of the
Nikkei Average are reviewed every year and
relatively low liquidity stocks are replaced
by liquidity stocks. The Nikkei Average
therefore corresponds to the changes in the
stock market whilst at the same time
continuity is maintained.
Deletion and Addition Rules
The constituents of the Nikkei Average are
reviewed in accordance with the following
rules once a year.
Constituents of the Nikkei Average
The Nikkei Stock Average is calculated from
the prices of 225 TSE 1st section stocks
selected to represent the overall performance
of the stock market. The intention is to
maintain continuity whilst at the same time
keeping it composed of stocks of higher
market liquidity.
High Liquidity Group
Stocks with relatively high market
liquidity are selected from the TSE 1st
section listing and are categorized as the
"high liquidity group". The market
liquidity of each stock is measured by
that stocks trading volume and its price
fluctuation per trading volume for the
preceding 10 years. The stocks ranking in
the first half of the TSE 1st section as
measured by these two parameters form the
high liquidity group.
Standard for Deletion
Any constituent stock shall be deleted from
the Nikkei 225 if it ceases to be traded on
the TSE 1st section for any of the following
reasons:
(i) bankruptcy;
(ii) merger or acquisition by another
company;
(iii) delisting or moving to "Seiri-Post" due
to excess debt, etc.;
(iv) moving to the 2nd section.
Constituent stocks having relatively low
market liquidity on the TSE 1st section (i.e.
those not belonging to the high liquidity
group) may be deleted. Such cases are
limited to a maximum of 3 per cent of the
total number of constituent stocks of the
Nikkei Average i.e., 6 of them, per year.
Standard for Addition
If one or more constituent stocks are
deleted from the Nikkei Average, they are
replaced by the corresponding number of
non-constituent stocks which have been
selected as replacement candidates in
accordance with the following procedure.
Selection of Priority Industries
Firstly, each industry's distribution in the
high liquidity group is identified and the
ideal number of the Nikkei Average
constituents from each industry is determined
in proportion to the number of stocks that
industry has in the high liquidity group.
Then, by reference to the ideal and actual
numbers of the Nikkei Average constituents
from the relevant industry, its shortage
ratio is calculated. The industry
classification used here is as defined by
Nihou Keizai Shimbun, Inc. (36 sectors).
Ideal number of constituents from the
industry (A)
= B x 225
___
C/2
Shortage Ratio
= A-D x 100
____
D
Where = B is the number of stocks the
industry has in the then high
liquidity group.
C is the total number of stocks
listed on the TSE 1st section.
D is the actual number of Nikkei
Average constituents from the
industry.
Addition candidates are selected from
industries having a larger shortage ratio
("priority industries").
Selection of Addition Candidates from
Priority Industries
Addition candidates are selected from each
priority industry in order of market
liquidity.
Notwithstanding the above, stocks may (in
principle) not be adopted as addition
candidates if they at the time of selection:
(i) have been listed on the TSE 1st
section for less than 3 years; or
(ii) have less than 60 million shares
outstanding (the number of
outstanding shares of stocks with
par value other than 50 yen is
calculated after converting to a
50 yen par value basis).
Exception
If a stock newly listed by the TSE on its 1st
section as an exceptional case is deemed to
be representative of the overall performance
of the market, such stock may replace a
Nikkei Average constituent having lower
market liquidity.
Determination and announcement of the changes
Deletion/addition stocks are determined and
announced by Nihon Keizai Shimbun, Inc. after
taking counsel of scholars, experts, etc.
Method of calculation
The Nikkei Average is an average price of 225
stocks traded on the TSE 1st section.
However, it is different from a simple
average in that the divisor is adjusted to
maintain continuity. When there is a
non-market change in the price of the
constituents or constituents are changed, the
divisor is adjusted, so that the index level
remains unchanged by the event.
NKS is under no obligation to continue the
calculation or dissemination of the Nikkei
225. In the event that NKS discontinues
or suspends calculation or publication of
the Nikkei 225 or that the calculation of
the Nikkei 225 is changed in a material
respect, the Calculation Agent may
calculate a stock average comparable to
the Nikkei 225 and the Final Nikkei Value
shall be calculated based on such
comparable index at the Exchange Date (or
any other date of maturity). See
"Adjustments to the Index," "Market
Disruption Event" and "Discontinuance of
the Index" below.
