PROSPECTUS SUPPLEMENT                                 Registration No. 333-18005
(To Prospectus dated January 24, 1997)                            Rule 424(b)(5)

                                 $6,000,000,000
                            Morgan Stanley Group Inc.
                       GLOBAL MEDIUM-TERM NOTES, SERIES C
                             GLOBAL UNITS, SERIES C
                                -----------------
                  Due More Than Nine Months from Date of Issue
                                -----------------

         Morgan Stanley Group Inc. (the "Company") may offer from time to time,
either alone or as part of a Unit, its Global Medium-Term Notes, which are
issuable in one or more series and may be offered and sold in the United States,
outside the United States or both in and outside the United States
simultaneously. Global Medium-Term Notes issued as part of a Unit will be issued
in conjunction with one or more Universal Warrants, Purchase Contracts or any
combination thereof. See "Description of Units." The Global Medium-Term Notes,
Series C (the "Notes"), and the Global Units, Series C, each consisting of one
or more Series C Notes and one or more Universal Warrants, Purchase Contracts or
any combination thereof (the "Units" and together with the Series C Notes, the
"Program Securities"), offered by this Prospectus Supplement are offered
primarily in the United States at an aggregate initial public offering price of
up to $6,000,000,000, or the equivalent thereof in other currencies, including
composite currencies such as the ECU (the "Specified Currency"). See "Important
Currency Exchange Information." Such aggregate offering price is subject to
reduction as a result of the sale by the Company of certain other Debt
Securities, including the sale of the Company's Global Medium-Term Notes, Series
D and Series E and Global Units, Series D and Series E outside the United States
and of certain Warrants, Preferred Stock, Purchase Contracts and Units. See
"Plan of Distribution."

         The Notes may be issued as Senior Indebtedness or Subordinated
Indebtedness. Subordinated Indebtedness will be subordinate to all Senior
Indebtedness. See "Description of Debt Securities -- Subordinated Debt" in the
accompanying Prospectus. The interest rate on each Note will be either a fixed
rate established by the Company at the date of issue of such Note, which may be
zero in the case of certain Original Issue Discount Notes, or a floating rate as
set forth therein and specified in the applicable Pricing Supplement. Such
interest rates may be determined by reference to the prices of certain
securities or commodities. A Fixed Rate Note may pay a level amount in respect
of both interest and principal amortized over the life of the Note (an
"Amortizing Note"). Each Note will mature on any day more than nine months from
the date of issue, as set forth in the applicable Pricing Supplement. See
"Description of Notes." Unless otherwise specified in the applicable Pricing
Supplement, the Notes may not be redeemed by the Company or be repayable at the
option of the holder prior to maturity and will be issued in fully registered
form in denominations of $1,000 (or, in the case of Notes not denominated in
U.S. dollars, the equivalent thereof in the Specified Currency, rounded to the
nearest 1,000 units of the Specified Currency) or any amount in excess thereof
which is an integral multiple of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, 1,000 units of the Specified Currency). Any terms
relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement.

         Universal Warrants included in Units will entitle the holders thereof
to purchase or sell (a) securities of an entity unaffiliated with the Company, a
basket of such securities, an index or indices of such securities or any
combination of the above, (b) currencies or composite currencies or (c)
commodities. The Company may satisfy its obligations, if any, with respect to
any Universal Warrants by delivering the underlying securities, currencies or
commodities or, in the case of underlying securities or commodities, the cash
value thereof, as set forth in the applicable Pricing Supplement. A Universal
Warrant issued as part of a Unit may not be separated from the other securities
comprising such Unit prior to such Warrant's expiration date unless otherwise
specified in the applicable Pricing Supplement.

         Purchase Contracts included in Units will require the holders thereof
to purchase or sell (a) securities of an entity unaffiliated with the Company, a
basket of such securities, an index or indices of such securities or any
combination of the above, (b) currencies or composite currencies or (c)
commodities. A Purchase Contract issued as part of a Unit may not be separated
from the other securities comprising such Unit prior to such Purchase Contract's
settlement date, unless otherwise specified in the applicable Pricing
Supplement. The applicable Pricing Supplement will also specify the methods by
which the holders may purchase or sell such securities, currencies or
commodities and any acceleration, cancellation or termination provisions or
other provisions relating to the settlement of a Purchase Contract.

         Each Program Security will be represented either by a Global Program
Security registered in the name of a nominee of The Depository Trust Company, as
Depositary (a "Book-Entry Program Security"), or by a certificate issued in
definitive form (a "Certificated Program Security"), as set forth in the
applicable Pricing Supplement. Interests in Global Program Securities
representing Book-Entry Program Securities will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary
(with respect to participants' interests) and its participants. Book-Entry
Program Securities will not be issuable as Certificated Program Securities
except under the circumstances described in the accompanying Prospectus.

                               -----------------

 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
    AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
          THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
                      PROSPECTUS. ANY REPRESENTATION TO THE
                         CONTRARY IS A CRIMINAL OFFENSE.

                               ------------------




                                        Price to                      Agent's                         Proceeds to
                                       Public(1)                  Commissions(2)                     Company(2)(3)

                                                                                    
Per Note or Unit..............          100.000%                   .125% - .750%                   99.875% - 99.250%

Total(4)......................       $6,000,000,000            $7,500,000 $45,000,000        $5,992,500,000 $5,955,000,000








                                        2
- ------------
(1)  Unless otherwise specified in the applicable Pricing Supplement, Notes will
     be sold at 100% of their principal amount and Units will be sold at 100% of
     the principal amount of the Notes included therein.
(2)  Unless otherwise specified in the applicable Pricing Supplement, the
     commission payable to the Agent for each Program Security sold through the
     Agent will range from .125% to .750% of the Price to Public of such Program
     Security; provided, however, that commissions with respect to Program
     Securities having a maturity of 30 years or greater will be negotiated. The
     Company may also sell Program Securities to the Agent, as principal, at
     negotiated discounts, for resale to investors and other purchasers.
(3)  Before deducting expenses payable by the Company estimated at $3,250,000
(4)  Or the equivalent thereof in other currencies, including composite
     currencies.
                                -----------------

         Offers to purchase the Program Securities are being solicited from time
to time by Morgan Stanley & Co. Incorporated, a wholly owned subsidiary of the
Company ("Morgan Stanley" or the "Agent"), on behalf of the Company. The Agent
has agreed to use reasonable efforts to solicit purchases of such Program
Securities. The Company may also sell Program Securities to the Agent acting as
principal for its own account or otherwise as determined by such Agent. No
termination date for the offering of the Program Securities has been
established. The Company or the Agent may reject any order in whole or in part.
The Program Securities will not be listed on any securities exchange, and there
can be no assurance that the Program Securities offered hereby will be sold or
that there will be a secondary market for the Program Securities.
See "Plan of Distribution."

         This Prospectus Supplement and the accompanying Prospectus may be used
by the Agent in connection with offers and sales of the Program Securities in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale or otherwise. The Agent may act as principal or agent
in such transactions.


                               -----------------

                              MORGAN STANLEY & CO.
                                  Incorporated
January 24, 1997







         No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus in
connection with the offer contained in this Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Agent. This Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy Securities by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation.

                               -------------------

         IN CONNECTION WITH THIS OFFERING, THE AGENT MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PROGRAM
SECURITIES, OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO DETERMINE
PAYMENTS ON SUCH PROGRAM SECURITIES, AT LEVELS WHICH MIGHT NOT OTHERWISE
PREVAIL IN THE OPEN MARKET.  SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.  SUCH TRANSACTIONS WILL BE CARRIED OUT IN ACCORDANCE
WITH ALL RELEVANT LAWS AND REGULATIONS.

                               -------------------

                     IMPORTANT CURRENCY EXCHANGE INFORMATION

         Purchasers are required to pay for the Program Securities in U.S.
dollars, and payments of principal, premium, if any, and interest on Notes or
payments with respect to Units or any security comprised by such Unit will be
made in U.S. dollars, unless otherwise provided in the applicable Pricing
Supplement. Currently, there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies and vice versa. In addition,
most banks do not currently offer non-U.S. dollar denominated checking or
savings account facilities in the United States. Accordingly, unless otherwise
specified in a Pricing Supplement or unless alternative arrangements are made
(and subject, in the case of Book-Entry Program Securities, to any additional
procedures that may be required), payment of principal, premium, if any, and
interest on Notes (or any payment with respect to a Unit or any security
constituting such Unit) in a Specified Currency other than U.S. dollars will be
made to an account at a bank outside the United States. See "Description of
Notes," "Description of Units" and "Foreign Currency Risks."

         If the applicable Pricing Supplement provides for payments of principal
of and interest on a non-U.S. dollar denominated Note (or any payment with
respect to a Unit or any security constituting such Unit) to be made in U.S.
dollars or for payments of principal of and interest on a U.S. dollar
denominated Note (or any payment with respect to a Unit or any security
constituting such Unit) to be made in a Specified Currency other than U.S.
dollars, the conversion of the Specified Currency into U.S. dollars or U.S.
dollars into the Specified Currency, as the case may be, will be handled by
Morgan Stanley, in its capacity as Exchange Rate Agent, or such other Exchange
Rate Agent identified in the Pricing Supplement. The costs of such conversion
will be borne by the holder of the Note or Unit through deductions from such
payments.

         References herein to "U.S. dollars" or "U.S.$" or "$" are to the
currency of the United States of America.

                               -------------------


                                       S-2








                              DESCRIPTION OF NOTES

         The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
Debt Securities set forth in the Prospectus, to which reference is hereby made.
In particular, as used under this caption, the term "Company" means Morgan
Stanley Group Inc. The particular terms of the Notes sold pursuant to any
pricing supplement (a "Pricing Supplement") will be described therein. The terms
and conditions set forth in "Description of Notes" will apply to each Note
unless otherwise specified in the applicable Pricing Supplement and in such
Note. The Notes described herein may be offered either alone or as part of a
Unit. See "Description of Units."

         If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit (the "ECU"), in which the
principal, premium, if any, and interest, if any, with respect to such Note are
to be paid, along with any other terms relating to the non-U.S. dollar
denomination, including exchange rates for the Specified Currency as against the
U.S. dollar at selected times during the last five years, and any exchange
controls affecting such Specified Currency. See "Foreign Currency Risks."

General

         The Notes may be issued either alone or as part of a Unit, under the
Senior Debt Indenture ("Senior Notes") or the Subordinated Debt Indenture
("Subordinated Notes"). The Notes issued under each Indenture, together with the
Company's Global Medium-Term Notes, Series D, and its Global Medium-Term Notes,
Series E, referred to below under "Plan of Distribution," will constitute a
single series under such Indenture, together with any medium-term notes of the
Company issued in the future under such Indenture which are designated by the
Company as constituting a single series of securities with the Notes and the
Global Medium-Term Notes, Series D, and Global Medium-Term Notes, Series E, for
purposes of such Indenture. Neither Indenture limits the amount of additional
indebtedness that the Company may incur. At August 31, 1996, the Company had
approximately $11.6 billion aggregate principal amount of medium-term notes
outstanding under the Senior Debt Indenture and approximately $91.2 million
aggregate principal amount of medium-term notes outstanding under the
Subordinated Debt Indenture. Such aggregate principal amounts may be increased
from time to time as authorized by, or pursuant to authority delegated by, the
Board of Directors of the Company. For the purpose of this paragraph, (i) the
principal amount of any Original Issue Discount Note (as defined below) means
the Issue Price (as defined below) of such Note and (ii) the principal amount of
any Note issued in a foreign currency or composite currency means the U.S.
dollar equivalent on the date of issue of the Issue Price of such Note.

         Notes issued under the Senior Debt Indenture will rank pari passu with
all other Senior Indebtedness of the Company and with all other unsecured and
unsubordinated indebtedness of the Company. Notes issued under the Subordinated
Debt Indenture will rank pari passu with all other subordinated indebtedness of
the Company and, together with such other subordinated indebtedness, will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company. See "Description of Debt Securities -- Subordinated
Debt" in the Prospectus. At August 31, 1996, there was outstanding approximately
$22.4 billion of Senior Indebtedness, approximately $1.3 billion of subordinated
indebtedness and approximately $865.3 million of Capital Units. Each Capital
Unit consists of a subordinated debenture of Morgan Stanley Finance plc, a
subsidiary of the Company, guaranteed by the Company on a subordinated basis and
a related purchase contract issued by the Company requiring the holder to
purchase one depositary share representing ownership of a fraction or multiple
of a share of the Company's preferred stock.

         Fixed Rate Notes, Amortizing Notes and Original Issue Discount Notes
will mature on any day more than nine months from the date of issue, as set
forth in the applicable Pricing Supplement. Floating Rate Notes (including
Renewable Notes, as defined below) will mature on an Interest Payment Date (as
defined below) more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Except as may be specified for Notes denominated
in foreign or composite currencies or as otherwise provided in the applicable

                                       S-3







Pricing Supplement, the Notes will be issued only in fully registered form in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000.

         Unless otherwise provided in the applicable Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars will be issued in
denominations of the equivalent of $1,000 (rounded to an integral multiple of
1,000 units of such Specified Currency), or any amount in excess thereof which
is an integral multiple of 1,000 units of such Specified Currency, as determined
by reference to the noon dollar buying rate in New York City for cable transfers
of such Specified Currency published by the Federal Reserve Bank of New York
(the "Market Exchange Rate") on the Business Day (as defined below) immediately
preceding the date of issuance; provided, however, that in the case of ECUs, the
Market Exchange Rate shall be the rate of exchange determined by the Commission
of the European Communities (or any successor thereto) as published in the
Official Journal of the European Communities, or any successor publication, on
the Business Day immediately preceding the date of issuance.

         The Notes will be offered on a continuing basis, and each Note will be
issued, either alone or as part of a Unit, initially as either a Book-Entry Note
or a Certificated Note. Except as set forth in the Prospectus under "Description
of Debt Securities -- Registered Global Securities," Book-Entry Notes will not
be issuable as Certificated Notes. See "Book-Entry System" below.

         The Notes may be presented for payment of principal, premium, if any,
and interest, transfer of the Notes will be registrable and the Notes will be
exchangeable at the agency in the Borough of Manhattan, The City of New York,
maintained by the Company for such purpose; provided that Book-Entry Notes will
be exchangeable only in the manner and to the extent set forth under
"Description of Debt Securities -- Registered Global Securities" in the
Prospectus. On the date hereof, the agent for the payment, transfer and exchange
of the Notes (the "Paying Agent") is The Chase Manhattan Bank (formerly known as
Chemical Bank), acting through its corporate trust office at 450 West 33rd
Street, New York, New York 10001.

         The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto, the interest rate or interest
rate formula, ranking, maturity, currency or composite currency, principal
amount and any other terms on which each such Note will be issued.

         As used herein, the following terms shall have the meanings set forth
below:

         "Business Day" means 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 and (i) with
respect to LIBOR Notes (as defined below), that is also a London Banking Day,
(ii) with respect to Notes denominated in a Specified Currency other than U.S.
dollars, Australian dollars or ECUs, in the principal financial center of the
country of the Specified Currency, (iii) with respect to Notes denominated in
Australian dollars, in Sydney and (iv) with respect to Notes denominated in
ECUs, that is not a non-ECU clearing day, as determined by the ECU Banking
Association in Paris.

         An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.

         "London Banking Day" means any day on which dealings in deposits in the
relevant Index Currency (as defined below) are transacted in the London
interbank market.

         "Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the relevant
Indenture.

         The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day.

                                       S-4








Payment Currency

         If the applicable Pricing Supplement provides for all or a portion of
payments of interest and principal on a non-U.S. dollar denominated Note to be
made, at the option of the holder of such Note, in U.S. dollars, conversion of
the Specified Currency into U.S. dollars will be based on the highest bid
quotation in The City of New York received by the Exchange Rate Agent at
approximately 11:00 A.M., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent unless the Exchange Rate
Agent is Morgan Stanley) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
amount of the Specified Currency payable to the holders of Notes and at which
the applicable dealer commits to execute a contract. If such bid quotations are
not available, payments will be made in the Specified Currency. All currency
exchange costs will be borne by the holders of Notes by deductions from such
payments.

         Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date; provided, however, that if such Specified
Currency is replaced by the Euro (as described under "Special Provisions
Relating to Notes Denominated in ECU" below), the payment of principal of,
premium, if any, or interest on any Note denominated in such currency shall be
effected in Euro in conformity with legally applicable measures taken pursuant
to, or by virtue of, the treaty establishing the European Community (the "EC"),
as amended by the treaty on European Union (as so amended, the "Treaty"). Any
payment made under such circumstances in U.S. dollars (or, if applicable, Euro)
where the required payment is in a Specified Currency other than U.S. dollars
will not constitute an Event of Default.

Special Provisions Relating to Notes Denominated in ECU

         Valuation of the ECU

         Subject to the provisions under "Payment in a Component Currency"
below, the value of the ECU, in which the Notes may be denominated or may be
payable, is equal to the value of the ECU that is from time to time used as the
unit of account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly. From the start of the third
stage of European monetary union, the value of the ECU as against the currencies
of member states participating in the third stage will be irrevocably fixed and
the ECU will become a currency in its own right, replacing all or some of the
currencies of the 15 member states of the EC (as of the date of this Prospectus
Supplement, such currencies include the Austrian shilling, Belgian franc, Danish
krone, Dutch guilder, Finnish markka, French franc, German mark, Greek drachma,
Irish pound, Italian lira, Luxembourg franc, Portuguese escudo, Spanish peseta,
Swedish krona and pound sterling). In contemplation of the third stage, the
European Council meeting in Madrid on December 16, 1995 decided that the name of
the new currency will be the Euro and that, in accordance with the Treaty,
substitution of the Euro for the ECU will be at the rate of one Euro for one
ECU. From the start of the third stage of European monetary union, all payments
in respect of the Notes denominated or payable in ECU will be payable in Euro at
the rate then established in accordance with the Treaty.


                                       S-5







         Payment in a Component Currency

         With respect to each due date for the payment of principal of, or
interest on, the Notes on or after the first business day in Brussels on which
the ECU ceases to be used as the unit of account of the EC and has not become a
currency in its own right replacing all or some of the currencies of the member
states of the EC, the Company shall choose a substitute currency (the "Chosen
Currency"), which may be any currency which was, on the last day on which the
ECU was used as the unit of account of the EC, a component currency of the ECU
or U.S. dollars, in which all payments due on or after that date with respect to
the Notes and coupons shall be made. Notice of the Chosen Currency so selected
shall, where practicable, be published in the manner described in "Notices"
below. The amount of each payment in such Chosen Currency shall be computed on
the basis of the equivalent of the ECU in that currency, determined as described
below, as of the fourth business day in Brussels prior to the date on which such
payment is due.

         On the first business day in Brussels on which the ECU ceases to be
used as the unit of account of the EC and has not become a currency in its own
right replacing all or some of the currencies of the member states of the EC,
the Company shall select a Chosen Currency in which all payments with respect to
Notes and coupons having a due date prior thereto but not yet presented for
payment are to be made. Notice of the Chosen Currency so selected shall, where
practicable, be published in the manner described in "Notices" below. The amount
of each payment in such Chosen Currency shall be computed on the basis of the
equivalent of the ECU in that currency, determined as described below, as of
such first business day.

         The equivalent of the ECU in the relevant Chosen Currency as of any
date (the "Day of Valuation") shall be determined by, or on behalf of, the
Exchange Rate Agent on the following basis. The amounts and components composing
the ECU for this purpose (the "Components") shall be the amounts and components
that composed the ECU as of the last date on which the ECU was used as the unit
of account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S. dollar equivalent of the Components in the
Chosen Currency as set forth below, calculating the equivalent in the Chosen
Currency of such aggregate amount in U.S. dollars.

         The U.S. dollar equivalent of each of the Components shall be
determined by, or on behalf of, the Exchange Rate Agent on the basis of the
middle spot delivery quotations prevailing at 2:30 P.M., Brussels time, on the
Day of Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from
one or more major banks, as selected by the Company, in the country of issue of
the component currency in question.

         If for any reason no direct quotations are available for a Component as
of a Day of Valuation from any of the banks selected for this purpose, in
computing the U.S. dollar equivalent of such Component, the Exchange Rate Agent
shall (except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 P.M.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the Company, in
a country other than the country of issue of such component currency.
Notwithstanding the foregoing, the Exchange Rate Agent shall determine the U.S.
dollar equivalent of such Component on the basis of such cross rates if the
Company or such agent judges that the equivalent so calculated is more
representative than the U.S. dollar equivalent calculated as provided in the
first sentence of this paragraph. Unless otherwise specified by the Company, if
there is more than one market for dealing in any component currency by reason of
foreign exchange regulations or for any other reason, the market to be referred
to in respect of such currency shall be that upon which a nonresident issuer of
securities denominated in such currency would purchase such currency in order to
make payments in respect of such securities.


