PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 21 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655
Dated May 1, 1996 July 26, 1996
Rule 424(b)(3)
$50,000,000
Morgan Stanley Group Inc.
MEDIUM-TERM NOTES, SERIES C
1 1/4% 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 1 1/4% 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) 5.12192 (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 closing value (afternoon session) of the Nikkei Stock
Average (the "Nikkei 225 Index") published by Nihon Keizai Shimbun, Inc.
("NKS") on such Nikkei Determination Date (the "Nikkei Closing Value") divided
by (ii) 108.2Yen 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 5.634112 (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.
The Notes have been approved for listing on the New York Stock Exchange
("NYSE"), subject to official notice of issuance. The NYSE symbol for the
Notes is "MSNK 03." 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% 0.50% 99.50%
Total....... $50,000,000 $250,000 $49,750,000
_______________
(1) Plus accrued interest, if any, from August 1, 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
(This page left intentionally blank)
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount:................. $50,000,000
Maturity Date:.................... July 31, 2003
Interest Rate:.................... 1 1/4% 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):............................ August 1, 1996
Book Entry Note or Certificated
Note:............................. Book-Entry Note
Senior Note or Subordinated Note:. Senior Note
Minimum Denominations:............ $1,000
Trustee:.......................... The Chase Manhattan 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. In the event of any Par
Step-up Adjustment, interest with respect
to each $1,000 principal amount of a Note
will accrue on the adjusted Par, as
determined by the Calculation Agent, from
and including the Interest Payment Date
scheduled to coincide with the Exchange
Date on which such adjustment will have
been made. If Parity as so determined
exceeds the then current Par, notice of
the adjustment to Par shall promptly be
sent by the Calculation Agent 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:................... 5.12192, 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 5.634112, 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 Closing Value divided by (ii) FX
Initial.
Nikkei Closing Value:............. The closing value (afternoon session) of
the Nikkei 225 Index, published by NKS,
with respect to a Nikkei Determination
Date.
FX Initial:....................... 108.2 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 closing 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 25, 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
closing values of the Nikkei 225 Index for
each quarter, in the period from January
1, 1991 through July 25, 1996, as
published by NKS. However, neither the
Company nor the Agent makes any
representation as to the accuracy of such
information. The historical performance
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 Closing Values in Japanese Yen
-----------------------------------------------
End of
High Low Quarter
---- --- -------
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
2nd Quarter........ 17,103.69 14,507.17 14,517.40
3rd Quarter........ 18,758.55 14,485.41 17,913.06
4th Quarter........ 20,011.76 17,337.19 19,868.15
1st Quarter........ 21,406.85 19,734.70 21,406.85
2nd Quarter........ 22,666.80 21,171.82 22,530.75
3rd Quarter through
July 25, 1996...... 22,455.49 20,631.03 21,124.90
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 closing value
(afternoon session) of the Nikkei 225 Index
is to be calculated to determine the Nikkei
Closing 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 closing
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 closing
levels (afternoon 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 closing level (afternoon 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.
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 the date of this Pricing Supplement, the
Company, through its subsidiaries and others,
hedged 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 and over-the-counter options
linked to the Nikkei 225 Index. 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 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. 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: 212-761-0674
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 26, 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_____________________________