The use of and reference to the Nikkei 225 in
connection with the Notes has been consented
to by NKS, the publisher of the Nikkei 225.
All rights to the Nikkei 225 are owned by
NKS. The Company, the Calculation Agent, MS&
Co. and the Trustee disclaim all
responsibility for the calculation or other
maintenance of or any adjustments to the
Nikkei 225. 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
Parity or the Final Nikkei Value, as
described above.
The following table sets forth the high and
low daily closing values of the Nikkei 225
for each quarter, in the period from January
1, 1990 through June 5, 1995, as published by
NKS. The historical experience of the Nikkei
225 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 as
of the relevant Nikkei Determination Days
corresponding to any Exchange Date (or any
earlier date of maturity).
Daily Closing Values in Japanese Yen
------------------------------------
End of
High Low Quarter
--------- --------- ---------
1990:
1st Quarter..... 38,712.88 29,843.34 29,980.45
2nd Quarter..... 33,192.50 28,002.07 31,940.24
3rd Quarter..... 33,172.28 20,983.50 20,983.50
4th Quarter..... 25,352.63 20,221.86 23,848.71
1991:
1st Quarter..... 27,146.91 22,442.70 26,292.04
2nd Quarter..... 26,980.37 23,290.96 23,290.96
3rd Quarter..... 24,120.75 21,456.76 23,916.44
4th Quarter..... 25,222.28 21,502.90 22,983.77
1992:
1st Quarter..... 23,801.18 19,345.95 19,345.95
2nd Quarter..... 18,804.60 15,741.27 15,951.73
3rd Quarter..... 18,908.47 14,309.41 17,399.08
4th Quarter..... 17,690.67 15,993.48 16,924.95
1993:
1st Quarter..... 19,048.38 16,287.45 18,591.45
2nd Quarter..... 21,076.00 19,099.09 19,590.00
3rd Quarter..... 21,148.11 19,621.46 20,105.71
4th Quarter..... 20,500.25 16,078.71 17,417.24
1994:
1st Quarter..... 20,677.77 17,369.74 19,111.92
2nd Quarter..... 21,552.81 19,122.22 20,643.93
3rd Quarter..... 20,862.77 19,468.89 19,563.81
4th Quarter..... 20,148.83 18,666.93 19,723.06
1995:
1st Quarter..... 19,684.04 15,749.77 16,139.95
[ At June 5, 1995. 17,103.69 15,381.29 15,897.32]
Nikkei 225 Index
Underlying Stocks: A list of the issuers of the 225 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, or the value thereof, is changed
in a material respect, or if the Nikkei 225
is in any other way modified so that the
Nikkei 225 does not, in the reasonable
opinion of the Calculation Agent fairly
represent the value of the Nikkei 225 had
such changes or modifications not been made
(except for changes in the 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 closing value (afternoon session)
of the Nikkei 225 is to be calculated to
determine the Final Nikkei Value, 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 as if such changes or
modifications had not been made, and
calculate such closing value with reference
to the Nikkei 225, as adjusted.
Accordingly, if the method of calculating
the Nikkei 225 is modified so that the value
of the Nikkei 225 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), then the Calculation
Agent shall adjust the Nikkei 225 in order
to arrive at a value of the Nikkei 225 as if
it had not been modified (e.g., as if such
split had not occurred).
Market Disruption Event: "Market Disruption Event" means the occurrence
or existence of either of the following events
on a Nikkei Determination Day as determined by
the Calculation Agent:
(i) a suspension or absence of trading
on the TSE of 20% or more of the Stocks which
then comprise the Nikkei 225 (or a Successor
Index, as defined below) during the one-half
hour period preceding the close of trading on
the TSE; or
(ii) the suspension or material
limitation on the Singapore International
Monetary Exchange Ltd. (the "SIMEX"), Osaka
Securities Exchange (the "OSE") or any other
major securities market of trading in futures
or options contracts related to the Nikkei
225 during the one-half hour period preceding
the close of trading on the applicable
exchange.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant contract will not constitute
a Market Disruption Event, (3) a suspension
of trading in a futures or options contract
on the Nikkei 225 by the TSE, the OSE or
other major securities market by reason of
(x) a price change exceeding limits set by
such securities exchange or market, (y) an
imbalance of orders relating to such
contracts or (z) a disparity in bid and ask
quotes relating to such contracts will
constitute a suspension or material
limitation of trading in futures or options
contracts related to the Nikkei 225 and (4)
an "absence of trading" on the SIMEX, OSE or
a major securities market on which futures
or options contracts related to the Nikkei
225 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.