                                       S-6







         Payments in the Chosen Currency will be made at the specified office of
a paying agent in the country of the Chosen Currency or, if none, or at the
option of the holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the holder with, a
bank in the principal financial center of the country of the Chosen Currency.

         All determinations referred to above made by, or on behalf of, the
Company or by, or on behalf of, the Exchange Rate Agent shall be at such
entity's sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes and coupons.

         Notes Denominated in the Currencies of EC Member States

         If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by the Euro, the payment of principal of,
premium, if any, or interest on, the Notes denominated in such currencies shall
be effected in Euro in conformity with legally applicable measures taken
pursuant to, or by virtue of, the Treaty.

Interest and Principal Payments

         Interest will be payable to the person in whose name the Note is
registered at the close of business on the applicable Record Date; provided that
the interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date. See "United States Federal
Taxation -- Discount Notes" below.

         U.S. dollar payments of interest, other than interest payable at
maturity (or on the date of redemption or repayment, if a Note is redeemed or
repaid by the Company prior to maturity), will be made by check mailed to the
address of the person entitled thereto as shown on the Note register. U.S.
dollar payments of principal, premium, if any, and interest upon maturity,
redemption or repayment will be made in immediately available funds against
presentation and surrender of the Note. Notwithstanding the foregoing, (a) the
Depositary (as defined below), as holder of Book-Entry Notes, shall be entitled
to receive payments of interest by wire transfer of immediately available funds
and (b) a holder of $10,000,000 (or the equivalent) or more in aggregate
principal amount of Certificated Notes having the same Interest Payment Date
shall be entitled to receive payments of interest by wire transfer of
immediately available funds upon written request to the Paying Agent not later
than 15 calendar days prior to the applicable Interest Payment Date.

         Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Book-Entry Notes denominated in a Specified Currency
electing to receive payments of principal or any premium or interest in a
currency other than U.S. dollars must notify the participant through which its
interest is held on or prior to the applicable Record Date, in the case of a
payment of interest, and on or prior to the sixteenth day prior to maturity (or
the date of redemption or repayment if a Note is redeemed or repaid prior to
maturity), in the case of principal or premium of such beneficial owner's
election to receive all or a portion of such payment in a Specified Currency.
Such participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date, in the case of a payment of interest,
and on or prior to the twelfth Business Day prior to maturity (or the date of
redemption or repayment if a Note is redeemed or repaid prior to maturity) in
the case of a payment of principal or premium. The Depositary will notify the
Paying Agent of such election on or prior to the fifth Business Day after such
Record Date, in the case of a payment of interest, and on or prior to the tenth
Business Day prior to maturity (or the date of redemption or repayment if a Note
is redeemed or repaid prior to maturity) in the case of a payment of principal
or premium. If complete instructions are received by the participant and
forwarded by the participant to the Depositary, and by the Depositary to the
Paying Agent, on or prior to such dates, the beneficial

                                       S-7







owner will receive payments in the Specified Currency by wire transfer of
immediately available funds to an account maintained by the payee with a bank
located outside the United States; otherwise the beneficial owner will receive
payments in U.S. dollars.

         Certain Notes, including Original Issue Discount Notes, may be
considered to be issued with original issue discount, which must be included in
income for United States federal income tax purposes at a constant yield. See
"United States Federal Taxation -- Discount Notes" below. Unless otherwise
specified in the applicable Pricing Supplement, if the principal of any Original
Issue Discount Note is declared to be due and payable immediately as described
under "Description of Debt Securities -- Events of Default" in the Prospectus,
the amount of principal due and payable with respect to such Note shall be
limited to the aggregate principal amount of such Note multiplied by the sum of
its Issue Price (expressed as a percentage of the aggregate principal amount)
plus the original issue discount amortized from the date of issue to the date of
declaration, which amortization shall be calculated using the "interest method"
(computed in accordance with generally accepted accounting principles in effect
on the date of declaration). Special considerations applicable to any such Notes
will be set forth in the applicable Pricing Supplement.

Fixed Rate Notes

         Each Fixed Rate Note will bear interest from the date of issuance at
the annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually on each March 1 and September 1 and at maturity or upon any
earlier redemption or repayment. Payments of principal and interest on
Amortizing Notes, which are securities on which payments of principal and
interest are made in equal installments over the life of the security, will be
made either quarterly on each March 1, June 1, September 1 and December 1 or
semiannually on each March 1 and September 1, as set forth in the applicable
Pricing Supplement, and at maturity or upon any earlier redemption or repayment.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each
Amortizing Note will be provided to the original purchaser and will be
available, upon request made to the Company, to subsequent holders.

         If any Interest Payment Date for any Fixed Rate Note would fall on a
day that is not a Business Day, the interest payment shall be postponed to the
next day that is a Business Day, and no interest on such payment shall accrue
for the period from and after the Interest Payment Date. If the maturity date
(or date of redemption or repayment) of any Fixed Rate Note would fall on a day
that is not a Business Day, the payment of interest and principal (and premium,
if any) may be made on the next succeeding Business Day, and no interest on such
payment shall accrue for the period from and after the maturity date (or date of
redemption or repayment).

         Interest payments for Fixed Rate Notes will include accrued interest
from and including the date of issue or from and including the last date in
respect of which interest has been paid, as the case may be, to, but excluding,
the Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.

Floating Rate Notes

         Each Floating Rate Note will bear interest from the date of issuance
until the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base Rate"),
which may be adjusted by a Spread and/or Spread Multiplier (each as defined
below). The applicable Pricing Supplement will designate one or more of the
following Base Rates as applicable to each Floating Rate Note: (a) the CD Rate
(a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (c) the

                                       S-8







Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the Constant-Maturity Treasury Rate (a "CMT Rate Note") or (h)
such other Base Rate or interest rate formula as is set forth in such Pricing
Supplement and in such Floating Rate Note. The "Index Maturity" for any Floating
Rate Note is the period of maturity of the instrument or obligation from which
the Base Rate is calculated and will be specified in the applicable Pricing
Supplement.

         Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.

         As specified in the applicable Pricing Supplement, a Floating Rate Note
may also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate
of interest that may accrue during any interest period ("Minimum Interest
Rate"). In addition to any Maximum Interest Rate that may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on a
Floating Rate Note will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of general
application. Under current New York law, the maximum rate of interest, subject
to certain exceptions, for any loan in an amount less than $250,000 is 16% and
for any loan in the amount of $250,000 or more but less than $2,500,000 is 25%
per annum on a simple interest basis. These limits do not apply to loans of
$2,500,000 or more.

         Unless otherwise specified in the applicable Pricing Supplement, the
rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. The determination of the rate of interest at which a Floating Rate
Note will be reset on any Interest Reset Date will be made on the Interest
Determination Date (as defined below) pertaining to such Interest Reset Date.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.

         Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly

                                       S-9







Interest Reset Date, on the third Wednesday of March, June, September and
December; (iii) in the case of Floating Rate Notes with a semiannual Interest
Reset Date, on the third Wednesday of the two months specified in the applicable
Pricing Supplement; and (iv) in the case of Floating Rate Notes with an annual
Interest Reset Date, on the third Wednesday of the month specified in the
applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, if any Interest Payment Date (other than the maturity date
or any earlier redemption or repayment date) for any Floating Rate Note would
fall on a day that is not a Business Day with respect to such Floating Rate
Note, such Interest Payment Date will be the following day that is a Business
Day with respect to such Floating Rate Note, except that, in the case of a LIBOR
Note, if such Business Day is in the next succeeding calendar month, such
Interest Payment Date shall be the immediately preceding day that is a Business
Day with respect to such LIBOR Note. If the maturity date or any earlier
redemption or repayment date of a Floating Rate Note would fall on a day that is
not a Business Day, the payment of principal, premium, if any, and interest will
be made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after such maturity, redemption or
repayment date, as the case may be.

         Unless otherwise specified in the applicable Pricing Supplement,
interest payments for Floating Rate Notes shall be the amount of interest
accrued from and including the date of issue or from and including the last date
to which interest has been paid to, but excluding, the Interest Payment Date or
maturity date or date of redemption or repayment.

         With respect to a Floating Rate Note, accrued interest shall be
calculated by multiplying the principal amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor will be computed by adding
the interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, and all dollar amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent, with one-half cent rounded upward. The interest rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
The interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).

         The applicable Pricing Supplement shall specify a calculation agent
(the "Calculation Agent") with respect to any issue of Floating Rate Notes. Upon
the request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.

         The "Interest Determination Date" pertaining to an Interest Reset Date
for CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, Prime
Rate Notes and CMT Rate Notes will be the second Business Day next preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a LIBOR Note will be the second London Banking Day
preceding such Interest Reset Date, except that the Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note for which the Index
Currency is pounds sterling will be such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, but such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction falls on a day that is an Interest Reset Date,
such Interest Reset Date will be the next following Business Day.


                                      S-10







         Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.

         Interest rates will be determined by the Calculation Agent as follows:

         CD Rate Notes

         CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.

         Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date, the rate on such
date for negotiable certificates of deposit having the Index Maturity designated
in the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "CD Rate" in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).

         Commercial Paper Rate Notes

         Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.

         Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published by 9:00 A.M.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination

                                      S-11







Date of three leading dealers of commercial paper in The City of New York
selected by the Calculation Agent for commercial paper of the specified Index
Maturity, placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized rating agency; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the Commercial Paper Rate in effect
for the applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Commercial Paper Rate Notes
for which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).

         "Money Market Yield" shall be a yield calculated in accordance with the
following formula:

            Money Market Yield =           D x 360         x 100
                                  ------------------------
                                        360 - (D x M)


where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Index Maturity.

         Federal Funds Rate Notes

         Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.

         Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 11:00 A.M., New York City time, on such Interest Determination
Date, arranged by three leading brokers of Federal funds transactions in The
City of New York selected by the Calculation Agent; provided, however, that if
the brokers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "Federal Funds Rate" in effect for the applicable period
will be the same as the Federal Funds Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Federal Funds Rate Notes for which such Federal Funds
Rate is being determined shall be the Initial Interest Rate).

         LIBOR Notes

         LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.

         Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" for each Interest Determination Date will be determined by the
Calculation Agent as follows:

                  (i) As of the Interest Determination Date, the Calculation
         Agent will determine (a) if "LIBOR Reuters" is specified in the
         applicable Pricing Supplement, the arithmetic mean of the offered rates
         (unless the specified Designated LIBOR Page (as defined below) by its
         terms provides only for a single rate, in which case such single rate
         shall be used) for deposits in the Index Currency for the period

                                      S-12







         of the Index Maturity, each as designated in the applicable Pricing
         Supplement, commencing on the second London Banking Day immediately
         following such Interest Determination Date, which appear on the
         Designated LIBOR Page at approximately 11:00 A.M., London time, on such
         Interest Determination Date, if at least two such offered rates appear
         (unless, as aforesaid, only a single rate is required) on such
         Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in the
         applicable Pricing Supplement, the rate for deposits in the Index
         Currency for the period of the Index Maturity, each as designated in
         the applicable Pricing Supplement, commencing on the second London
         Banking Day following such Interest Determination Date (or, if pounds
         sterling is the Index Currency, commencing on such Interest
         Determination Date), that appears on the Designated LIBOR Page at
         approximately 11:00 A.M., London time, on such Interest Determination
         Date. If fewer than two offered rates appear (if "LIBOR Reuters" is
         specified in the applicable Pricing Supplement and calculation of LIBOR
         is based on the arithmetic mean of the offered rates), or if no rate
         appears (if the applicable Pricing Supplement specifies either (x)
         "LIBOR Reuters" and the Designated LIBOR Page by its terms provides
         only for a single rate or (y) "LIBOR Telerate"), LIBOR in respect of
         that Interest Determination Date will be determined as if the parties
         had specified the rate described in (ii) below.

                  (ii) With respect to an Interest Determination Date on which
         fewer than two offered rates appear (if "LIBOR Reuters" is specified in
         the applicable Pricing Supplement and calculation of LIBOR is based on
         the arithmetic mean of the offered rates) or no rate appears (if the
         applicable Pricing Supplement specifies either (x) "LIBOR Reuters" and
         the Designated LIBOR Page by its terms provides only for a single rate
         or (y) "LIBOR Telerate"), the Calculation Agent will request the
         principal London offices of each of four major reference banks in the
         London interbank market, as selected by the Calculation Agent (after
         consultation with the Company), to provide the Calculation Agent with
         its offered quotations for deposits in the Index Currency for the
         period of the specified Index Maturity, commencing on the second London
         Banking Day immediately following such Interest Determination Date (or,
         if pounds sterling is the Index Currency, commencing on such Interest
         Determination Date), to prime banks in the London interbank market at
         approximately 11:00 A.M., London time, on such Interest Determination
         Date and in a principal amount equal to an amount of not less than $1
         million (or the equivalent in the Index Currency, if the Index Currency
         is not the U.S. dollar) that is representative of a single transaction
         in such Index Currency in such market at such time. If at least two
         such quotations are provided, LIBOR determined on such Interest
         Determination Date will be the arithmetic mean of such quotations. If
         fewer than two quotations are provided, LIBOR determined on such
         Interest Determination Date will be the arithmetic mean of rates quoted
         at approximately 11:00 A.M. (or such other time specified in the
         applicable Pricing Supplement), in the applicable principal financial
         center for the country of the Index Currency on such Interest
         Determination Date, by three major banks in such principal financial
         center selected by the Calculation Agent (after consultation with the
         Company) on such Interest Determination Date for loans in the Index
         Currency to leading European banks, for the period of the specified
         Index Maturity commencing on the second London Banking Day immediately
         following such Interest Determination Date (or, if pounds sterling is
         the Index Currency, commencing on such Interest Determination Date) and
         in a principal amount of not less than $1 million (or the equivalent in
         the Index Currency, if the Index Currency is not the U.S. dollar) that
         is representative of a single transaction in such Index Currency in
         such market at such time; provided, however, that if the banks selected
         as aforesaid by the Calculation Agent are not quoting rates as
         mentioned in this sentence, "LIBOR" for such Interest Reset Period will
         be the same as LIBOR for the immediately preceding Interest Reset
         Period (or, if there was no such Interest Reset Period, the rate of
         interest payable on the LIBOR Notes for which LIBOR is being determined
         shall be the Initial Interest Rate).

         "Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.


                                      S-13







         "Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
designated in the applicable Pricing Supplement, the display on the Reuters
Monitor Money Rates Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency, or (b) if "LIBOR
Telerate" is designated in the applicable Pricing Supplement, the display on the
Dow Jones Telerate Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency. If neither LIBOR Reuters
nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for
the applicable Index Currency will be determined as if LIBOR Telerate (and, if
the U.S. dollar is the Index Currency, Page 3750) had been specified.

         Prime Rate Notes

         Prime Rate Notes will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing Supplement.

         Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 Page (as defined
below) as such bank's prime rate or base lending rate as in effect for such
Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 Page for such Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting rates as set forth above, the "Prime Rate" in effect for such Interest
Reset Period will be the same as the Prime Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Prime Rate Notes for which such Prime Rate is being
determined shall be the Initial Interest Rate). "Reuters Screen USPRIME1 Page"
means the display designated as Page "USPRIME1" on the Reuters Monitor Money
Rates Service (or such other page as may replace the USPRIME1 Page on that
service for the purpose of displaying prime rates or base lending rates of major
United States banks).

         Treasury Rate Notes

         Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.

         Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated

                                      S-14







in the applicable Pricing Supplement are not published or reported as provided
above by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) calculated using the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
designated in the applicable Pricing Supplement; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting bid rates
as mentioned in this sentence, the "Treasury Rate" for such Interest Reset Date
will be the same as the Treasury Rate for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the Treasury Rate Notes for which the Treasury Rate is being
determined shall be the Initial Interest Rate).

         CMT Rate Notes

         CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.

         Unless otherwise indicated in an applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Determination Date, the rate displayed
for the Index Maturity designated in such CMT Rate Note on the Designated CMT
Telerate Page (as defined below) under the caption "... Treasury Constant
Maturities ... Federal Reserve Board Release H.15 " under the column for the
Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT
Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week or the month, as applicable,
ended immediately preceding the week in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or if not published by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to the related Interest Reset Date as may then
be published by either the Board of Governors of the Federal Reserve System or
the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agent or its affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent, after consultation with the Company, and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury notes with an original maturity of the number of years

                                      S-15







that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100,000,000. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided, however, that if fewer than
three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate for such Interest Reset Date will be the same as
the CMT Rate for the immediately preceding Interest Reset Period (or, if there
was no such Interest Reset Period, the rate of interest payable on the CMT Rate
Notes for which the CMT Rate is being determined shall be the Initial Interest
Rate). If two Treasury notes with an original maturity as described in the
second preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the quotes for the Treasury note with the shorter
remaining term to maturity will be used.

         "Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service on the page designated in an applicable Pricing Supplement (or
any other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.

         "Designated CMT Maturity Index" shall be the original period to
maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30
years) specified in an applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.

Renewable Notes

         The Company may also issue from time to time variable rate renewable
notes (the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement. Renewable Notes are Book-Entry Floating Rate Notes.

         The Renewable Notes will mature on an Interest Payment Date as
specified in the applicable Pricing Supplement (the "Initial Maturity Date"),
unless the maturity of all or any portion of the principal amount thereof is
extended in accordance with the procedures described below. On the Interest
Payment Dates in March and September in each year (unless different Interest
Payment Dates are specified in the applicable Pricing Supplement) (each such
Interest Payment Date, an "Election Date"), the maturity of the Renewable Notes
will be extended to the Interest Payment Date occurring twelve months after such
Election Date (unless a different extension period is specified in the
applicable Pricing Supplement), unless the holder thereof elects to terminate
the automatic extension of the maturity of the Renewable Notes or of any portion
thereof having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof by delivering a notice to such effect to the Paying Agent not less than
nor more than a number of days to be specified in the applicable Pricing
Supplement prior to such Election Date. Such option may be exercised with
respect to less than the entire principal amount of the Renewable Notes;
provided that the principal amount for which such option is not exercised is at
least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not be
extended beyond the Final Maturity Date, as specified in the applicable Pricing
Supplement (the "Final Maturity Date"). If the holder elects to terminate the
automatic extension of the maturity of any portion of the principal amount of
the Renewable Notes and such election is not revoked as described below, such
portion will become due and payable on the Interest Payment Date falling six
months (unless another period is specified in the applicable Pricing Supplement)
after the Election Date prior to which the holder made such election.

         Unless otherwise specified in the applicable Pricing Supplement, an
election to terminate the automatic extension of maturity may be revoked as to
any portion of the Renewable Notes having a principal amount of $1,000

                                      S-16







or any multiple of $1,000 in excess thereof by delivering a notice to such
effect to the Paying Agent on any day following the effective date of the
election to terminate the automatic extension of maturity and prior to the date
15 days before the date on which such portion would otherwise mature. Such a
revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided that the principal amount of the Renewable Notes for which
the automatic extension of maturity has been terminated and for which such a
revocation has not been made is at least $1,000 or any larger amount that is an
integral multiple of $1,000. Notwithstanding the foregoing, a revocation may not
be made during the period from and including a Record Date to but excluding the
immediately succeeding Interest Payment Date.

         An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.

         The Renewable Notes may be redeemed in whole or in part at the option
of the Company on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price of 100% of
the principal amount of the Renewable Notes to be redeemed, together with
accrued and unpaid interest to the date of redemption. Notwithstanding anything
to the contrary in this Prospectus Supplement, notice of redemption will be
provided by mailing a notice of such redemption to each holder by first-class
mail, postage prepaid, at least 180 days and not more than 210 days prior to the
date fixed for redemption.

         Renewable Notes may also be issued, from time to time, with the Spread
or Spread Multiplier to be reset by a remarketing agent in remarketing
procedures (the "Remarketing Procedures") to be specified in such Renewable
Notes and in the applicable Pricing Supplement. A description of the Remarketing
Procedures, the terms of the remarketing agreement between the Company and the
remarketing agent and the terms of any additional agreements with other parties
that may be involved in the Remarketing Procedures will be set forth in the
applicable Pricing Supplement.

Exchangeable Notes

         Notes may be issued, from time to time, that are optionally or
mandatorily exchangeable into the securities of an entity unaffiliated with the
Company, into a basket of such securities, into an index or indices of such
securities or into any combination of the above, as may be set forth in the
applicable Pricing Supplement (the "Exchangeable Notes"). The Exchangeable Notes
may or may not bear interest or be issued with original issue discount or at a
premium.

         Unless otherwise specified in the applicable Pricing Supplement,
optionally Exchangeable Notes (the "Optionally Exchangeable Notes") will entitle
the holder of such a Note, during a period, or at specific times, to exchange
such Note for the underlying security, basket of securities or index or indices
of securities (or combination thereof) at a specified rate of exchange. If so
specified in the applicable Pricing Supplement, Optionally Exchangeable Notes
will be redeemable at the option of the Company prior to maturity. If the holder
of an Optionally Exchangeable Note does not elect to exchange such Note prior to
maturity or any applicable redemption date, such holder will receive the
principal amount of such Note.

         Unless otherwise specified in the applicable Pricing Supplement,
mandatorily Exchangeable Notes (the "Mandatorily Exchangeable Notes") do not
entitle the holder of such a Note to exchange such Note prior to maturity; at
maturity, the holder is required to exchange such Note for the underlying
security, basket of securities or index or indices of securities (or combination
thereof) at a specified rate of exchange, and, therefore, the holder of a
Mandatorily Exchangeable Note may receive less than the principal amount of such
Note at maturity. If so indicated in the applicable Pricing Supplement, the
specified rate at which a Mandatorily Exchangeable Note may be exchanged may
vary depending on the value of the underlying security, basket of securities or
index or indices (or combination thereof) so that, upon exchange, the holder
participates in a percentage, which may be less than,

                                      S-17







equal to, or greater than 100% of the change in value of the underlying
security, basket of securities or index or indices (or combination thereof).

         Upon exchange, at maturity or otherwise, the holder of an Exchangeable
Note may receive, at the specified exchange rate, either the underlying security
or the securities constituting the relevant basket or index or indices at the
specified exchange rate or the cash value of such underlying security or
securities, as may be specified in the applicable Pricing Supplement. The
underlying security or securities constituting any basket, index or indices may
be the securities of either U.S. or foreign entities or both, and the
Exchangeable Notes may or may not provide for protection against fluctuations in
the rate of currency exchange between the currency in which such Note is
denominated and the currency or currencies in which the market prices of such
underlying security or securities are quoted, as may be specified in the
applicable Pricing Supplement. Exchangeable Notes may have other terms, which
will be specified in the applicable Pricing Supplement.

         If an Optionally Exchangeable Note is represented by a Registered
Global Security, the Depositary's nominee will be the holder of such Note or any
interest therein and therefore will be the only entity that can exercise a right
to exchange. In order to ensure that the Depositary's nominee will timely
exercise a right to exchange with respect to a particular Note or any portion
thereof, the beneficial owner of such Note must instruct the broker or other
direct or indirect participant through which it holds an interest in such Note
to notify the Depositary of its desire to exercise a right to exchange.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline for such an instruction in order for
timely notice to be delivered to the Depositary.

         Payments upon Acceleration of Maturity

         If the principal amount payable at maturity of any Exchangeable Note is
declared due and payable prior to maturity, the amount payable (unless otherwise
specified in the applicable Pricing Supplement) with respect to (i) an
Optionally Exchangeable Note will equal the face amount of such Note plus
accrued interest, if any, to but excluding the date of payment, provided that if
a holder shall have exchanged an Optionally Exchangeable Note prior to such time
without having received the amount due upon such exchange, the amount payable
shall be the amount due upon exchange and shall not include any accrued but
unpaid interest, and (ii) a Mandatorily Exchangeable Note will equal an amount
determined as if the date of such declaration were the maturity date plus
accrued interest, if any, to but excluding the date of payment.

Currency Linked Notes

         Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to the value of one or more
currencies (or composite currencies) as compared to the value of one or more
other currencies (or composite currencies) ("Currency Linked Notes").
Information as to the one or more currencies (or composite currencies) to which
the principal amount payable on any principal payment date or the amount of
interest payable on any interest payment date is indexed, the currency in which
the face amount of the Currency Linked Note is denominated (the "Denominated
Currency"), the currency in which principal on the Currency Linked Note will be
paid (the "Payment Currency"), specific historic exchange rate information, any
currency risks relating to the specific currencies selected, and certain
additional tax considerations, if any, will be set forth in the applicable
Pricing Supplement. The Denominated Currency and the Payment Currency may be the
same currency or different currencies. Unless otherwise specified in the
applicable Pricing Supplement, interest on Currency Linked Notes will be paid in
the Denominated Currency based on the face amount of the Currency Linked Note at
the rate per annum and on the dates set forth in the applicable Pricing
Supplement. Currency Linked Notes may include, but are not limited to, Notes of
the types described below.


                                      S-18







         Principal Exchange Rate Linked Securities (PERLS)

         PERLS are Currency Linked Notes pursuant to which the principal amount
payable on any principal payment date equals the Payment Currency equivalent at
such date of a fixed amount of a designated currency (or composite currency)
(the "Indexed Currency"). Generally, the fixed amount of Indexed Currency to
which the principal of a PERLS will be linked will be approximately equal in
value to the face amount of the PERLS in the Denominated Currency based on the
exchange rate between the Indexed Currency and the Denominated Currency in
effect at the time of pricing. The Denominated Currency, the Indexed Currency
and the Payment Currency will be identified in the applicable Pricing
Supplement. In addition, the fixed amount of the Indexed Currency to which the
principal of the PERLS is linked will be set forth in the applicable Pricing
Supplement for a specific representative face amount of the PERLS as well as for
the aggregate face amount of all PERLS forming part of the same issue (the
"Conversion Reference Amount").

         Holders of PERLS may receive an amount of principal greater than, less
than or equal in value to the face amount of the PERLS, depending on the change,
if any, in the relative exchange rates of the Denominated Currency, the Payment
Currency and the Indexed Currency from the issue date to the date that is two
Exchange Rate Days (as defined below) preceding the maturity date.

         The Payment Currency equivalent of any Indexed Currency amount on any
date will be determined by an exchange rate agent (identified in the applicable
Pricing Supplement) based on the arithmetic mean of the quotations obtained by
such agent from reference dealers (identified in the applicable Pricing
Supplement) at 11:00 A.M., New York City time, on the second Exchange Rate Day
preceding such date for the purchase by the reference dealers of the Conversion
Reference Amount of the Indexed Currency with the Payment Currency for
settlement on such date; provided that if there is no cross-exchange rate
available in New York City between the Indexed Currency and the Payment
Currency, the quotations will be calculated by the exchange rate agent at the
time referred to above using the U.S. dollar equivalent of the Indexed Currency
and the Payment Currency as the basis for comparing the values of such
currencies; and provided further that if the Payment Currency and the Indexed
Currency are identical, then the Payment Currency equivalent of any Indexed
Currency amount will be such amount.

         "Exchange Rate Day" means, with respect to any currency conversion, any
day other than a Saturday or Sunday or a day on which banking institutions in
New York City are authorized or required by law or executive order to close and
that is a business day in each of the cities designated in the Pricing
Supplement for the currencies being converted and, in the case of conversions
involving ECUs, that is not a non-ECU clearing day, as determined by the ECU
Banking Association in Paris.

         Reverse Principal Exchange Rate Linked Securities (Reverse PERLS)

         Reverse PERLS are Currency Linked Notes pursuant to which the principal
amount payable on any principal payment date equals the Payment Currency
equivalent at such date of a fixed amount of a designated currency (or composite
currency) (the "First Indexed Currency") minus the Payment Currency equivalent
at maturity of a fixed amount of another designated currency (or composite
currency) (the "Second Indexed Currency"); provided that the minimum principal
amount payable at maturity will be zero. Generally, the fixed amount of the
First Indexed Currency to which the principal of a Reverse PERLS will be linked
will be approximately equal in value to twice the face amount of the Reverse
PERLS in the Denominated Currency, and the fixed amount of the Second Indexed
Currency to which the principal of a Reverse PERLS will be linked will be
approximately equal in value to the face amount of the Reverse PERLS in the
Denominated Currency, in each case based on the exchange rate between each
Indexed Currency and the Denominated Currency in effect at the time of pricing.

         Holders of Reverse PERLS may receive an amount of principal greater
than, less than (with a minimum of zero) or equal in value to the face amount of
the Reverse PERLS, depending on the change, if any, in the relative exchange
rates of the Denominated Currency, the Payment Currency and the First and Second
Indexed Currencies from the issue date to the date that is two Exchange Rate
Days preceding the maturity date.

                                      S-19








         The Denominated Currency, the First and Second Indexed Currencies and
the Payment Currency will be identified in the applicable Pricing Supplement. In
addition, the fixed amounts of the First and Second Indexed Currencies to which
the principal of the Reverse PERLS is linked will be set forth in the applicable
Pricing Supplement for a specific representative face amount of the Reverse
PERLS as well as for the aggregate face amount of all Reverse PERLS forming part
of the same issue (respectively, the "First Conversion Reference Amount" and the
"Second Conversion Reference Amount").

         The Payment Currency equivalent of any First Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
First Conversion Reference Amount of the First Indexed Currency with the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the First Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the First Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the First
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any First Indexed Currency amount will be such amount.

         The Payment Currency equivalent of any Second Indexed Currency amount
on any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from the reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the sale by the reference dealers of the Second
Conversion Reference Amount of the Second Indexed Currency for the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Second Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Second Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Second
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Second Indexed Currency amount will be such amount.

         Multicurrency Principal Exchange Rate Linked Securities (Multicurrency
PERLS)

         Multicurrency PERLS are Currency Linked Notes pursuant to which the
principal amount payable on any principal payment date equals the Payment
Currency equivalent at such date of a fixed amount of a designated currency (or
composite currency) (the "First Indexed Currency") plus or minus the Payment
Currency equivalent at maturity of a fixed amount of a second designated
currency (or composite currency) (the "Second Indexed Currency") plus or minus
the Payment Currency equivalent at maturity of a fixed amount of a third
designated currency (or composite currency) (the "Third Indexed Currency");
provided that the minimum principal amount payable at maturity will be zero.
Generally, the added and subtracted fixed amounts of the First, Second and Third
Indexed Currencies (each, an "Indexed Currency") to which the principal of a
Multicurrency PERLS will be linked will have an aggregate value approximately
equal to the face amount of the Multicurrency PERLS in the Denominated Currency
based on exchange rates between each Indexed Currency and the Denominated
Currency in effect at the time of pricing.

         Holders of Multicurrency PERLS may receive an amount of principal
greater than, less than (with a minimum of zero) or equal in value to the face
amount of the Multicurrency PERLS, depending on the change, if any, in the
relative exchange rates for the Denominated Currency, the Payment Currency and
the First, Second and Third Indexed Currencies from the issue date to the date
that is two Exchange Rate Days preceding the maturity date.


                                      S-20







         The Denominated Currency, each Indexed Currency, the Payment Currency
and whether the fixed amounts of the Second and Third Indexed Currencies are to
be added or subtracted to determine the principal amount payable at maturity of
the Multicurrency PERLS will be set forth in the applicable Pricing Supplement.
In addition, the fixed amounts of the First, Second and Third Indexed Currencies
to which the principal of the Multicurrency PERLS is linked will be set forth in
the applicable Pricing Supplement for a specific representative face amount of
the Multicurrency PERLS as well as for the aggregate face amount of all
Multicurrency PERLS forming part of the same issue (respectively, the "First
Conversion Reference Amount," the "Second Conversion Reference Amount" and the
"Third Conversion Reference Amount," each a "Conversion Reference Amount"). As
used herein, "Added Indexed Currency" means the First Indexed Currency and any
other Indexed Currency that is added to determine the principal amount payable
at maturity of the Multicurrency PERLS and a "Subtracted Indexed Currency" means
an Indexed Currency that is subtracted to determine the principal amount payable
at maturity of the Multicurrency PERLS.

         The Payment Currency equivalent of any Added Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
applicable Conversion Reference Amount of the Added Indexed Currency with the
Payment Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Added Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Added Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Added
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Added Indexed Currency amount will be such amount.

         The Payment Currency equivalent of any Subtracted Indexed Currency
amount on any date will be determined by an exchange rate agent (identified in
the applicable Pricing Supplement) based on the arithmetic mean of the
quotations obtained by such agent from reference dealers (identified in the
applicable Pricing Supplement) at 11:00 A.M., New York City time, on the second
Exchange Rate Day preceding such date for the sale by the reference dealers of
the applicable Conversion Reference Amount of the Subtracted Indexed Currency
for the Payment Currency, for settlement on such date; provided that if there is
no cross-exchange rate available in New York City between the Subtracted Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Subtracted Indexed Currency and the Payment Currency as the
basis for comparing the values of such currencies; provided further that if the
Subtracted Indexed Currency and the Payment Currency are identical, then the
Payment Currency equivalent of any Subtracted Indexed Currency amount will be
such amount.

         Payments upon Acceleration of Maturity

         If the principal amount payable at maturity of any PERLS, Reverse PERLS
or Multicurrency PERLS is declared due and payable prior to maturity, the amount
payable with respect to such Note will be paid in the Denominated Currency and
will equal the face amount of such Note plus accrued interest to but excluding
the date of payment.

Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or
Indices

         Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more commodity
prices, securities of entities unaffiliated with the Company, baskets of such
securities or indices and on such other terms as may be set forth in the
relevant Pricing Supplement.


                                      S-21







Extension of Maturity

         The Pricing Supplement relating to each Fixed Rate Note (other than an
Amortizing Note or a Currency Linked Note) will indicate whether the Company has
the option to extend the maturity of such Fixed Rate Note for one or more
periods of one or more whole years (each, an "Extension Period") up to but not
beyond the date (the "Final Maturity Date") set forth in such Pricing
Supplement. If the Company has such option with respect to any such Fixed Rate
Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.

         The Company may exercise such option with respect to an Extendible Note
by notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, first-class mail, postage prepaid, setting forth (a)
the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension
Period; and (d) the provisions, if any, for redemption during the Extension
Period, including the date or dates on which, the period or periods during which
and the price or prices at which such redemption may occur during the Extension
Period. Upon the mailing by the Paying Agent of an Extension Notice to the
holder of an Extendible Note, the maturity of such Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, such Note will have the same terms it had prior to the
mailing of such Extension Notice.

         Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate for the Extension Period
by causing the Paying Agent to send notice of such higher interest rate to the
holder of such Note by first-class mail, postage prepaid, or by such other means
as shall be agreed between the Company and the Paying Agent. Such notice shall
be irrevocable. All Extendible Notes with respect to which the Maturity Date is
extended in accordance with an Extension Notice will bear such higher interest
rate for the Extension Period, whether or not tendered for repayment.

         If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be so repaid on such Maturity Date, the holder thereof
must follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).

Book-Entry System

         Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue
Date, interest rate, if any, amortization schedule, if any, ranking, maturity
date and other terms, if any, will be represented by a single Global Note, and
all Floating Rate Book-Entry Notes having the same Issue Date, Initial Interest
Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity,
Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, ranking, maturity date and other terms, if any, will be
represented by a single Global Note. Each Global Note representing Book-Entry
Notes will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York (the "Depositary"), and registered in the name of a nominee

                                      S-22







of the Depositary. Certificated Notes will not be exchangeable for Book-Entry
Notes (or interests therein) and, except under the circumstances described in
the Prospectus under "Description of Debt Securities -- Registered Global
Securities," Book-Entry Notes (or interests therein) will not be exchangeable
for Certificated Notes and will not otherwise be issuable as Certificated Notes.

         A further description of the Depositary's procedures with respect to
Global Notes representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Global Securities." The Depositary has
confirmed to the Company, the Agent and each Trustee that it intends to follow
such procedures.

Optional Redemption

         If applicable, the Pricing Supplement will indicate the terms on which
the Notes will be redeemable at the option of the Company. Notice of redemption
will be provided by mailing a notice of such redemption to each holder by
first-class mail, postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to the respective address of each holder
as that address appears upon the books maintained by the Paying Agent. The
Notes, except for Amortizing Notes, will not be subject to any sinking fund.

Repayment at the Noteholders' Option; Repurchase

         If applicable, the Pricing Supplement relating to each Note will
indicate that the Note will be repayable at the option of the holder on a date
or dates specified prior to its maturity date and, unless otherwise specified in
such Pricing Supplement, at a price equal to 100% of the principal amount
thereof, together with accrued interest to the date of repayment, unless such
Note was issued with original issue discount, in which case the Pricing
Supplement will specify the amount payable upon such repayment.

         In order for such a Note to be repaid, the Paying Agent must receive at
least 15 days but not more than 30 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" on the reverse of the Note
duly completed or (ii) a telegram, telex, facsimile transmission or a letter
from a member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of such telegram, telex, facsimile transmission or letter; provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if such Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
authorized denomination.

         If a Note is represented by a Registered Global Security, the
Depositary's nominee will be the holder of such Note and therefore will be the
only entity that can exercise a right to repayment. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
other direct or indirect participant through which it holds an interest in such
Note to notify the Depositary of its desire to exercise a right to repayment.
Different firms have different cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other direct or indirect participant through which it holds an
interest in a Note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary.


                                      S-23







         The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the relevant Trustee for
cancellation.

                              DESCRIPTION OF UNITS

         The following description of the Units offered hereby, including the
designation and the terms of the Notes, Universal Warrants and Purchase
Contracts that may be included in a Unit, supplements the description of the
Units, Universal Warrants and Purchase Contracts set forth in the Prospectus, to
which reference is hereby made. In particular, the terms of the Universal
Warrants and Purchase Contracts offered hereby relate solely to Universal
Warrants and Purchase Contracts issued in conjunction with Notes as part of a
Unit. The terms and conditions of Notes issued as part of a Unit are set forth
above under "Description of Notes."

         The particular terms of the Units, including the terms of the Notes,
Universal Warrants and Purchase Contracts that may be included in a Unit,
offered pursuant to any Pricing Supplement will be described therein. The terms
and conditions set forth in the Prospectus under "Description of Units,"
"Description of Warrants," "Description of Purchase Contracts" and "Description
of Debt Securities" and those set forth below under "-- General," "-- Certain
Provisions of the Unit Agreement," "-- Purchase Contracts," "-- Universal
Warrants" and "-- Certain Provisions of the Universal Warrant Agreement" and
above under "Description of Notes" will apply to each Unit and to any Universal
Warrant, Purchase Contract or Note included in such Unit, respectively, unless
otherwise specified in the applicable Pricing Supplement.

General

         The Company may issue from time to time Units that may include, in
addition to Notes, one or more Universal Warrants or Purchase Contracts.
Reference is made to the applicable Pricing Supplement for (i) the designation
and the terms of the Units and of the Notes, Universal Warrants, Purchase
Contracts, or any combination thereof, comprising such Units, including whether
and under what circumstances such Notes, Universal Warrants or Purchase
Contracts may be traded separately, (ii) a description of any additional terms
of the Unit Agreement (as defined below) and (iii) a description of any
additional provisions for the issuance, payment, settlement, transfer or
exchange of the Units (or of the securities comprised by such Units).

         Unless otherwise specified in the applicable Pricing Supplement, Units
will be issued only in fully registered form, in denominations of a single Unit
and any integral multiple thereof, with face amounts as indicated in the
applicable Pricing Supplement. The Units will be issued pursuant to the Unit
Agreement dated as of January 24, 1997 (the "Unit Agreement") among the Company,
The Chase Manhattan Bank, as Unit Agent (the "Unit Agent"), as Collateral Agent
(the "Collateral Agent"), and as Trustee and Paying Agent under the Senior Debt
Indenture and as Warrant Agent under the Universal Warrant Agreement, and the
holders from time to time of the Units. Each Unit will be issued as either a
Book-Entry Unit or a Certificated Unit, and any security comprised by such Unit
shall be in the corresponding form.

         Book-Entry System. Upon issuance, all Book-Entry Units comprising the
same securities and having the same issue date and other terms, if any, will be
represented by a single registered global Unit (a "Registered Global Unit").
Each Registered Global Unit representing Book-Entry Units (and each Registered
Global Security (as defined in the Prospectus under "Global Securities")
comprised by such Registered Global Unit) will be deposited with, or on behalf
of, the Depositary, and registered in the name of a nominee of the Depositary.
Unless otherwise specified in the applicable Pricing Supplement, Certificated
Units will not be exchangeable for Book-Entry Units (or interests therein) and,
except under the circumstances described in the Prospectus under "Global
Securities," Book-Entry Units (or interests therein) will not be exchangeable
for Certificated Units and will not otherwise be issuable as Certificated Units.


                                      S-24







         If a Book-Entry Unit represented by a Registered Global Unit (i)
includes a Universal Warrant entitling the holder to exercise the Universal
Warrant to purchase or sell Warrant Property (as defined below), (ii) includes
any Note or Purchase Contract that entitles the holder thereof to redeem,
accelerate or take any other action with respect to such Note or Purchase
Contract or (iii) otherwise entitles the holder of the Unit to take any action
with respect to the Unit or any security comprised by such Unit, the
Depositary's nominee will be the only entity that can exercise such right. In
order to ensure that the Depositary's nominee will timely exercise a right
conferred by a Unit (or by the securities comprised by such Unit) with respect
to a particular Unit (or any security comprised by such Unit) or any portion
thereof, the beneficial owner of such Unit must instruct the broker or other
direct or indirect participant through which it holds an interest in such Unit
to notify the Depositary of its desire to exercise any such right. Different
firms have different deadlines for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Unit in
order to ascertain the deadline for such an instruction in order for timely
notice to be delivered to the Depositary.