Discontinuance of the Index: If the NKS discontinues publication of the
Nikkei 225 and NKS or another entity publishes
a successor or substitute index that the
Calculation Agent determines to be comparable
to Nikkei 225 (any such index being 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, as the
case may be, and calculate the Final Nikkei
Value as described above under "Exchange
Dates". 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 Value" are the closing levels
(afternoon session) of the respective indexes
on the same day, whether, in the case of the
Most Recent Nikkei 225 Value, such closing
level is determined at that point by NKS or the
calculation, as described below.
Upon any selection by the Calculation Agent of
a Successor Index, the Company shall cause
notice thereof to be given to holders of the
Notes.
If NKS discontinues publication of the Nikkei
225 and a Successor Index is not selected by
the Calculation Agent or is no longer published
on any of the Nikkei Determination Days, the
value to be substituted for the Nikkei 225 for
any such Nikkei Determination Day used to
calculate the Final Nikkei Value will be a
value computed by the Calculation Agent for
each Nikkei Determination Day in accordance
with the procedures last used to calculate the
Nikkei 225 prior to any such discontinuance.
If a Successor Index is selected or the
Calculation Agent calculates a value as a
substitute for the Nikkei 225 as described
below, such Successor Index or value shall be
substituted for the Nikkei 225 for all
purposes, including for purposes of determining
whether a Market Disruption Event exists.
If NKS discontinues publication of the Nikkei
225 prior to any period during which the Final
Nikkei Value is to be determined and the
Calculation Agent determines that no Successor
Index is available at such time, then on each
Business Day until the earlier to occur of (i)
the determination of the Final Nikkei Value and
(ii) a determination by the Calculation Agent
that a Successor Index is available, the
Calculation Agent shall determine the value
that would be used in computing the Final
Nikkei Value as described in the preceding
paragraph as if such day were a Nikkei
Determination Day. The Company will cause
notice of each such value to be published not
less often than once each month in The Wall
Street Journal (or another newspaper of general
circulation), and arrange for information with
respect to such values to be made available by
telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication
of the Nikkei 225 may adversely affect trading
in the Notes.
Use of Proceeds: 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.
United States Federal
Taxation: There is currently no specific guidance
regarding the federal income tax treatment of
the Notes. Proposed Treasury regulations
issued on December 15, 1994, which generally
would require current accrual of contingent
amounts, apply only to debt instruments issued
on or after the 60th day after the date the
regulations are finalized. There can be no
assurance that the ultimate tax treatment of
the Notes would not differ significantly from
the description herein. Prospective investors
are urged to consult their tax advisors as to
the possible consequences of holding the Notes.
Payments of Interest. Under general tax
principles, a United States Holder would be
required to include interest paid on the
Note in income at the time it accrues or is
received in accordance with the United
States Holder's method of accounting for
federal income tax purposes. With respect
to any contingent amount payable upon any
exercise of the exchange option in excess of
the Note's principal amount, an accrual
basis taxpayer would be required to include
any such amount in income only at the time
such amount becomes fixed and determinable,
which is on the second Nikkei Determination
Date after each Exchange Date, except with
respect to the Final Exchange Date for which
such amount becomes fixed and determinable
on the last Business Day (in the relevant 10
Business Day period) used as a reference in
the calculation of the Final Nikkei Value of
the Note.
United States Holders that have acquired debt
instruments similar to the Notes and have
accounted for such debt instruments under
proposed, but subsequently withdrawn, Treasury
regulation Section 1.1275-4(g) may be deemed
to have established a method of accounting that
must be followed with respect to the Notes,
unless consent of the Commissioner of the
Internal Revenue Service is obtained to change
such method. Absent such consent, such a
Holder would be required to account for the
Note in the manner prescribed in withdrawn
Treasury regulation Section 1.1275-4(g).
Accordingly, the Note would be bifurcated into
its contingent and noncontingent components and
the issue price of the Note would be allocated
according to the fair market value of the
components. The noncontingent component would
be treated as a separate noncontingent debt
instrument governed by Internal Revenue Code
Sections 1271 through 1275. The contingent
component would be treated in accordance with
its economic substance as payments pursuant to
an option.
See also "United States Federal Taxation" in
the accompanying Prospectus Supplement.