         A further description of the Depositary's procedures with respect to
Registered Global Securities (including Registered Global Units and the other
Registered Global Securities comprised by such Units) representing Book-Entry
Securities is set forth in the Prospectus under "Global Securities." The
Depositary has confirmed to the Company, the Unit Agent, the Collateral Agent,
the Paying Agent, the Warrant Agent and each Trustee that it intends to follow
such procedures.

         Payments with respect to Units and Securities Comprised by Units. At
the office of the Unit Agent in the Borough of Manhattan, The City of New York,
maintained by the Company for such purpose, (i) the Units, accompanied by each
of the securities comprised by such Unit (unless the applicable Pricing
Supplement indicates that any such securities are separable from such Unit), may
be presented for payment or delivery of Warrant Property or Purchase Contract
Property (as defined below) or any other amounts due with respect thereto, (ii)
transfer of the Units will be registrable and (iii) the Units will be
exchangeable, provided that Book-Entry Units will be exchangeable only in the
manner and to the extent set forth under "Global Securities" in the Prospectus.
On the date hereof, the agent for the payment, transfer and exchange of the
Units is The Chase Manhattan Bank, as Unit Agent, acting through its corporate
trust office at 450 West 33rd Street, New York, New York 10001. No service
charge will be made for any registration of transfer or exchange of the Units
(or of any security comprised by such Unit) or interest therein, except for any
tax or other governmental charge that may be imposed in connection therewith.

Certain Provisions of the Unit Agreement

         Under the terms of the Unit Agreement, each holder of a definitive Unit
and each beneficial owner of a Book-Entry Unit, by its acceptance thereof, (i)
consents to and agrees to be bound by the terms of the Unit Agreement and (ii)
appoints the Unit Agent as its authorized agent to execute, deliver and perform
any Purchase Contract included in such Unit in which such holder or beneficial
owner has an interest on behalf of such holder or beneficial owner, as the case
may be. Under the terms of the Unit Agreement, each holder of a definitive Unit
and each beneficial owner of a Book-Entry Unit, by acceptance thereof,
irrevocably agrees to be a party to and be bound by the terms of any Purchase
Contract included in such Unit in which such holder or beneficial owner has an
interest. Upon the registration of transfer of a Unit, the transferee will
assume the obligations of the transferor under any Purchase Contract included in
such Unit and under any other security comprised by such Unit in which such
holder or beneficial owner has an interest, and the transferor will be released
from such obligations. Pursuant to the terms of the Unit Agreement, the Company
has consented to the transfer of any such obligations to the transferee, to the
assumption of such obligations by the transferee and the release of the
transferor, if such transfer is made in accordance with the provisions of the
Unit Agreement.

         Remedies. The Unit Agreement provides that upon the acceleration of the
Notes comprised by any Units, the obligations of the Company and the holders
under any Purchase Contracts comprised by such Units may also be accelerated
upon the request of the holders of not less than 25% of all the Purchase
Contracts, on behalf of all

                                      S-25







such holders, that constitute a part of Units that comprise such accelerated
Notes. No holder of any Unit or interest therein shall have any right by virtue
of or by availing itself of any provision of the Unit Agreement to institute any
action or proceeding at law or in equity or in bankruptcy or otherwise upon or
under or with respect to the Unit Agreement, or for the appointment of a
trustee, receiver, liquidator, custodian or other similar official, unless such
holder shall have given written notice to the Unit Agent and the Company of the
occurrence and continuance of a default thereunder and, (i) in the case of an
Event of Default under the Notes or the Senior Debt Indenture, unless the
procedures (including notice to the Trustee and the Company) described in
Article Five of the Senior Debt Indenture have been complied with and (ii) in
the case of certain defaults under any Purchase Contracts included in such Unit,
unless the holders of not less than 25% of the affected Purchase Contracts
comprised by all Units then outstanding shall have made written request upon the
Unit Agent to institute such action or proceeding in its own name as Unit Agent
under the Unit Agreement and shall have offered to the Unit Agent such
reasonable indemnity as it may require, and the Unit Agent for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceedings and no direction inconsistent with such
request shall have been given to the Unit Agent pursuant to the Unit Agreement
in writing by the holders of a majority of the outstanding affected Units. If
such conditions have been satisfied, any holder of an affected Unit may then
(but only then) institute such action or proceeding. Notwithstanding the above,
the holder of any Unit or Purchase Contract will have the unconditional right to
purchase or sell, as the case may be, Purchase Contract Property pursuant to
such Purchase Contract and to institute suit for the enforcement of such right.

         Except as may be described in a Pricing Supplement applicable to a
particular series of Units, there are no covenants or other provisions in the
Unit Agreement providing for a put or increased interest or otherwise that would
afford holders of Units additional protection in the event of a recapitalization
transaction, a change of control of the Company or a highly leveraged
transaction.

         Modification. The Unit Agreement and the terms of the Purchase
Contracts and the Purchase Contract Certificates may be amended by the Company
and the Unit Agent, without the consent of the holders, for the purpose of
curing any ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision therein or in any other manner which the Company may deem
necessary or desirable and which will not adversely affect the interests of the
affected holders in any material respect.

         The Unit Agreement will contain provisions permitting the Company and
the Unit Agent, with the consent of the holders of not less than a majority of
all series of Units at the time outstanding under such Unit Agreement and
affected thereby (voting as one class), to modify the rights of the holders of
the Units of each series so affected or the terms of any Purchase Contracts
included in any such series of Units and the terms of the Unit Agreement
relating to the Purchase Contracts of each series so affected, except that no
such modification may, without the consent of the holder of each outstanding
Unit affected thereby, (i) impair the right to institute suit for the
enforcement of any Purchase Contract, (ii) materially adversely affect the
holders' rights under any Purchase Contract or Unit or (iii) reduce the
aforesaid percentage of outstanding Units issued under the Unit Agreement, the
consent of the holders of which is required for the modification or amendment of
the provisions of the Unit Agreement relating to any such Purchase Contracts or
for any waiver of compliance with certain provisions of the Unit Agreement or
waiver of certain defaults relating to any such Purchase Contracts.
Modifications of any Notes comprised by Units may only be made in accordance
with the Senior Debt Indenture, as described in the Prospectus under
"Description of Debt Securities -- Modification of the Indentures."
Modifications of any Universal Warrants comprised by Units may only be made in
accordance with the terms of the Universal Warrant Agreement as described below
under "Certain Provisions of the Universal Warrant Agreement."

         Title. The Company, the Unit Agent and any agent of the Company or the
Unit Agent will treat the registered owner of any Unit or Purchase Contract as
the owner thereof (whether or not the Note constituting a part of such Unit
shall be overdue and notwithstanding any notice to the contrary) for the purpose
of making payment, the performance of any Purchase Contracts included in any
series of Units and for all other purposes.


                                      S-26







         Replacement of Unit Certificates or Purchase Contract Certificates. Any
mutilated certificate evidencing a definitive Unit or Purchase Contract will be
replaced at the expense of the holder upon surrender of such certificate to the
Unit Agent. Certificates that have been destroyed, lost or stolen will be
replaced at the expense of the holder upon delivery to the Company and the Unit
Agent of evidence of the destruction, loss or theft thereof satisfactory to the
Company and the Unit Agent. In the case of a destroyed, lost or stolen
certificate, an indemnity satisfactory to the Unit Agent and the Company may be
required at the expense of the holder of the Units or Purchase Contracts
evidenced by such certificate before a replacement will be issued.

         The Unit Agreement provides that, notwithstanding the foregoing, no
such replacement certificate need be delivered (i) during the period beginning
15 days before the day of mailing of a notice of redemption or of any other
exercise of any right held by the Company with respect to the Unit (or any
security comprised by such Unit) evidenced by the mutilated, destroyed, lost or
stolen certificate and ending on the day of the giving of such notice, (ii) if
such mutilated, destroyed, lost or stolen certificate evidences any security
selected or called for redemption or other exercise of a right held by the
Company or (iii) at any time on or after the date of settlement or redemption,
as applicable, with respect to any Purchase Contract included in the Unit (or at
any time on or after the last exercise date with respect to any Universal
Warrant included in the Unit) evidenced by such mutilated, destroyed, lost or
stolen certificate, except with respect to any Units that remain or will remain
outstanding following such date of settlement or redemption or such last
exercise date.

         Governing Law. The Unit Agreement, the Units and the Purchase Contracts
will be governed by, and construed in accordance with, the laws of the State of
New York.

Purchase Contracts

         The Company may, pursuant to the Unit Agreement, issue from time to
time, as part of a Unit with one or more Notes or Universal Warrants, Purchase
Contracts for the purchase or sale of (a) securities of an entity unaffiliated
with the Company, a basket of such securities, and index or indices of such
securities or any combination of the above, (b) currencies or composite
currencies or (c) commodities (collectively, "Purchase Contract Property"). The
applicable Pricing Supplement will specify whether or not a Purchase Contract
issued as part of a Unit may be separated from the other securities comprised by
such Unit prior to such Purchase Contract's settlement date. Purchase Contracts
may not be so separated prior to the 91st day after the issuance of a Unit,
unless otherwise specified in the applicable Pricing Supplement. The applicable
Pricing Supplement will also specify the methods by which the holders may
purchase or sell such Purchase Contract Property and any acceleration,
cancellation or termination provisions or other provisions relating to the
settlement of a Purchase Contract. The Unit Agreement will not be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), the Unit Agent will not be required to qualify as a trustee
thereunder and the holders of Units and Purchase Contracts will not have the
benefits of the protections of the Trust Indenture Act. However, any Notes
issued as part of a Unit will be issued under an indenture qualified under the
Trust Indenture Act and the trustee thereunder will have qualified as a trustee
under the Trust Indenture Act.

         The Purchase Contracts may be issued in fully registered global or
definitive form, as specified in the applicable Pricing Supplement. In each
case, the form of the Purchase Contract included in a Unit will correspond to
the form of the Unit and of the Note and any Universal Warrant included in such
Unit. See "Global Securities" in the Prospectus.

         Under circumstances specified in the applicable Pricing Supplement,
payments in respect of principal of Notes that are part of Units that include
Purchase Contracts requiring the holders to purchase Purchase Contract Property
may be applied by the Unit Agent in satisfaction of the obligations of the
holders of the Units under the related Purchase Contracts (unless a holder has
delivered cash in respect of its obligations under such Purchase Contract). Upon
settlement of any such Purchase Contract, the Purchase Contract Property will be
delivered only upon presentation and surrender of the certificates evidencing
Units at the office of the Unit Agent. If a holder delivers cash in settlement
of its obligations under a Purchase Contract that is part of a Unit, the related
Note that

                                      S-27







is a part of such Unit will remain outstanding if the maturity extends beyond
the relevant settlement date and, as more fully described in the applicable
Pricing Supplement, the holder will receive a registered Certificated Note or an
interest in a registered Global Note.

         In order to secure the observance and performance of the covenants and
agreements of the holders of Purchase Contracts contained in the Unit Agreement
and in such Purchase Contracts, holders of Purchase Contracts acting through the
Unit Agent, as their attorney-in-fact, shall be deemed to grant, sell, convey,
assign, transfer and pledge unto The Chase Manhattan Bank, in its capacity as
Collateral Agent, for the benefit of the Company, as collateral security for the
performance when due by such holders of their respective obligations under the
Unit Agreement and under such Purchase Contracts, a security interest in and to,
and a lien upon and right of set-off (the "Pledge") against, all of their right,
title and interest in and to (i) the Notes that are part of Units that include
such Purchase Contracts, or such other property as may be specified in the
applicable Pricing Supplement (the "Pledged Items"); (ii) all additions to and
substitutions for such Pledged Items as may be permissible, if so specified in
the applicable Pricing Supplement; (iii) all income, proceeds and collections
received or to be received, or derived or to be derived, at any time from or in
connection with (i) and (ii) above; and (iv) all powers and rights owned or
thereafter acquired under or with respect to the Pledged Items. All payments
with respect to any Pledged Items received by the Collateral Agent shall be paid
by the Collateral Agent, unless such payments have been released from the Pledge
pursuant to the Unit Agreement, to the Company in satisfaction of the respective
obligations of the holders of the Units of which such Pledged Items are a part
under the Purchase Contracts forming a part of such Units.

         Unless otherwise specified in the applicable Pricing Supplement, in the
event that a holder does not elect to deliver cash in settlement of its
obligations under a Purchase Contract that is part of a Unit and fails to
present and surrender the certificate evidencing the Units held by such holder
to the Unit Agent when required, the Purchase Contract Property to be purchased
by such holder under the Purchase Contracts evidenced thereby shall be
registered in the name of, and together with any distributions thereon shall be
held by, the Unit Agent in trust for the benefit of such holder until such
certificate is presented and surrendered or the holder provides satisfactory
evidence that such certificate has been destroyed, lost or stolen, together with
any indemnity that may be required by the Unit Agent or the Company in respect
thereof. In the event that a certificate is not presented (or such evidence and
indemnity are not provided) on or prior to the date two years after the relevant
settlement date with respect to the related Purchase Contract, any payments
received by the Unit Agent in respect of the Purchase Contract Property
delivered in respect of the Units evidenced by such certificate will be paid by
the Unit Agent to the Company and such holder will thereafter be required to
look solely to the Company for payment thereof. The Unit Agent will have no
obligation to invest or to pay interest on any amounts held by the Unit Agent
pending distribution, as described above.

         Unsecured Obligations of the Company. The Purchase Contracts are
unsecured contractual obligations of the Company and will rank pari passu with
the Company's other unsecured contractual obligations and with the Company's
unsecured and unsubordinated debt. Most of the assets of the Company are owned
by its subsidiaries. Therefore, the Company's rights and the rights of its
creditors, including holders of Purchase Contracts, to participate in the
distribution of assets of any subsidiary upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary. In addition, dividends, loans and
advances from certain of the Company's subsidiaries, including Morgan Stanley,
to the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and various domestic and foreign regulatory
bodies.


                                      S-28







Universal Warrants

         The Company may issue from time to time, as part of a Unit with one or
more Notes or Purchase Contracts, Universal Warrants to purchase or sell (a)
securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above, (b) currencies or composite currencies or (c) commodities (collectively,
"Warrant Property"). The Company may satisfy its obligations, if any, with
respect to any Universal Warrants by delivering the Warrant Property or, in the
case of underlying securities or commodities, the cash value thereof, as set
forth in the applicable Pricing Supplement. The applicable Pricing Supplement
will specify whether or not a Universal Warrant issued as part of a Unit may be
separated from the other securities comprised by such Unit prior to such
Universal Warrant's expiration. Universal Warrants may not be so separated prior
to the 91st day after the issuance of a Unit, unless otherwise specified in the
applicable Pricing Supplement.

         The Universal Warrants comprising part of a Unit will be issued under
the Universal Warrant Agreement dated as of January 24, 1997 (the "Universal
Warrant Agreement") between the Company and The Chase Manhattan Bank, as Warrant
Agent (the "Warrant Agent"), and may be issued in one or more series as set
forth in the applicable Pricing Supplement. The following summaries of certain
provisions of the Universal Warrant Agreement and Universal Warrants do not
purport to be complete and such summaries are subject to the detailed provisions
of such Universal Warrant Agreement to which reference is hereby made for a full
description of such provisions, including the definition of certain terms used
herein, and for other information regarding the Universal Warrants.

         Reference is made to the applicable Pricing Supplement for the
following terms of and information relating to any Universal Warrants: (i) the
specific designation and aggregate number of and the price at which the
Universal Warrants will be issued; (ii) the currency or composite currency for
which the Universal Warrants may be purchased; (iii) the date on which the right
to exercise the Universal Warrants shall commence and the date on which such
right shall expire or, if the Universal Warrants are not continuously
exercisable throughout such period, the specific date or dates on which they
will be exercisable; (iv) the identity of any depositaries, execution or paying
agents, transfer agents, registrars or determination or other agents in respect
of the Universal Warrants; (v) whether such Universal Warrants are put Warrants
or call Warrants; (vi) (a) the specific Warrant Property (and the amount
thereof) purchasable or saleable upon exercise of each Universal Warrant; (b)
the price at which and the currency or composite currency with which such
Warrant Property may be purchased or sold upon such exercise (or the method of
determining the same); (c) whether such exercise price may be paid in cash, by
the exchange of any other security offered with such Universal Warrants or both
and the method of such exercise; and (d) whether the exercise of such Universal
Warrants is to be settled in cash or by delivery of the underlying securities or
commodities or both; and (vii) any other terms of the Universal Warrants.

         Unless otherwise specified in the applicable Pricing Supplement, the
Universal Warrants may be issued in fully registered global or definitive form,
as specified in the applicable Pricing Supplement. In each case, the form of the
Universal Warrant included in a Unit will correspond to the form of the Unit and
of any other securities included in such Unit. See "Global Securities" in the
Prospectus.

         At the option of the holder, upon request confirmed in writing and
subject to the terms of the Universal Warrant Agreement, Universal Warrants in
definitive form may be presented for exchange and for registration of transfer
(with the form of transfer endorsed thereon duly executed), but only in
connection with the transfer of the applicable Unit and each of the securities
comprised by such Unit, unless otherwise specified in the applicable Pricing
Supplement, at the corporate trust office of the Warrant Agent (or any other
office indicated in the Pricing Supplement relating to the Units comprising such
Universal Warrants) without service charge and upon payment of any taxes and
other governmental charges as described in the Universal Warrant Agreement. Such
transfer or exchange will be effected only if the Warrant Agent is satisfied
with the documents of title and identity of the person making the request.


                                      S-29







Certain Provisions of the Universal Warrant Agreement

         Modifications. The Universal Warrant Agreement and the terms of the
Universal Warrants and the Universal Warrant Certificates may be amended by the
Company and the Warrant Agent, without the consent of the holders, for the
purpose of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision therein or in any other manner which the
Company may deem necessary or desirable and which will not adversely affect the
interests of the affected holders in any material respect.

         The Company and the Warrant Agent may also modify or amend the
Universal Warrant Agreement and the terms of the Universal Warrants, with the
consent of the owners of not less than a majority in number of the then
outstanding unexercised Universal Warrants affected, provided that no such
modification or amendment that changes the exercise price of the Universal
Warrants, reduces the amount receivable upon exercise, cancellation or
expiration, shortens the period of time during which the Universal Warrants may
be exercised or otherwise materially and adversely affects the rights of the
owners of the Universal Warrants or reduces the percentage of outstanding
Universal Warrants, the consent of whose owners is required for modification or
amendment of the Universal Warrant Agreement or the terms of the Universal
Warrants, may be made without the consent of the owners affected thereby.

         Merger, Consolidation, Sale or Other Disposition. If at any time there
shall be a merger or consolidation of the Company or a transfer of substantially
all of its assets, as permitted under the applicable Indentures, the successor
corporation thereunder shall succeed to and assume all obligations of the
Company under the Universal Warrant Agreement and the Universal Warrant
Certificates. The Company shall thereupon be relieved of any further obligation
under the Universal Warrant Agreement and the Universal Warrants. The Company
shall notify the Warrantholders of the occurrence of any such event. See
"Description of Debt Securities -- Certain Covenants" in the Prospectus.

         Enforceability of Rights of Warrantholders; Governing Law. The Warrant
Agent will act solely as an agent of the Company in connection with the
Universal Warrant Certificates and will not assume any obligation or
relationship of agency or trust for or with any holders of Universal Warrant
Certificates or beneficial owners of Universal Warrants. Any holder of Universal
Warrant Certificates and any beneficial owner of Universal Warrants may, without
the consent of the Warrant Agent, any other holder or beneficial owner, enforce
by appropriate legal action, on its own behalf, its right to exercise the
Universal Warrants evidenced by such Universal Warrant Certificates, in the
manner provided therein and in the Universal Warrant Agreement. No holder of any
Universal Warrant Certificate or beneficial owner of any Universal Warrants
shall be entitled to any of the rights of a holder of the Warrant Property
purchasable upon exercise of such Universal Warrants. The Universal Warrants and
the Universal Warrant Agreement will be governed by, and construed in accordance
with, the laws of the State of New York.

         Unsecured Obligations of the Company. The Universal Warrants are
unsecured contractual obligations of the Company and will rank pari passu with
the Company's other unsecured contractual obligations and with the Company's
unsecured and unsubordinated debt. Most of the assets of the Company are owned
by its subsidiaries. Therefore, the Company's rights and the rights of its
creditors, including Warrantholders, to participate in the distribution of
assets of any subsidiary upon such subsidiary's liquidation or recapitalization
will be subject to the prior claims of such subsidiary's creditors, except to
the extent that the Company may itself be a creditor with recognized claims
against the subsidiary. In addition, dividends, loans and advances from certain
of the Company's subsidiaries, including Morgan Stanley, to the Company are
restricted by net capital requirements under the Exchange Act and under rules of
certain exchanges and various domestic and foreign regulatory bodies.


                                      S-30







                             FOREIGN CURRENCY RISKS

Exchange Rates and Exchange Controls

         An investment in Notes, Units or any of the securities constituting
such Units that are denominated in, or the payment of which is related to the
value of, a Specified Currency other than U.S. dollars entails significant risks
that are not associated with a similar investment in a security denominated in
U.S. dollars. Such risks include, without limitation, the possibility of
significant changes in rates of exchange between the U.S. dollar and the various
foreign currencies (or composite currencies) and the possibility of the
imposition or modification of exchange controls by either the U.S. or foreign
governments. Such risks generally depend on economic and political events over
which the Company has no control. In recent years, rates of exchange between
U.S. dollars and certain foreign currencies have been highly volatile and such
volatility may be expected to continue in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in such rate that may occur during the term
of any Note, Unit or security included in such Unit. Depreciation against the
U.S. dollar of the currency in which a Note, Unit or security included in such
Unit is payable would result in a decrease in the effective yield of such Note
below its coupon rate or in the payout of such Unit (or security included
therein) and, in certain circumstances, could result in a loss to the investor
on a U.S. dollar basis. In addition, depending on the specific terms of a
Currency Linked Note, changes in exchange rates relating to any of the
currencies involved may result in a decrease in its effective yield and, in
certain circumstances, could result in a loss of all or a substantial portion of
the principal of a Note to the investor.

         Fluctuations in the rates of exchange between U.S. dollars and any
other currency (i) in which payment of the exercise price of a Universal Warrant
is to be made, (ii) in which the Warrant Property is denominated or (iii) that
is to be purchased or sold by exercise of such Universal Warrant (or between any
of the currencies noted in clauses (i) through (iii) above) may change the value
of such Universal Warrant or of the Unit comprising such Universal Warrant and
could result in a loss to the investor even if the spot price of the Warrant
Property were such that the Universal Warrant appeared to be "in the money."
Similarly, currency fluctuations between U.S. dollars, the currency in which the
purchase price is denominated, the currency in which the Purchase Contract
Property is denominated or, if applicable, the currency to be purchased or sold
pursuant to such Purchase Contract could adversely affect the value of any
Purchase Contract or of the Unit comprising such Purchase Contract and could
result in a loss to the investor.

         EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN FINANCIAL AND LEGAL
ADVISORS AS TO ANY SPECIFIC RISKS ENTAILED BY AN INVESTMENT BY SUCH INVESTOR IN
NOTES, UNITS OR ANY OF THE SECURITIES CONSTITUTING SUCH UNITS THAT ARE
DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, FOREIGN
CURRENCY. SUCH NOTES, UNITS OR OTHER SECURITIES INCLUDED IN SUCH UNITS ARE NOT
AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.

         The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on the Notes (or of any payment due with respect to a Unit).
Such persons should consult their own counsel with regard to such matters.

         Foreign exchange rates can either float or be fixed by sovereign
governments. Exchange rates of most economically developed nations are permitted
to fluctuate in value relative to the U.S. dollar. National governments,
however, rarely voluntarily allow their currencies to float freely in response
to economic forces. From time to time governments use a variety of techniques,
such as intervention by a country's central bank or imposition of regulatory
controls or taxes, to affect the exchange rate of their currencies. Governments
may also issue a new currency to replace an existing currency or alter the
exchange rate or relative exchange characteristics

                                      S-31







by devaluation or revaluation of a currency. Thus, a special risk in purchasing
non-U.S. dollar denominated Notes or Currency Linked Notes (or Universal
Warrants or Purchase Contracts where the exercise or purchase price and the
underlying property is denominated in currencies differing from one another or
from U.S. dollars) is that their U.S. dollar-equivalent yields or payouts could
be affected by governmental actions, which could change or interfere with
theretofore freely determined currency valuation, fluctuations in response to
other market forces, and the movement of currencies across borders. There will
be no adjustment or change in the terms of such Notes, Units or any securities
constituting such Units in the event that exchange rates should become fixed, or
in the event of any devaluation or revaluation or imposition of exchange or
other regulatory controls or taxes, or in the event of other developments
affecting the U.S. dollar or any applicable Specified Currency.

         Governments have imposed from time to time, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a specified foreign currency (or of securities denominated in
such currency) at the time of payment of principal of, premium, if any, or
interest on a Note (or of any payment due with respect to a Unit or any security
constituting a Unit). Even if there are no actual exchange controls, it is
possible that the Specified Currency for any particular Note not denominated in
U.S. dollars (or the applicable currency for any payment with respect to a Unit
(or any of the securities constituting such Unit) would not be available when
payments on such Note are due, including as a result of the replacement of such
Specified Currency by a single European currency (expected to be named the
Euro). In that event, the Company would make required payments in U.S. dollars
on the basis of the Market Exchange Rate on the date of such payment, or if such
rate of exchange is not then available, on the basis of the Market Exchange Rate
as of the most recent practicable date; provided, however, that, if the
Specified Currency for any Note (or the applicable currency for any payment with
respect to a Unit (or any of the securities constituting such Unit) is not
available because it has been replaced by the Euro, the Company would make such
payments in Euro in conformity with legally applicable measures taken pursuant
to, or by virtue of, the Treaty. See "Description of Notes -- Payment Currency."

         With respect to any Note, Unit or security included in such Unit
denominated in a foreign currency or currency unit, or the payment of, or in
respect to, any Note, Unit or security included in such Unit which is related to
the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on such currency or
currency unit. The information contained therein shall constitute a part of this
Prospectus Supplement and is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in fluctuations
in currency exchange rates that may occur in the future.

Governing Law and Judgments

         The Notes, Units, Universal Warrants and Purchase Contracts will be
governed by and construed in accordance with the laws of the State of New York.
If a court in the United States were to grant a judgment in an action based on
Notes denominated in a Specified Currency other than U.S. dollars or on any
Units, Universal Warrants and Purchase Contracts denominated in any such
currency, it is likely that such court would grant judgment only in U.S.
dollars. If the court were a New York court, however, such court would grant a
judgment in the Specified Currency or currency in respect of which any payment
on a Unit, Universal Warrant, or Purchase Contract was due. Such judgment would
then be converted into U.S. dollars at the rate of exchange prevailing on the
date of entry of the judgment.



                                      S-32







                         UNITED STATES FEDERAL TAXATION

         In the opinion of Shearman & Sterling, counsel to the Company, the
following summary accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Notes and of Units
consisting of Notes and certain Universal Warrants or Purchase Contracts. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
and existing and proposed Treasury regulations, revenue rulings, administrative
interpretations and judicial decisions (all as currently in effect and all of
which are subject to change, possibly with retroactive effect). Except as
specifically set forth herein this summary deals only with Notes and Units
purchased by a United States Holder (as defined below) on original issuance and
held as capital assets within the meaning of Section 1221 of the Code. It does
not discuss all of the tax consequences that may be relevant to holders in light
of their particular circumstances or to holders subject to special rules, such
as persons other than United States Holders, insurance companies, dealers in
securities or foreign currencies, persons holding the Notes or Units as part of
a hedging transaction, "straddle," conversion transaction, or other integrated
transaction, or United States Holders whose functional currency (as defined in
Section 985 of the Code) is not the U.S. dollar. Persons considering the
purchase of the Notes or Units should consult with their own tax advisors with
regard to the application of the United States federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign jurisdiction.

         As used herein, the term "United States Holder" means a beneficial
owner of a Note or Unit who or that is for United States federal income tax
purposes (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source, or (iv) a trust if both: (A) a United States court is able to
exercise primary supervision over the administration of the trust, and (B) one
or more United States trustees or fiduciaries have the authority to control all
substantial decisions of the trust.

Notes

         Payments of Interest on the Notes

         Interest paid on a Note (whether in U.S. dollars or in other than U.S.
dollars), that is not a Discount Note or an Exchangeable Note, will generally be
taxable to a United States Holder as ordinary interest 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.

         Special rules governing the treatment of interest paid with respect to
Discount Notes, including certain Notes that pay interest annually that are
issued less than 15 calendar days before an Interest Payment Date, Notes that
mature one year or less from their date of issuance and Notes issued for an
amount less than their stated redemption price at maturity, are described under
"Discount Notes" below. Special rules governing the treatment of interest paid
with respect to Exchangeable Notes are described under "Optionally Exchangeable
Notes" and "Mandatorily Exchangeable Notes" below.

         Discount Notes

         The following discussion is a summary of the principal United States
federal income tax consequences of the ownership and disposition of Discount
Notes (as defined below) by United States Holders. Additional rules applicable
to Discount Notes that are denominated in a Specified Currency other than the
U.S. dollar, or have payments of interest or principal determined by reference
to the value of one or more currencies or currency units other than the U.S.
dollar, are described under "Foreign Currency Notes" below.

         A Note that has an "issue price" that is less than its "stated
redemption price at maturity" will generally be considered to have been issued
bearing original issue discount ("OID") for United States federal income tax

                                      S-33







purposes (a "Discount Note"), unless such difference is less than a specified de
minimis amount. The issue price of a Note issued for cash generally will be the
initial offering price to the public at which a substantial amount of Notes is
sold. Such issue price does not change even if part of the issue is subsequently
sold at a different price. The stated redemption price at maturity of a Note is
the total of all payments required to be made under the Note other than
"qualified stated interest" payments. The term "qualified stated interest" is
defined as stated interest that is unconditionally payable at least annually at
a single fixed rate of interest. In addition, qualified stated interest
generally includes stated interest with respect to a variable rate debt
instrument that is unconditionally payable at least annually at a single
qualified floating rate or a rate that is determined using a single fixed
formula that is based on objective financial or economic information. A rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous fluctuations in the cost of newly borrowed funds.

         No payment of interest on a Note that matures one year or less from its
date of issuance will be considered qualified stated interest and accordingly
such a Note will be treated as a Discount Note.

         A United States Holder of a Discount Note is required to include
qualified stated interest with respect to the Note in income at the time it is
received or accrued, in accordance with such holder's method of accounting.

         In addition, United States Holders of Discount Notes that mature more
than one year from the date of issuance will be required to include OID in
income for United States federal income tax purposes as it accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income, but such
holders will not be required to include separately in income cash payments
received on such Notes, even if denominated as interest, to the extent they do
not constitute qualified stated interest. The amount of OID includible in income
for a taxable year by a United States Holder of a Discount Note will generally
equal the sum of the "daily portions" of the total OID on the Discount Note for
each day during the taxable year in which such holder held the Discount Note
("accrued OID"). Generally, the daily portion of OID is determined by allocating
to each day in any "accrual period" a ratable portion of the OID allocable to
such accrual period. The term "accrual period" means an interval of time of one
year or less; provided that each scheduled payment of principal or interest
either occurs on the final day of an accrual period or the first day of an
accrual period. The amount of OID allocable to an accrual period will be the
excess of (a) the product of the "adjusted issue price" of the Discount Note at
the beginning of such accrual period and its "yield to maturity" (adjusted to
reflect the length of the accrual period) over (b) the amount of any qualified
stated interest allocable to the accrual period. The "adjusted issue price" of a
Discount Note at the beginning of an accrual period will equal the issue price
thereof plus the amount of OID previously includible in the gross income of any
United States Holder (without reduction for any premium or amortized acquisition
premium, as described below), less any payments made on such Discount Note
(other than qualified stated interest) on or before the first day of the accrual
period. The "yield to maturity" of the Discount Note will be computed on the
basis of a constant annual interest rate compounded at the end of each accrual
period. Under the foregoing rules, United States Holders of Discount Notes will
generally be required to include in income increasingly greater amounts of OID
in successive accrual periods. Special rules will apply for calculating OID for
initial short or final accrual periods.

         Notes that pay interest annually that are issued less than 15 calendar
days before an Interest Payment Date may be treated as Discount Notes. United
States Holders intending to purchase such Notes should refer to the applicable
Pricing Supplement.

         Certain of the Discount Notes may be redeemable prior to maturity at
the option of the Company (a "call option") and/or repayable prior to maturity
at the option of the holder (a "put option"). Discount Notes containing either
or both of such features may be subject to rules that differ from the general
rules discussed above. Holders intending to purchase Discount Notes with either
or both of such features should carefully examine the applicable Pricing
Supplement and should consult with their own tax advisors with respect to either
or both of such features since the tax consequences with respect to OID will
depend, in part, on the particular terms and the particular features of the
purchased Note.


                                      S-34







         In general, a United States Holder who uses the cash method of tax
accounting and who holds a Discount Note that matures one year or less from the
date of its issuance (a "short-term Discount Note") is not required to accrue
OID for United States federal income tax purposes unless such holder elects to
do so. United States Holders who report income for United States federal income
tax purposes on the accrual method and certain other holders, including banks
and dealers in securities, are required to include OID (or alternatively
acquisition discount) on such short-term Discount Notes on a straight-line
basis, unless an election is made to accrue the OID according to a constant
yield method based on daily compounding. In the case of a United States Holder
who is not required, and does not elect, to include OID in income currently, any
gain realized on the sale, exchange or retirement of a short-term Discount Note
will be ordinary interest income to the extent of the OID accrued on a
straight-line basis (or, if elected by such holder, under the constant yield
method) through the date of sale, exchange or retirement. In addition, such
non-electing United States Holders who are not subject to the current inclusion
requirement described in the second sentence of this paragraph may be required
to defer the deduction of all or a portion of any interest paid on indebtedness
incurred to purchase short-term Discount Notes until such OID is included in
such holder's income.

         If the amount of OID with respect to a Note is less than the specified
de minimis amount (generally, 0.0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity), the
amount of OID is treated as zero and all stated interest is treated as qualified
stated interest. A United States Holder will be required to treat any stated
principal payment on a Note as capital gain to the extent of the product of the
total amount of de minimis OID and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Note.

         United States Holders are permitted to elect to include all interest on
a Note using the constant yield method. For this purpose, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules apply to elections made with
respect to Notes with amortizable bond premium or market discount and United
States Holders considering such an election should consult their own tax
advisors. The election cannot be revoked without the approval of the Internal
Revenue Service.

         Market Discount and Premium

         If a United States Holder purchases a Note (other than a Discount Note
or an Exchangeable Note) for an amount that is less than its stated redemption
price at maturity or, in the case of a Discount Note, its adjusted issue price,
the amount of the difference will be treated as "market discount" for United
States federal income tax purposes, unless such difference is less than a
specified de minimis amount.

         Under the market discount rules of the Code, a United States Holder
will be required to treat any partial principal payment (or, in the case of a
Discount Note, any payment that does not constitute qualified stated interest)
on, or any gain realized on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount that has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. If such Note is disposed of in a
nontaxable transaction (other than a nonrecognition transaction described in
Code Section 1276(c)), the amount of gain realized on such disposition for
purposes of the market discount rules shall be determined as if such holder had
sold the Note at its then fair market value. Market discount will be considered
to accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the United States Holder elects to accrue on the basis
of a constant interest rate.

         A United States Holder may be required to defer the deduction of all or
a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry such Note until the maturity of the Note or its
earlier disposition (except for certain nonrecognition transactions). A United
States Holder may elect to include market discount in income currently as it
accrues (on either a ratable or a constant interest rate basis), in

                                      S-35







which case the rules described above regarding the treatment as ordinary income
of gain upon the disposition of the Note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.

         A United States Holder who purchases a Discount Note for an amount that
is greater than its adjusted issue price, but less than or equal to the sum of
all amounts payable on the Note after the purchase date (other than qualified
stated interest), will be considered to have purchased such Note at an
"acquisition premium" within the meaning of the Code. Under the acquisition
premium rules of the Code, the amount of OID which such holder must include in
its gross income with respect to such Note for any taxable year will be reduced
by a fraction the numerator of which is the excess of the cost of the Note over
its adjusted issue price and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date (other than qualified
stated interest) over the adjusted issue price.

         A United States Holder who purchases a Discount Note for an amount that
is greater than the sum of all amounts payable on the Note after the purchase
date (other than qualified stated interest) will be considered to have purchased
such Note at a "premium" within the meaning of the OID Regulations. In such
case, the holder is not required to include any OID in gross income.

         If a United States Holder purchases a Note (other than an Exchangeable
Note) for an amount that is greater than the amount payable at maturity (or on
the earlier call date, in the case of a Note that is redeemable at the option of
the Company), such holder will be considered to have purchased such Note with
"amortizable bond premium" equal in amount to such excess, and may elect (in
accordance with applicable Code provisions) to amortize such premium, using a
constant yield method over the remaining term of the Note and to offset interest
otherwise required to be included in income in respect of such Note during any
taxable year by the amortized amount of such excess for such taxable year.
However, if such Note may be optionally redeemed after the United States Holder
acquires it at a price in excess of its stated redemption price at maturity,
special rules would apply which could result in a deferral of the amortization
of some bond premium until later in the term of such Note.

         Sale, Exchange or Retirement of the Notes

         Upon the sale, exchange or retirement of a Note, a United States Holder
will generally recognize taxable gain or loss equal to the difference between
the amount realized on the sale, exchange or retirement and such holder's
adjusted tax basis in the Note. For these purposes, the amount realized on the
sale, exchange or retirement of a Note (other than an Exchangeable Note) does
not include any amount attributable to accrued interest (or, in the case of a
Discount Note, accrued qualified stated interest), which will be taxable as such
unless previously taken into account. A United States Holder's adjusted tax
basis in a Note (other than an Exchangeable Note) generally will equal the cost
of the Note to such holder, increased by the amounts of any market discount, OID
and de minimis OID previously included in income by the holder with respect to
such Note and reduced by any amortized bond premium and any principal payments
received by the United States Holder and, in the case of a Discount Note, by the
amounts of any other payments that do not constitute qualified stated interest.

         Subject to the discussion under "Foreign Currency Notes" and
"Optionally Exchangeable Notes" below, gain or loss recognized on the sale,
exchange or retirement of a Note will be capital gain or loss (except to the
extent of any accrued market discount or, in the case of a short-term Discount
Note, any accrued OID which the United States Holder has not previously included
in income), and will generally be long-term capital gain or loss if at the time
of sale, exchange or retirement the Note has been held for more than one year.

         A United States Holder generally will not recognize gain or loss upon
the election (or revocation of such election) or failure to elect to terminate
the automatic extension of maturity of a Renewable Note.


                                      S-36







         Foreign Currency Notes

         The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Notes (other than the Currency Linked Notes described above) that
are denominated in a Specified Currency other than the U.S. dollar or the
payments of interest or principal on which are payable in one or more currencies
or currency units other than the U.S. dollar (a "Foreign Currency Note").

         The rules discussed below will generally not apply to a United States
Holder that enters into a "qualified hedging transaction." A qualified hedging
transaction is an integrated economic transaction consisting of a qualifying
debt instrument, such as a Foreign Currency Note, and a "section 1.988-5(a)
hedge," as defined in section 1.988-5(a)(4) of the Treasury regulations.
Generally, such an integrated economic transaction, if identified as such by
either the United States Holder or the Internal Revenue Service, is treated as a
single transaction for United States federal income tax purposes, the effect of
which is to treat such a holder as owning a synthetic debt instrument that is
subject to rules applicable to Discount Notes. The rules with respect to a
qualified hedging transaction are extremely complex and special rules may apply
in certain circumstances, and persons that are considering hedging the currency
risk are urged to consult with their own tax advisors with respect to the
application of these rules.

         A United States Holder who uses the cash method of accounting and who
receives a payment of interest with respect to a Foreign Currency Note (other
than a Discount Note (except to the extent any qualified stated interest is
received) in which OID is accrued on a current basis) will be required to
include in income the U.S. dollar value of the foreign currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S. dollar
value will be the United States Holder's tax basis in the foreign currency.

         A United States Holder (to the extent the above paragraph is not
applicable) will be required to include in income the U.S. dollar value of the
amount of interest income (including OID or market discount and reduced by
premium, acquisition premium and amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Foreign Currency Note during an accrual period. The U.S.
dollar value of such accrued income will be determined by translating such
income at the average rate of exchange for the accrual period or, with respect
to an accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. The average rate of exchange for the
accrual period (or partial period) is the simple average of the exchange rates
for each business day of such period (or other method if such method is
reasonably derived and consistently applied). A United States Holder may elect
to determine the U.S. dollar value of such accrued income by translating such
income at the spot rate on the last day of the interest accrual period (or, in
the case of a partial accrual period, the spot rate on the last day of the
taxable year) or, if the date of receipt is within five business days of the
last day of the interest accrual period, the spot rate on the date of receipt.
Such United States Holder will recognize ordinary gain or loss with respect to
accrued interest income on the date such income is received. The amount of
ordinary gain or loss recognized will equal the difference between the U.S.
dollar value of the foreign currency payments received (determined on the date
such payment is received) in respect of such accrual period and the U.S. dollar
value of interest income that has accrued during such accrual period (as
determined above).

         A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Any gain or loss realized by a United States
Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase Foreign Currency Notes) will be
ordinary income or loss.

         A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
such

                                      S-37







purchase or adjustment. A United States Holder who converts U.S. dollars to a
foreign currency and immediately uses that currency to purchase a Foreign
Currency Note denominated in the same currency ordinarily will not recognize
gain or loss in connection with such conversion and purchase. However, a United
States Holder who purchases a Foreign Currency Note with previously owned
foreign currency will recognize ordinary income or loss in an amount equal to
the difference, if any, between such holder's tax basis in the foreign currency
and the U.S. dollar fair market value of the Foreign Currency Note on the date
of purchase. For purposes of determining the amount of any gain or loss
recognized by a United States Holder on the sale, exchange or retirement of a
Foreign Currency Note, the amount realized upon such sale, exchange or
retirement will be the U.S. dollar value of the foreign currency received,
determined on the date of sale, exchange or retirement.

         Gain or loss realized upon the sale, exchange or retirement of a
Foreign Currency Note will be ordinary income or loss to the extent it is
attributable to fluctuations in currency exchange rates. Gain or loss
attributable to fluctuations in exchange rates will equal the difference between
the U.S. dollar value of the foreign currency principal amount of such Note,
determined on the date such payment is received or such Note is disposed of,
including any payment with respect to accrued interest, and the U.S. dollar
value of the foreign currency principal amount of such Note, determined on the
date such United States Holder acquired such Note, and the U.S. dollar value of
accrued interest received (determined by translating such interest at the
average exchange rate for the accrual period). The foreign currency principal
amount of a Foreign Currency Note generally equals the United States Holder's
purchase price in units of foreign currency. Such foreign currency gain or loss
will be recognized only to the extent of the total gain or loss recognized by a
United States Holder on the sale, exchange or retirement of the Foreign Currency
Note.

         The source of exchange gain or loss will be determined by reference to
the residence of the holder or the "qualified business unit" of the holder on
whose books the Note is properly reflected. Any gain or loss recognized by such
a United States Holder in excess of such foreign currency gain or loss will be
capital gain or loss (except to the extent of any accrued market discount or, in
the case of a short-term Discount Note, any accrued OID), and generally will be
long-term capital gain or loss if the holding period of the Foreign Currency
Note exceeds one year.

         Any gain or loss that is treated as ordinary income or loss, as
described above, generally will not be treated as interest income or expense
except to the extent provided by administrative pronouncements of the Internal
Revenue Service.

         OID, market discount, premium, acquisition premium and amortizable bond
premium of a Foreign Currency Note are to be determined in the relevant foreign
currency. The amount of such discount or premium that is taken into account
currently under general rules applicable to Notes other than Foreign Currency
Notes is to be determined for any accrual period in the relevant foreign
currency and then translated into the United States Holder's functional currency
on the basis of the average exchange rate in effect during such accrual period.
The amount of accrued market discount (other than market discount that is
included in income on a current basis) taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of a Foreign Currency Note will be the U.S. dollar value of such
accrued market discount (determined on the date of receipt of such partial
principal payment or upon the sale, exchange, retirement or other disposition).

         Any loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium will be a capital loss to the extent of
such bond premium. If such an election is made, amortizable bond premium taken
into account on a current basis shall reduce interest income in units of the
relevant foreign currency. Exchange gain or loss is realized on such amortized
bond premium with respect to any period by treating the bond premium amortized
in such period as a return of principal.

         The Code and the applicable regulations do not discuss the tax
consequences of an issuance of a Foreign Currency Note that is denominated in,
or has payments of interest or principal determined by reference to, a so-called
hyperinflationary currency or more than one currency. On March 17, 1992,
Treasury regulations were proposed with regard to debt instruments denominated
in a hyperinflationary currency and certain debt instruments

                                      S-38







denominated in more than one currency. These proposed regulations are proposed
to be effective for transactions entered into on or after the date such
regulations are finalized.

         A Foreign Currency Note will be considered to be a debt instrument
denominated in a hyperinflationary currency if it is denominated in a Specified
Currency of a country in which there is cumulative inflation of at least 100%
during the 36 calendar month period ending on the last day of the preceding
calendar year. Under the proposed regulations, a United States Holder that
acquires a Foreign Currency Note that is denominated in a hyperinflationary
currency will recognize gain or loss for its taxable year determined by
reference to the change in exchange rates between the first day of the taxable
year (or the date the Note was acquired, if later) and the last day of the
taxable year (or the date the Note was disposed of, if earlier). Such gain or
loss will reduce or increase the amount of interest income otherwise required to
be taken into account. Special rules apply to the extent such loss exceeds the
amount of interest income otherwise taken into account.

         Under the proposed regulations, a Foreign Currency Note will be
considered to be a "dual currency debt instrument" if (i) the qualified stated
interest is denominated in or determined by reference to a single currency, (ii)
the stated redemption price at maturity is denominated in or determined by
reference to a different currency, and (iii) the amount of all payments in each
currency is fixed on the issue date. A Foreign Currency Note (other than a dual
currency debt instrument) will be considered to be a "multicurrency debt
instrument" if payments are to be made in more than one currency and the amount
of all payments in each currency is fixed on the issue date. A dual currency
debt instrument will be treated as two hypothetical debt instruments, a zero
coupon bond denominated in the currency of the stated redemption price at
maturity and an installment obligation denominated in the currency of the
qualified stated interest. A multicurrency debt instrument will be treated
similarly and separated into component hypothetical debt instruments in each
currency. The OID and foreign currency rules discussed above will apply to each
hypothetical debt instrument. The proposed regulations do not apply to any
Foreign Currency Note that is denominated in, or has payments of interest or
principal determined by reference to, more than one currency except to the
extent the Note meets the definition of a dual currency debt instrument or
multicurrency debt instrument.

         Optionally Exchangeable Notes

         The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Optionally Exchangeable Notes.

         Optionally Exchangeable Notes will be treated as "contingent payment
debt instruments" for United States federal income tax purposes. As a result,
the Optionally Exchangeable Notes will generally be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder and a
United States Holder will be required to accrue interest income on the
Optionally Exchangeable Notes as set forth below.

         At the time the Optionally Exchangeable Notes are issued, the Company
will be required to determine a "comparable yield" for the Optionally
Exchangeable Notes that takes into account the yield at which the Company could
issue a fixed rate debt instrument with terms similar to those of the Optionally
Exchangeable Notes (including the level of subordination, term, timing of
payments and general market conditions, but excluding any adjustments for
liquidity or the riskiness of the contingencies with respect to the Optionally
Exchangeable Notes). The comparable yield may be greater than or less than the
stated interest rate, if any, with respect to the Optionally Exchangeable Notes.

         Solely for purposes of determining the amount of interest income that a
United States Holder will be required to accrue, the Company will be required to
construct a "projected payment schedule" in respect of the Optionally
Exchangeable Notes representing a series of payments the amount and timing of
which would produce a yield to maturity on the Optionally Exchangeable Notes
equal to the comparable yield. NEITHER THE COMPARABLE YIELD NOR THE PROJECTED
PAYMENT SCHEDULE CONSTITUTES A REPRESENTATION BY THE COMPANY REGARDING THE
ACTUAL AMOUNT THAT THE

                                      S-39







OPTIONALLY EXCHANGEABLE NOTES WILL PAY. For United States federal income tax
purposes, a United States Holder is required to use the comparable yield and the
projected payment schedule established by the Company in determining interest
accruals and adjustments in respect of an Optionally Exchangeable Note, unless
such United States Holder timely discloses and justifies the use of other
estimates to the Internal Revenue Service.

         Based on the comparable yield and the issue price of the Optionally
Exchangeable Notes, a United States Holder of an Optionally Exchangeable Note
(regardless of accounting method) will be required to accrue as OID the sum of
the daily portions of interest on the Optionally Exchangeable Note for each day
in the taxable year on which the holder held the Optionally Exchangeable Note,
adjusted upward or downward to reflect the difference, if any, between the
actual and the projected amount of any contingent payments on the Optionally
Exchangeable Note (as set forth below). The daily portions of interest in
respect of an Optionally Exchangeable Note are determined by allocating to each
day in an accrual period the ratable portion of interest on the Optionally
Exchangeable Note that accrues in the accrual period. The amount of interest on
an Optionally Exchangeable Note that accrues in an accrual period is the product
of the comparable yield on the Optionally Exchangeable Note (adjusted to reflect
the length of the accrual period) and the adjusted issue price of the Optionally
Exchangeable Note. The adjusted issue price of an Optionally Exchangeable Note
at the beginning of the first accrual period will equal its issue price and for
any accrual period thereafter will be (x) the sum of the issue price of such
Optionally Exchangeable Note and any interest previously accrued thereon by a
holder (disregarding any positive or negative adjustments) minus (y) the amount
of any projected payments on the Optionally Exchangeable Note for previous
accrual periods.

         A United States Holder will be required to recognize interest income
equal to the amount of any positive adjustment (i.e., the excess of actual
payments over projected payments) in respect of an Optionally Exchangeable Note
for a taxable year. A negative adjustment (i.e., the excess of projected
payments over actual payments) in respect of an Optionally Exchangeable Note for
a taxable year (i) will first reduce the amount of interest in respect of the
Optionally Exchangeable Note that a United States Holder would otherwise be
required to include in income in the taxable year and (ii) to the extent of any
excess, will give rise to an ordinary loss equal to that portion of such excess
as does not exceed the excess of (A) the amount of all previous interest
inclusions under the Optionally Exchangeable Note over (B) the total amount of
the United States Holder's net negative adjustments treated as ordinary loss on
the Exchangeable Note in prior taxable years. A net negative adjustment is not
subject to the two percent floor limitation imposed on miscellaneous deductions
under Section 67 of the Code. Any negative adjustment in excess of the amounts
described above in (i) and (ii) will be carried forward to offset future
interest income in respect of the Optionally Exchangeable Note or to reduce the
amount realized on a sale, exchange or retirement of the Optionally Exchangeable
Note. Where a United States Holder purchases an Optionally Exchangeable Note at
a price other than the issue price thereof, the difference between the purchase
price and the issue price will generally be treated as a positive or negative
adjustment, as the case may be, and allocated to the daily portions of interest
or projected payments with respect to the Optionally Exchangeable Note over its
remaining term.

         Upon a sale, exchange or retirement of an Optionally Exchangeable Note,
a United States Holder will generally recognize taxable gain or loss equal to
the difference between the amount realized on the sale, exchange or retirement
and such holder's tax basis in the Optionally Exchangeable Note. If the Company
delivers property (other than cash) to a holder in retirement of an Optionally
Exchangeable Note, the amount realized will equal the fair market value of the
property, determined at the time of such retirement, plus the amount of cash, if
any, received in lieu of property. A United States Holder's tax basis in an
Optionally Exchangeable Note will equal the cost thereof, increased by the
amount of interest income previously accrued by the holder in respect of the
Optionally Exchangeable Note (disregarding any positive or negative adjustments)
and decreased by the amount of all prior projected payments in respect of the
Optionally Exchangeable Note. A United States Holder generally will treat any
gain as interest income, and any loss as ordinary loss to the extent of the
excess of previous interest inclusions over the total negative adjustments
previously taken into account as ordinary losses, and the balance as capital
loss.


                                      S-40







         A United States Holder will have a tax basis in any property (other
than cash) received upon the retirement of an Optionally Exchangeable Note equal
to the fair market value of such property, determined at the time of such
retirement. Any gain or loss realized by a United States Holder on a sale or
exchange of such property will generally be capital gain or loss and will
generally be long-term capital gain or loss if the sale or exchange occurs more
than one year after the retirement of the Exchangeable Note.

         Mandatorily Exchangeable Notes

         Under current United States federal income tax law, it is unclear how a
Mandatorily Exchangeable Note will be treated. Prospective purchasers of
Mandatorily Exchangeable Notes are urged to review the applicable Pricing
Supplement and consult with their tax advisors.

         PERLS, Reverse PERLS and Multicurrency PERLS

         The following discussion relates to PERLS, Reverse PERLS and
Multicurrency PERLS that bear current coupons consistent with or greater than
comparable dollar denominated debt obligations. In other cases, holders should
refer to the discussion relating to taxation in the applicable Pricing
Supplement.

         Although no authority exists that addresses instruments having
characteristics similar to such instruments and the conclusions herein are
therefore not entirely free from doubt, Shearman & Sterling advises that such
PERLS, Reverse PERLS and Multicurrency PERLS should constitute debt obligations
for United States federal income tax purposes and that no portion of the issue
price should be allocated to the foreign currency feature. The Company intends
to treat PERLS, Reverse PERLS and Multicurrency PERLS as indebtedness of the
Company and such characterization is binding on all United States Holders,
except for holders who disclose a different position on their United States
federal income tax return. In any case, the Company's treatment is not binding
upon the Internal Revenue Service or the courts, and there can be no assurance
that it will be accepted.

         The Treasury regulations under the OID provisions of the Code state
that a debt instrument will not be treated as a contingent debt instrument
merely because some or all of the payments are denominated in or determined by
reference to the value of one or more foreign currencies. It should be noted,
however, that the foreign currency regulations do not yet address the treatment
of instruments like PERLS, Reverse PERLS or Multicurrency PERLS and the proposed
regulations do not address the treatment of such instruments except insofar as
they meet the definitions of dual currency debt instruments and multicurrency
debt instruments. It is possible that such regulations (or other authority),
when issued, could result in tax consequences that differ from those described
herein, and that such authority could apply with retroactive effect. See
discussion under "Foreign Currency Notes" for a summary of other federal income
tax principles that may apply to United States Holders of PERLS, Reverse PERLS
and Multicurrency PERLS.

         Notes Linked to Commodity Prices, Single Securities, Baskets of
Securities or Indices

         The United States federal income tax consequences to a United States
Holder of the ownership and disposition of Notes that have principal or interest
determined by reference to commodity prices, securities of entities unaffiliated
with the Company, baskets of such securities or indices will vary depending upon
the exact terms of the Notes and related factors. Unless otherwise noted in the
applicable Pricing Supplement, such Notes will be subject to the same United
States federal income tax treatment as Optionally Exchangeable Notes.

Units

         The following discussion addresses the treatment of a Unit consisting
of (i) a Note and one or more Universal Warrants entitling the holder thereof to
purchase securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above or commodities (each, a "Warrant Unit"), or (ii) a Note and one or more
Purchase Contracts requiring the holder thereof to purchase securities of an
entity unaffiliated with the Company, a basket of such securities, an index or
indices of

                                      S-41







such securities or any combination of the above or commodities (each, a
"Purchase Unit"). Other Units and certain Warrant Units and Purchase Units with
special terms and conditions may be subject to United States federal income tax
consequences that differ from those described below. United States Holders
intending to purchase such Units should refer to the discussion relating to
United States federal income taxation in the applicable Pricing Supplement.

         Warrant Units

         While not free from doubt, based on certain representations made by the
Company it is the opinion of Shearman & Sterling that, in the case of a Warrant
Unit, the Note and the Universal Warrants should be treated as separate
instruments and, pursuant to the terms of the Unit Agreement, the Company and
each United States Holder will be obligated (in the absence of an applicable
administrative ruling or judicial determination to the contrary) to follow this
treatment. Except as otherwise stated, the following discussion assumes that the
Notes and Universal Warrants comprising Warrant Units will be respected as
separate instruments. Under this treatment, the issue price of the Warrant Unit
(determined in a similar manner as the issue price of a Note) will be allocated
between the Note and the Universal Warrants based on their relative fair market
values. This allocation will be set forth in the applicable Pricing Supplement
and will be based on the Company's judgment as to the relative value of the Note
and the Universal Warrants at the time of original issue. No assurance can be
given, however, that the Internal Revenue Service will not challenge the
Company's allocation. Unless otherwise noted in the applicable Pricing
Supplement, the Note component of a Warrant Unit will be treated as having been
issued with OID.

         The determination by the Company of the issue price of a Note and one
or more Universal Warrants comprising a Warrant Unit will be binding on a holder
thereof, unless such holder discloses the use of a different allocation on a
statement attached to such holder's Federal income tax return for the taxable
year that includes the acquisition date of the Warrant Unit. If a holder
acquires a Warrant Unit at a price different from that on which the Company's
allocation is based, such holder may be treated as having acquired the Note
component thereof for an amount greater or less than the amount allocated to the
Note by the Company as set forth above, thereby potentially resulting in
"acquisition premium" or "market discount."

         Upon the exercise of a Universal Warrant, a United States Holder will
not recognize gain or loss (except with respect to cash, if any, received on
such exercise) and will have a tax basis in the property acquired pursuant to
such exercise equal to such holder's tax basis in the Universal Warrant (as
described above) plus the exercise price of the Universal Warrant. The holding
period for any property so acquired will commence on the day after the date of
exercise of the Universal Warrant. If any cash is received in lieu of the right
to receive a fractional interest in property pursuant to a Universal Warrant, a
United States Holder will recognize gain or loss the amount and character of
which will be determined as if such holder had received such property and then
immediately sold it for cash. If cash is received in full settlement of the
right to receive property pursuant to a Universal Warrant, a United States
Holder will recognize gain or loss in the same manner as on a sale or exchange
of a Universal Warrant (see discussion below). On the sale of property received
upon exercise of a Universal Warrant, a United States Holder will recognize gain
or loss equal to the difference between the amount realized upon the sale and
such holder's tax basis in the property (which will generally equal the exercise
price of the Universal Warrant plus the portion of the issue price of the
Warrant Unit that was allocated to the Universal Warrant). Such gain or loss
will generally be capital gain or loss and will be long-term capital gain or
loss if, at the time of sale or exchange, the property was held for more than
one year.

         A United States Holder of a Universal Warrant will recognize gain or
loss on the sale or exchange of the Universal Warrant (including if the
Universal Warrant expires unexercised or is settled entirely in cash) in an
amount equal to the difference between the amount realized and such holder's tax
basis in the Universal Warrant (as described above). Such gain or loss will
generally be capital gain or loss and will be long-term capital gain or loss if,
at the time of sale or exchange, the Universal Warrant was held for more than
one year. On a sale or exchange of a Warrant Unit, the amount realized on the
sale or exchange will be allocated between the Note and the Universal Warrants
comprising the Warrant Unit based on the relative fair market value of the Note
and the Universal Warrants.


                                      S-42







         Unless otherwise noted in the applicable Pricing Supplement, a Note
issued as part of a Warrant Unit will be taxable in the same manner as if it had
been issued separately. See discussion under "Notes" above.

         It is also possible that a Warrant Unit could be characterized as a
single debt instrument. Under that characterization, the Warrant Unit would
constitute a contingent payment debt instrument and would be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder. For a
description of the treatment of contingent payment debt instruments, see
discussion under "Optionally Exchangeable Notes" above.

         Purchase Unit

         Under current United States federal income tax law, it is unclear
whether a Purchase Unit will be treated, in whole or in part, as a forward
contract, as indebtedness of the Company, as one or more options or other
derivative instruments, or as a combination thereof. No statutory, judicial or
administrative authority definitively addresses the characterization for United
States federal income tax purposes of a Purchase Unit or instruments similar to
a Purchase Unit. As a result, significant aspects of the United States federal
income tax treatment of an investment in a Purchase Unit are uncertain. No
ruling has been or will be requested from the Internal Revenue Service with
respect to the Purchase Units and no assurance can be given that the Internal
Revenue Service or a court will agree with the analysis set forth herein.
ACCORDINGLY, PROSPECTIVE INVESTORS IN A PURCHASE UNIT SHOULD CONSULT THEIR OWN
TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF INVESTMENTS IN THE PURCHASE
UNIT IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

         Unless otherwise noted in the applicable Pricing Supplement, the
Company and each United States Holder, pursuant to the terms of the Unit
Agreement, will be obligated (in the absence of an applicable administrative
ruling or judicial determination to the contrary) to treat a Note and one or
more Purchase Contracts comprising the Purchase Unit as separate instruments.
Under this characterization, the issue price of the Purchase Unit (determined in
a similar manner as the issue price of a Note) will be allocated between the
Note and the Purchase Contracts based on their relative fair market values. This
allocation will be based on the Company's judgment as to the relative value of
the Note and the Purchase Contracts at the time of original issue. Unless
otherwise noted in the applicable Pricing Supplement, the Company will not
allocate any of the issue price of a Purchase Unit to the Purchase Contracts. No
assurance can be given, however, that the Internal Revenue Service will not
challenge the Company's allocation. In the event that a portion of the issue
price of a Purchase Unit is allocated to the Purchase Contracts, the applicable
Note may be treated as having been issued with OID.

         The determination by the Company of the issue price of a Note and one
or more Purchase Contracts comprising a Purchase Unit will be binding on a
holder thereof, unless such holder discloses the use of a different allocation
on a statement attached to such holder's Federal income tax return for the
taxable year that includes the acquisition date of the Purchase Unit. If a
holder acquires a Purchase Unit at a price different from that on which the
Company's allocation is based, such holder may be treated as having acquired the
Note component thereof for an amount greater or less than the amount allocated
to the Note by the Company as set forth above, thereby potentially resulting in
"acquisition premium" or "market discount."

         In addition, under this characterization of a Purchase Unit, a United
States Holder would recognize no gain or loss upon the performance of a Purchase
Contract, other than short-term capital gain or loss with respect to any cash
received in lieu of the right to receive a fractional interest in property, in
an amount equal to the difference between the cash received in lieu of the
property being purchased and the portion of the purchase price paid for such
property pursuant to the Purchase Contract. A United States Holder will
generally have a tax basis in the property received pursuant to a Purchase
Contract equal to the amount paid therefor. If cash is received in full
settlement of the right to receive property pursuant to a Purchase Contract, a
United States Holder will recognize gain or loss to the extent that the purchase
price under the Purchase Contract differs from the amount of cash received. For
these purposes, the purchase price under a Purchase Contract generally consists
of the portion, if any, of the United States Holder's original purchase price
for the Purchase Unit allocated to such Purchase Contract plus the amount

                                      S-43







of the additional payment to be made upon performance. The character of such
gain or loss will be determined in the same manner as on a sale or exchange of a
Purchase Contract (see discussion below).

         If a United States Holder sells or otherwise disposes of a Purchase
Contract prior to maturity, such holder generally would, under the
characterization described above, recognize gain or loss equal to the difference
between the amount realized on the sale or other disposition and the United
States Holder's tax basis in the Purchase Contract (which generally would be
zero, as described above). Such gain or loss generally would be capital gain or
loss and would be long-term capital gain or loss if the United States Holder has
held the Purchase Contract for more than one year at the time of disposition. On
a sale or exchange of a Purchase Unit, the amount realized on the sale or
exchange will be allocated between the Note and the Purchase Contracts
comprising the Purchase Unit based on the relative fair market value of the Note
and the Purchase Contracts.

         Under the above characterization, a Note issued as part of a Purchase
Unit would be taxable in the same manner as if it had been issued separately.
See discussion under "Notes" above.

         Although counsel does not believe that it is more likely, it is
possible that a Purchase Unit would be treated as a single debt instrument, the
principal amount of which is wholly dependent upon the future value of the
property subject to the Purchase Contract. In such case, the Purchase Unit would
constitute a contingent payment debt instrument and would be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder. For a
description of the treatment of contingent payment debt instruments, see
discussion under "Optionally Exchangeable Notes" above.

         It is also possible that a Purchase Unit could be characterized in a
manner that results in tax consequences different from those described above.
Under such alternative characterizations, it is possible, for example, that (i)
a United States Holder could be taxable upon the receipt pursuant to the
Purchase Contract of property with a value in excess of the principal amount of
the Note, rather than upon the sale of such property, (ii) gain could be treated
as ordinary income, instead of capital gain, (iii) a portion of the issue price
of the Purchase Unit could be allocated to the forward Purchase Contract and a
United States Holder could be required to accrue OID equal to that amount, or
(iv) payments of stated interest could be viewed in part as an option premium or
other fee income.

Backup Withholding

         Certain "backup" withholding and information reporting requirements may
apply to payments on, and to proceeds of the sale before maturity of, the Notes
and Units. The Company, its agent, a broker, the relevant Trustee or any paying
agent, as the case may be, will generally withhold tax at a rate of 31% from any
such payments to a United States Holder who fails to furnish his taxpayer
identification number (social security number or employer identification
number), to certify that such holder is not subject to backup withholding, or to
otherwise comply with the applicable requirements of the backup withholding
rules. Certain holders (including, among others, corporations) are generally not
subject to the backup withholding and information reporting requirements.

         Any amounts withheld under the backup withholding rules from a payment
to a United States Holder would be allowed as a refund or a credit against such
holder's United States federal income tax provided that the required information
is furnished to the Internal Revenue Service.

         THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.


                                      S-44







                              PLAN OF DISTRIBUTION

         The Program Securities are being offered on a continuing basis by the
Company exclusively through the Agent, who has agreed to use reasonable efforts
to solicit offers to purchase such Program Securities. The Company will have the
sole right to accept offers to purchase Program Securities and may reject any
such offer in whole or in part. The Agent will have the right to reject any
offer to purchase Program Securities solicited by it in whole or in part.
Payment of the purchase price of the Program Securities will be required to be
made in immediately available funds. Unless otherwise specified in the
applicable Pricing Supplement, the Company will pay the Agent, in connection
with sales of Program Securities resulting from a solicitation made or an offer
to purchase received by the Agent, a commission ranging from .125% to .750% of
the initial offering price of the Program Securities to be sold, depending upon
the maturity of the Program Securities; provided, however, that commissions with
respect to Program Securities having a maturity of 30 years or greater will be
negotiated.

         The Company may also sell Program Securities to the Agent as principal
for its own account at discounts to be agreed upon at the time of sale. Such
Program Securities may be resold to investors and other purchasers at a fixed
offering price or at prevailing market prices, or prices related thereto at the
time of such resale or otherwise, as determined by the Agent and specified in
the applicable Pricing Supplement. The Agent may offer the Program Securities it
has purchased as principal to other dealers. The Agent may sell the Program
Securities to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by the Agent from the Company. After
the initial public offering of Program Securities that are to be resold by the
Agent to investors and other purchasers on a fixed public offering price basis,
the public offering price, concession and discount may be changed.

         The Agent may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933 (the "Securities Act"). The Company and the Agent
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agent for certain
expenses.

         Unless otherwise provided in the applicable Pricing Supplement, the
Company does not intend to apply for the listing of the Program Securities on a
national securities exchange, but has been advised by the Agent that the Agent
intends to make a market in the Program Securities (or, if separable, any other
securities comprised by Units), as permitted by applicable laws and regulations.
The Agent is not obligated to do so, however, and the Agent may discontinue
making a market at any time without notice. No assurance can be given as to the
liquidity of any trading market for the Program Securities (or, if separable,
any other securities comprised by any Units).

         The Agent is a wholly owned subsidiary of the Company. Each offering of
Program Securities will be conducted in compliance with the requirements of Rule
2720 of the NASD regarding an NASD member firm's distributing the securities of
an affiliate. Following the initial distribution of any Program Securities, the
Agent may offer and sell such Program Securities (or, if separable, any other
securities comprised by any Units) in the course of its business as a
broker-dealer. The Agent may act as principal or agent in such transactions.
This Prospectus Supplement may be used by the Agent in connection with such
transactions. Such sales, if any, will be made at varying prices related to
prevailing market prices at the time of sale or otherwise. The Agent is not
obligated to make a market in any Program Securities (or any other securities
comprised by Units) and may discontinue any market-making activities at any time
without notice.

         The Agent and any dealers utilized in the sale of Program Securities
will not confirm sales to accounts over which they exercise discretionary
authority.

         Concurrently with the offering of Program Securities through the Agent
as described herein, the Company may issue other Debt Securities pursuant to the
Indentures referred to herein or Units similar to those described herein. Such
Debt Securities may include medium-term notes ("Global Medium-Term Notes, Series
D," and "Global Medium-Term Notes, Series E," collectively referred to as "Euro
Medium-Term Notes") and units ("Global Units, Series D" and "Global Units,
Series E") that may have terms substantially similar to the terms of the Program
Securities offered hereby and that may be offered concurrently with the offering
of the Program

                                      S-45






Securities, on a continuing basis outside the United States by the Company
pursuant to a distribution agreement (the "Euro Distribution Agreement") with
Morgan Stanley & Co. International Limited and certain other affiliates of the
Company, as agents for the Company, the terms of which are substantially similar
to the terms of the distribution agreement (the "U.S. Distribution Agreement")
with the Agent, except for certain selling restrictions specified in the Euro
Distribution Agreement. Any Euro Medium-Term Notes, Global Units, Series D or
Global Units, Series E sold pursuant to such Euro Distribution Agreement, and
any Debt Securities, Debt Warrants, preferred stock or other securities sold by
the Company pursuant to the Prospectus, will reduce the aggregate offering price
of Program Securities that may be offered by this Prospectus Supplement and the
Prospectus.

                                  LEGAL MATTERS

         The validity of the Notes, Units, Universal Warrants and Purchase
Contracts will be passed upon for the Company by Jonathan M. Clark, Esq.,
General Counsel and Secretary of the Company and a Managing Director of Morgan
Stanley, Ralph L. Pellecchio, Assistant Secretary and Counsel of the Company and
a Managing Director of Morgan Stanley, or other counsel who is satisfactory to
the Agent and is an officer of the Company. Mr. Clark, Mr. Pellecchio and such
other counsel beneficially own, or have rights to acquire under an employee
benefit plan of the Company, an aggregate of less than 1% of the common stock of
the Company. Certain legal matters relating to the Notes, Units, Universal
Warrants and Purchase Contracts will be passed upon for the Agent by Davis Polk
& Wardwell. Davis Polk & Wardwell has in the past represented and continues to
represent the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.
Shearman & Sterling, which is opining on the accuracy of the summary of certain
tax matters described under the caption "United States Federal Taxation,"
represents the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.

                                      S-46


                                 $6,000,000,000
                            Morgan Stanley Group Inc.
                                 DEBT SECURITIES
                                    WARRANTS
                                 PREFERRED STOCK
                               PURCHASE CONTRACTS
                                      UNITS
                           ---------------------------


         Morgan Stanley Group Inc. (the "Company") may offer and issue from time
to time its debt  securities  ("Debt  Securities")  in one or more series.  Debt
Securities may be issuable in registered  form without coupons or in bearer form
with or without coupons  attached.  The Company also may issue and sell warrants
to  purchase  Debt  Securities  ("Debt  Warrants")  or to  purchase  or sell (i)
securities  of an  entity  unaffiliated  with  the  Company,  a  basket  of such
securities,  an index or indices of such  securities or any  combination  of the
above, (ii) currencies or composite currencies or (iii) commodities  ("Universal
Warrants," and together with Debt Warrants, the "Warrants"), as set forth in the
applicable  Prospectus Supplement on terms to be determined at the time of sale.
The  Company  also may  offer and issue  from  time to time  purchase  contracts
("Purchase  Contracts")  requiring  the holders  thereof to purchase or sell (i)
securities  of an  entity  unaffiliated  with  the  Company,  a  basket  of such
securities,  an index or indices of such  securities or any  combination  of the
above,  (ii)  currencies or composite  currencies or (iii)  commodities,  as set
forth in the applicable  Prospectus  Supplement on terms to be determined at the
time of sale. The Company may satisfy its  obligations,  if any, with respect to
any  Universal  Warrants or Purchase  Contracts  by  delivering  the  underlying
securities,  currencies or commodities or, in the case of underlying  securities
or  commodities,  the  cash  value  thereof,  as set  forth  in  the  applicable
Prospectus Supplement.  Debt Securities,  Purchase Contracts and Warrants or any
combination thereof may be offered in the form of Units ("Units").
Units may be issued as Definitive Units or Book-Entry Units.

         The Company will offer Debt Securities,  Warrants,  Purchase  Contracts
and  Units  to the  public  on  terms  determined  by  market  conditions.  Debt
Securities, Warrants, Purchase Contracts and Units may be sold for U.S. dollars,
foreign denominated currency or currency units; principal of and any interest on
Debt  Securities  and cash amounts  payable with respect to Warrants or Purchase
Contracts may likewise be payable in U.S. dollars,  foreign denominated currency
or currency units -- in each case, as the Company specifically designates.

         The  Company  may also offer and issue from time to time in one or more
series its Preferred  Stock, no par value, on terms to be determined at the time
of sale. The Debt Securities,  Warrants, Purchase Contracts, Units and Preferred
Stock are hereinafter collectively referred to as the "Securities."

         The  accompanying  Prospectus  Supplement  will set forth the  specific
terms  of the  Securities,  including  (i) in the case of Debt  Securities,  the
ranking as senior or subordinated  Debt  Securities,  the specific  designation,
aggregate principal amount, purchase price, maturity, redemption terms, interest
rate (or manner of calculation  thereof),  time of payment of interest (if any),
terms for any  conversion  or  exchange  (including  the terms  relating  to the
adjustment  thereof),  listing (if any) on a  securities  exchange and any other
specific  terms of the Debt  Securities,  (ii) in the case of Warrants,  whether
such  Warrants  are Debt  Warrants  or  Universal  Warrants,  and in the case of
Universal Warrants, the (a) security, basket of securities,  index or indices of
securities,   (b)  currencies  or  composite   currencies  or  (c)  commodities,
underlying  such  Universal  Warrants and, in any case,  the exercise  price and
other specific terms of the Warrants,  (iii) in the case of Purchase  Contracts,
the (a) security,  basket of  securities,  index or indices of  securities,  (b)
currencies or composite currencies or (c) commodities,  underlying such Purchase
Contracts and other specific terms of such Purchase Contracts,  (iv) in the case
of Units, the particular  combination of Purchase  Contracts,  Warrants and Debt
Securities  comprising such Units and any other specific terms of such Units and
(v) in the  case  of a  particular  series  of  Preferred  Stock,  the  specific
designation,  the  aggregate  number of shares  offered,  the dividend  rate (or
manner of calculation  thereof),  the dividend periods (or manner of calculation
thereof),  the stated value of the shares of such series,  the voting  rights of
the shares of such  series,  whether and on what terms the shares of such series
may be  redeemed  at  the  option  of the  Company,  whether  depositary  shares
representing shares of such series of Preferred Stock will be offered and if so,
the fraction of a share of Preferred Stock represented by each depositary share,
listing (if any) on a securities  exchange and any other  specific terms of such
series of Preferred Stock being offered. The accompanying  Prospectus Supplement
will also set forth the name of and compensation to each dealer,  underwriter or
agent (if any)  involved  in the sale of the  Securities  being  offered and the
managing  underwriters  with  respect  to  any  Securities  sold  to or  through
underwriters. Any such underwriters (and any representative thereof), dealers or
agents in the United States will include Morgan Stanley & Co.  Incorporated ("MS
& Co.") and any such underwriters (and any representative  thereof),  dealers or
agents outside the United States will include Morgan Stanley & Co. International
Limited ("MSIL") or other affiliates of the Company.

                           ---------------------------


  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
       EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
      SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
          PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
              REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                           ---------------------------


Securities may be offered through  dealers,  underwriters  or agents  designated
from time to time, as set forth in the accompanying  Prospectus Supplement.  Net
proceeds to the  Company  will be the  purchase  price in the case of sales to a
dealer,  the  public  offering  price less  discount  in the case of sales to an
underwriter or the purchase  price less  commission in the case of sales through
an agent -- in each case,  less other  expenses  attributable  to  issuance  and
distribution.   See  "Plan  of   Distribution"   for  possible   indemnification
arrangements for dealers, underwriters and agents.

Following the initial distribution of a series of Securities, MS & Co., MSIL and
other affiliates of the Company, may offer and sell previously issued Securities
in the course of their  businesses as  broker-dealers  (subject,  in the case of
Preferred Stock and Depositary  Shares,  to obtaining any necessary  approval of
The New York Stock  Exchange  for any such  offers and sales by MS & Co.).  MS &
Co.,  MSIL and such other  affiliates  may act as a  principal  or agent in such
transactions.  This Prospectus and the accompanying Prospectus Supplement may be
used by MS & Co.,  MSIL  and such  other  affiliates  in  connection  with  such
transactions.  Such sales,  if any,  will be made at varying  prices  related to
prevailing market prices at the time of sale.

                           ---------------------------


                              Morgan Stanley & Co.
                                  Incorporated

January 27, 1997






         No dealer, salesman or any other person has been authorized to give any
information  or to make  any  representations  other  than  those  contained  or
incorporated  by  reference  in this  Prospectus  and,  if given  or made,  such
information or representations must not be relied upon as having been authorized
by the Company or any  underwriter,  dealer or agent.  This  Prospectus does not
constitute an offer to sell or a  solicitation  of an offer to buy Securities by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or  solicitation is not qualified to do
so or to any person to whom it is unlawful to make such offer or solicitation.

                           ---------------------------

                              AVAILABLE INFORMATION

         The  Company  is  subject  to  the  informational  requirements  of the
Securities  Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"),  and in
accordance therewith files reports and other information with the Securities and
Exchange  Commission (the  "Commission").  Reports,  proxy  statements and other
information filed by the Company with the Commission can be inspected and copied
at the public  reference  facilities  maintained by the Commission at Room 1024,
450 Fifth  Street,  N.W.,  Washington,  D.C.  20549 or at its  Regional  Offices
located at Suite  1400,  Citicorp  Center,  500 West  Madison  Street,  Chicago,
Illinois 60661 and at Seven World Trade Center,  13th Floor,  New York, New York
10048,  and copies of such  material can be obtained  from the Public  Reference
Section of the Commission,  450 Fifth Street, N.W.,  Washington,  D.C. 20549, at
prescribed rates. In addition,  the Commission maintains a Website that contains
reports,   proxy  and  other   information   regarding   registrants  that  file
electronically,  such as the Company. The address of the Commission's Website is
http:/www.sec.gov.  The Company's  Common Stock,  par value $1.00 per share (the
"Common  Stock"),  is listed on the New York Stock Exchange,  Inc. (the "NYSE"),
the Boston Stock  Exchange,  the Chicago  Stock  Exchange and the Pacific  Stock
Exchange,  Inc. Reports,  proxy statements and other information  concerning the
Company can be inspected at the offices of the NYSE, 20 Broad Street,  New York,
New  York  10005;  the  Boston  Stock  Exchange,   One  Boston  Place,   Boston,
Massachusetts  02108;  the Chicago Stock  Exchange,  440 South  LaSalle  Street,
Chicago,  Illinois 60605; and the Pacific Stock Exchange, Inc., 301 Pine Street,
San  Francisco,  California  94104 or 618  South  Spring  Street,  Los  Angeles,
California 90014.

         This Prospectus constitutes a part of a Registration Statement filed by
the Company with the  Commission  under the  Securities  Act of 1933, as amended
(the  "Securities  Act").  This  Prospectus  omits  certain  of the  information
contained  in the  Registration  Statement  in  accordance  with the  rules  and
regulations  of the  Commission.  Reference  is hereby made to the  Registration
Statement  and related  exhibits  for further  information  with  respect to the
Company  and  the  Securities.   Statements   contained  herein  concerning  the
provisions of any document are not  necessarily  complete and, in each instance,
reference  is made to the  copy of such  document  filed  as an  exhibit  to the
Registration  Statement  or  otherwise  filed  with the  Commission.  Each  such
statement is qualified in its entirety by such reference.

                           ---------------------------

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE


         The Annual  Report on Form 10-K of the  Company  for the fiscal  period
ended  November 30,  1995,  as amended,  Quarterly  Reports on Form 10-Q for the
quarters  ended February 29, 1996, May 31, 1996 and August 31, 1996, and Current
Reports on Form 8-K of the  Company  dated  January  4,  1996,  January 5, 1996,
January 23, 1996,  February 7, 1996,  February  20, 1996 (two Current  Reports),
February 23, 1996,  February 28, 1996,  March 7, 1996, March 15, 1996, March 27,
1996,  April 8, 1996, May 6, 1996, May 9, 1996, May 23, 1996, May 30, 1996, June
14, 1996,  June 24, 1996,  June 26, 1996,  July 2, 1996, July 17, 1996, July 24,
1996,  August 12,  1996,  August 23, 1996,  October 2, 1996,  December 18, 1996,
December  26, 1996 and January 7, 1997 have been filed with the  Commission  and
are incorporated herein by reference.


         All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the later of (i) the  termination  of the offering of the Securities and (ii)
the date on which MS & Co.,  MSIL and  other  affiliates  of the  Company  cease
offering  and  selling  previously  issued  Securities  shall  be  deemed  to be
incorporated  by reference in this  Prospectus  and to be a part hereof from the
date of filing of such  documents.  Any  document  incorporated  or deemed to be
incorporated by reference  herein has not been nor shall be submitted for review
under the clearance procedures of the Commission des Operations de Bourse of the
Paris  Bourse,  except  as  required  in  connection  with  the  listing  of any
Securities on the Paris Bourse.

         Any statement contained herein or in a document  incorporated or deemed
to be  incorporated  by  reference  herein  shall be  deemed to be  modified  or
superseded  for  purposes  of this  Prospectus  to the extent  that a  statement
contained herein or in any subsequently filed document that also is or is deemed
to be  incorporated  by reference  herein modifies or supersedes such statement.
Any such statement so modified or superseded  shall not be deemed,  except as so
modified or superseded, to constitute a part of this Prospectus.

         Copies of the above documents (excluding exhibits) may be obtained upon
request  without  charge from the Company,  1585  Broadway,  New York,  New York
10036, Attention: Mailroom Manager (telephone number (212) 761-4000).

                           ___________________________

         IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES, THE UNDERWRITERS
MAY  OVER-ALLOT OR EFFECT  TRANSACTIONS  WHICH  STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH SECURITIES, OTHER SECURITIES OF THE COMPANY OR ANY SECURITIES THE
PRICES OF WHICH MAY BE USED TO DETERMINE  PAYMENTS ON SUCH  SECURITIES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.  SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,  IN THE OVER-THE-COUNTER  MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.


                                        2








                                   THE COMPANY

         Morgan  Stanley  Group Inc.  is a holding  company  that,  through  its
subsidiaries, provides a wide range of financial services on a global basis. Its
businesses include securities  underwriting,  distribution and trading;  merger,
acquisition,  restructuring,  real estate,  project  finance and other corporate
finance advisory  activities;  merchant  banking and other principal  investment
activities;  brokerage and research services;  asset management;  the trading of
foreign  exchange and  commodities  as well as  derivatives  on a broad range of
asset categories,  rates and indices;  and global custody,  securities clearance
services  and  securities  lending.  These  services are provided to a large and
diversified group of clients and customers, including corporations, governments,
financial  institutions and individual investors.  The Company, which was formed
in 1935, conducts business from its head office in New York City,  international
offices  in  Beijing,  Frankfurt,  Geneva,  Hong  Kong,  Johannesburg,   London,
Luxembourg,  Madrid, Melbourne,  Milan, Montreal,  Moscow, Mumbai, Osaka, Paris,
Sao Paulo,  Seoul,  Shanghai,  Singapore,  Sydney,  Taipei,  Tokyo,  Toronto and
Zurich,  and United States regional  offices in Chicago,  Houston,  Los Angeles,
Philadelphia and San Francisco.


         Morgan Stanley & Company,  Incorporated was incorporated under the laws
of the State of New York in 1935 and was liquidated and  reconstituted as Morgan
Stanley & Co., a partnership,  in 1941. MS & Co. was incorporated under the laws
of the State of Delaware  in 1969 and over a number of years  assumed all of the
business  of  the  partnership.   Morgan  Stanley   Holdings   Incorporated  was
incorporated  under the laws of the State of  Delaware in 1975 to own all of the
stock of MS & Co. and other  related  entities,  and  changed its name to Morgan
Stanley Inc. in 1978 and to Morgan  Stanley  Group Inc. in 1985.  The  Company's
principal executive offices are at 1585 Broadway,  New York, New York 10036, and
its telephone number is (212) 761-4000.  Unless the context otherwise  requires,
the  term  "Company"  means  Morgan  Stanley  Group  Inc.  and its  consolidated
subsidiaries.


                                 USE OF PROCEEDS

         The net proceeds from the sale of the Securities offered hereby will be
used for general corporate purposes of the Company,  which may include additions
to working  capital,  the  redemption  of  outstanding  preferred  stock and the
repayment of indebtedness or for such other purposes set forth in the applicable
Prospectus  Supplement.  The Company  anticipates  that it will raise additional
funds from time to time through equity or debt financings,  including borrowings
under revolving credit agreements, to finance its businesses worldwide.



                CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
           AND EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

         The  following  table sets forth the unaudited  consolidated  ratios of
earnings to fixed  charges and  earnings to fixed  charges and  preferred  stock
dividends for the Company for the periods indicated.





                                                                        Fiscal                 Fiscal
                                             (Unaudited)             Period Ended            Year Ended               Year Ended
                                          Nine Months Ended          November 30,            January 31,             December 31,
                                   -------------------------------   ------------     -------------------------      ------------

                                     August 31,       August 31,
                                        1996             1995            1995         1995      1994       1993           1993
                                        ----             ----            ----         ----      ----       ----           ----
                                                                                                                              
                                                                                                      
Ratio of earnings                                                                                                             
         to fixed charges......         1.2               1.1             1.2         1.1        1.2       1.2            1.2 
Ratio of earnings                                                                                                             
         to fixed charges                                                                                                     
         and preferred stock                                                                                                  
         dividends.............         1.2               1.1             1.1         1.1        1.2       1.2            1.2 
                                                                                                                     



                                        3








         For the purpose of  calculating  the ratio of earnings to fixed charges
and the ratio of  earnings  to fixed  charges  and  preferred  stock  dividends,
earnings  consist of income before income taxes and fixed charges  (exclusive of
preferred stock dividends).  For the purposes of calculating both ratios,  fixed
charges  include  interest  expense,  capitalized  interest  and that portion of
rentals representative of an interest factor. Additionally,  for the purposes of
calculating  the  ratio  of  earnings  to  fixed  charges  and  preferred  stock
dividends,  preferred  stock  dividends (on a pre-tax basis) are included in the
denominator of the ratio.



                         DESCRIPTION OF DEBT SECURITIES

         The Debt Securities will constitute either senior or subordinated debt
of the Company and will be issued, in the case of Debt Securities that will be
senior debt, under a Senior Indenture dated as of April 15, 1989, as
supplemented by a First Supplemental Senior Indenture dated as of May 15, 1991
and a Second Supplemental Senior Indenture dated as of April 15, 1996 (as so
supplemented, the "Senior Debt Indenture"), between the Company and The Chase
Manhattan Bank (formerly known as Chemical Bank), as Trustee, and, in the case
of Debt Securities that will be subordinated debt, under a Subordinated
Indenture dated as of April 15, 1989, as supplemented by a First Supplemental
Subordinated Indenture dated as of May 15, 1991 and a Second Supplemental
Subordinated Indenture dated as of April 15, 1996 (as so supplemented, the
"Subordinated Debt Indenture"), between the Company and The First National Bank
of Chicago, as Trustee. The Senior Debt Indenture and Subordinated Debt
Indenture are sometimes hereinafter referred to individually as an "Indenture"
and collectively as the "Indentures." The Chase Manhattan Bank and The First
National Bank of Chicago are hereinafter referred to individually as a "Trustee"
and collectively as the "Trustees."

         The following summaries of certain provisions of the Indentures and the
Debt  Securities do not purport to be complete and such summaries are subject to
the detailed provisions of the applicable Indenture to which reference is hereby
made for a full  description  of such  provisions,  including the  definition of
certain  terms  used  herein,  and for  other  information  regarding  the  Debt
Securities.  Numerical  references in  parentheses  below are to sections in the
applicable  Indenture.  Wherever  particular  sections  or defined  terms of the
applicable  Indenture  are  referred  to,  such  sections  or defined  terms are
incorporated  herein  by  reference  as  part  of the  statement  made,  and the
statement is qualified in its entirety by such  reference.  The  Indentures  are
substantially identical, except for the provisions relating to subordination and
the Company's negative pledge. See "Subordinated Debt" and "Certain  Covenants."
The Debt Securities  offered by this Prospectus and the accompanying  Prospectus
Supplement  are referred to herein as the  "Offered  Debt  Securities."  As used
under this caption and the captions  "Description of Warrants,"  "Description of
Capital Stock,"  "Description of Purchase Contracts" and "Description of Units,"
the term "Company" means Morgan Stanley Group Inc.



General

         Neither of the Indentures limits the amount of additional  indebtedness
that the Company or any of its  subsidiaries may incur. The Debt Securities will
be unsecured  senior or  subordinated  obligations  of the Company.  Most of the
assets of the Company are owned by its  subsidiaries.  Therefore,  the Company's
rights and the rights of its creditors, including holders of Debt Securities, to
participate in the assets of any subsidiary upon such  subsidiary's  liquidation
or  recapitalization  will be subject to the prior  claims of such  subsidiary's
creditors,  except to the extent that the Company may itself be a creditor  with
recognized  claims against the  subsidiary.  In addition,  dividends,  loans and
advances from certain of the Company's subsidiaries,  including MS & Co., to the
Company are  restricted by net capital  requirements  under the Exchange Act and
under rules of certain  exchanges  and various  domestic and foreign  regulatory
bodies.

         The Indentures  provide that Debt Securities may be issued from time to
time in one or more  series  and  may be  denominated  and  payable  in  foreign
currencies  or units  based on or  relating  to  foreign  currencies,  including
European  Currency  Units  ("ECUs").  Special  United States  federal income tax
considerations applicable to any Debt Securities so denominated are described in
the relevant Prospectus Supplement.

         Reference is made to the Prospectus  Supplement for the following terms
of and  information  relating to the Offered Debt Securities (to the extent such
terms are applicable to such Debt Securities): (i) classification as senior

                                        4








or subordinated Debt Securities,  the specific designation,  aggregate principal
amount,  purchase  price and  denomination;  (ii)  currency or units based on or
relating to currencies in which such Debt Securities are  denominated  and/or in
which  principal (and premium,  if any) and/or  interest will or may be payable;
(iii) any date of maturity;  (iv) interest rate or rates (or the method by which
such rate or rates will be determined),  if any; (v) the dates on which any such
interest  will be  payable;  (vi) the place or places  where the  principal  of,
premium,  if any, and interest,  if any, on the Offered Debt  Securities will be
payable; (vii) any repayment, redemption, prepayment or sinking fund provisions;
(viii) whether the Offered Debt  Securities  will be issuable in registered form
or bearer  form  ("Bearer  Securities")  or both and, if Bearer  Securities  are
issuable,  any  restrictions  applicable to the exchange of one form for another
and to the offer,  sale and delivery of Bearer  Securities;  (ix) the terms,  if
any, on which such Debt  Securities may be converted into or exchanged for stock
or other  securities  of the  Company  or other  entities,  any  specific  terms
relating  to the  adjustment  thereof  and the  period  during  which  such Debt
Securities may be so converted or exchanged;  (x) any  applicable  United States
federal income tax consequences,  including whether and under what circumstances
the Company will pay  additional  amounts on Offered Debt  Securities  held by a
person who is not a U.S.  person (as defined in the  Prospectus  Supplement)  in
respect of any tax,  assessment or governmental charge withheld or deducted and,
if so,  whether the Company will have the option to redeem such Debt  Securities
rather than pay such  additional  amounts;  and (xi) any other specific terms of
the Offered  Debt  Securities,  including  any  additional  events of default or
covenants provided for with respect to such Debt Securities, and any terms which
may be required by or advisable under applicable laws or regulations.

         Debt  Securities  may be presented  for exchange  and  registered  Debt
Securities  may be  presented  for  transfer  in the  manner,  at the places and
subject to the  restrictions set forth in the Debt Securities and the Prospectus
Supplement. Such services will be provided without charge, other than any tax or
other governmental  charge payable in connection  therewith,  but subject to the
limitations provided in the applicable Indenture. Debt Securities in bearer form
and the coupons, if any, appertaining thereto will be transferable by delivery.

         Debt  Securities  will bear  interest  at a fixed  rate (a "Fixed  Rate
Security")  or a floating rate (a "Floating  Rate  Security").  Debt  Securities
bearing no  interest or interest at a rate that at the time of issuance is below
the  prevailing  market  rate  will be sold at a  discount  below  their  stated
principal  amount.  Special  United  States  federal  income tax  considerations
applicable to any such  discounted Debt Securities or to certain Debt Securities
issued at par which are treated as having  been issued at a discount  for United
States federal income tax purposes will be described in the relevant  Prospectus
Supplement.

         Debt  Securities may be issued,  from time to time,  with the principal
amount payable on any principal  payment date, or the amount of interest payable
on any  interest  payment  date,  to be  determined  by reference to one or more
currency exchange rates,  securities or baskets of securities,  commodity prices
or indices.  Holders of such Debt  Securities may receive a payment of principal
on any principal  payment date, or a payment of interest on any interest payment
date,  that is greater  than or less than the amount of  principal  or  interest
otherwise  payable on such dates,  depending upon the value on such dates of the
applicable  currency,  security  or basket of  securities,  commodity  or index.
Information  as to the  methods  for  determining  the  amount of  principal  or
interest  payable  on  any  date,  the  currencies,  securities  or  baskets  of
securities,  commodities  or indices to which the amount payable on such date is
linked  and  certain  additional  tax  considerations  will be set  forth in the
applicable Prospectus Supplement.



Senior Debt

         The Debt Securities and, in the case of Bearer Securities,  any coupons
appertaining  thereto (the  "Coupons"),  that will constitute part of the senior
debt of the Company will be issued under the Senior Debt Indenture and will rank
pari passu with all other unsecured and unsubordinated debt of the Company.



Subordinated Debt

         The Debt  Securities  and  Coupons  that  will  constitute  part of the
subordinated  debt of the Company  will be issued  under the  Subordinated  Debt
Indenture and will be subordinate and junior in right of payment,  to the extent
and in the manner set forth in the Subordinated  Debt Indenture,  to all "Senior
Indebtedness" of the Company. The

                                        5








Subordinated Debt Indenture defines "Senior  Indebtedness" as obligations (other
than  nonrecourse  obligations,  the  subordinated  Debt Securities or any other
obligations  specifically designated as being subordinate in right of payment to
Senior  Indebtedness)  of, or guaranteed or assumed by, the Company for borrowed
money or evidenced by bonds, debentures, notes or other similar instruments, and
amendments,  renewals,  extensions,  modifications  and  refundings  of any such
indebtedness or obligations. (Subordinated Debt Indenture, Section 1.1)

         In the event (a) of any  insolvency or bankruptcy  proceedings,  or any
receivership,  liquidation,  reorganization  or  other  similar  proceedings  in
respect of the Company or a substantial part of its property,  or (b) that (i) a
default  shall have  occurred  with  respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable on
any Senior  Indebtedness  or (ii) there shall have  occurred an event of default
(other than a default in the payment of principal, premium, if any, or interest,
or  other  monetary  amounts  due  and  payable)  with  respect  to  any  Senior
Indebtedness,  as defined  therein or in the instrument  under which the same is
outstanding, permitting the holder or holders thereof to accelerate the maturity
thereof (with notice or lapse of time, or both), and such event of default shall
have continued beyond the period of grace, if any, in respect thereof,  and such
default  or event of  default  shall not have been  cured or waived or shall not
have ceased to exist,  or (c) that the principal of and accrued  interest on the
subordinated  Debt  Securities  shall have been declared due and payable upon an
Event of Default pursuant to Section 5.1 of the Subordinated  Debt Indenture and
such declaration shall not have been rescinded and annulled as provided therein,
then the holders of all Senior  Indebtedness  shall first be entitled to receive
payment of the full amount unpaid  thereon,  or provision shall be made for such
payment in money or money's worth, before the holders of any of the subordinated
Debt  Securities  or Coupons are entitled to receive a payment on account of the
principal of (and premium, if any) or any interest on the indebtedness evidenced
by such  subordinated  Debt  Securities  or  such  Coupons.  (Subordinated  Debt
Indenture,  Section 13.1) If this  Prospectus  is being  delivered in connection
with a series of  subordinated  Debt  Securities,  the  accompanying  Prospectus
Supplement or the  information  incorporated  herein by reference will set forth
the approximate amount of Senior  Indebtedness  outstanding as of the end of the
most recent fiscal quarter.



Certain Covenants

         Negative  Pledge.  The Senior Debt Indenture  provides that the Company
and any successor  corporation  will not, and will not permit any Subsidiary (as
defined  in  such  Indenture)  to,  create,   assume,  incur  or  guarantee  any
indebtedness for borrowed money secured by a pledge,  lien or other  encumbrance
(except for certain  liens  specifically  permitted  by such  Indenture)  on the
Voting  Securities  (as  defined in such  Indenture)  of either MS & Co. or MSIL
without making effective provision whereby the Debt Securities issued under such
Indenture  will be secured  equally and ratably with such secured  indebtedness.
(Senior Debt Indenture, Section 3.6)

         Merger,  Consolidation,  Sale,  Lease  or  Conveyance.  Each  Indenture
provides  that  the  Company  will  not  merge or  consolidate  with  any  other
corporation  and will not sell,  lease or convey  all or  substantially  all its
assets to any person, unless the Company shall be the continuing corporation, or
the successor  corporation or person that acquires all or substantially  all the
assets of the Company  shall be a  corporation  organized  under the laws of the
United States or a state thereof or the District of Columbia and shall expressly
assume  all  obligations  of the  Company  under  such  Indenture  and the  Debt
Securities issued thereunder, and immediately after such merger,  consolidation,
sale,  lease  or  conveyance,   the  Company,  such  person  or  such  successor
corporation  shall not be in default in the  performance  of the  covenants  and
conditions  of such  Indenture  to be  performed  or  observed  by the  Company.
(Indentures,  Section 9.1) This covenant  would not apply to a  recapitalization
transaction,  a  change  of  control  of  the  Company  or  a  highly  leveraged
transaction  unless such  transactions  or change of control were  structured to
include  a merger  or  consolidation  or sale,  lease  or  conveyance  of all or
substantially all of the assets of the Company.

         Except as may be described in a Prospectus  Supplement  applicable to a
particular series of Debt Securities, there are no covenants or other provisions
in the  Indentures  providing for a put or increased  interest or otherwise that
would afford holders of Debt Securities  additional protection in the event of a
recapitalization  transaction,  a change of control  of the  Company or a highly
leveraged transaction.


                                        6








Events of Default

         An Event of Default is defined  under each  Indenture  with  respect to
Debt Securities of any series issued under such Indenture as being:  (a) default
in payment of any  principal of the Debt  Securities  of such series,  either at
maturity (or upon any redemption),  by declaration or otherwise; (b) default for
30 days in payment of any interest on any Debt  Securities  of such series;  (c)
default for 60 days after written notice in the observance or performance of any
other  covenant  or  agreement  in the Debt  Securities  of such  series or such
Indenture  other  than a  covenant  included  in such  Indenture  solely for the
benefit of a series of Debt  Securities  other  than such  series;  (d)  certain
events of bankruptcy,  insolvency or reorganization;  (e) failure by the Company
to make any payment at maturity,  including  any  applicable  grace  period,  in
respect  of  indebtedness,  which term as used in each of the  Indentures  means
obligations  (other than nonrecourse  obligations or the Debt Securities of such
series issued under such Indenture) of, or guaranteed or assumed by, the Company
for borrowed  money or evidenced by bonds,  debentures,  notes or other  similar
instruments   ("Indebtedness")  in  an  amount  in  excess  of  $10,000,000  and
continuance of such failure for a period of 30 days after written notice thereof
to the Company by the Trustee,  or to the Company and the Trustee by the holders
of not less than 25% in principal  amount of such  outstanding  Debt  Securities
(treated as one class) issued under such Indenture;  or (f) default with respect
to any  Indebtedness,  which default results in the acceleration of Indebtedness
in an amount in excess of  $10,000,000  without  such  Indebtedness  having been
discharged or such acceleration having been cured, waived, rescinded or annulled
for a period of 30 days  after  written  notice  thereof  to the  Company by the
Trustee,  or to the  Company and the Trustee by the holders of not less than 25%
in principal amount of such  outstanding Debt Securities  (treated as one class)
issued  under  such  Indenture;  provided,  however,  that if any such  failure,
default or  acceleration  referred  to in clause  (e) or clause (f) above  shall
cease or be cured, waived,  rescinded or annulled,  then the Event of Default by
reason  thereof  shall  be  deemed  likewise  to  have  been  thereupon   cured.
(Indentures, Section 5.1)

         Each  Indenture  provides  that (a) if an Event of  Default  due to the
default in payment of principal of, premium,  if any, or interest on, any series
of Debt  Securities  issued  under such  Indenture  or due to the default in the
performance  or  breach  of any  other  covenant  or  warranty  of  the  Company
applicable  to the Debt  Securities  of such  series but not  applicable  to all
outstanding Debt Securities  issued under such Indenture shall have occurred and
be  continuing,  either  the  Trustee  or the  holders  of not less  than 25% in
principal  amount of such Debt  Securities of each such affected series (treated
as one class) issued under such Indenture and then  outstanding may then declare
the principal of all Debt  Securities of each such affected  series and interest
accrued  thereon  to be due and  payable  immediately;  and (b) if an  Event  of
Default due to a default in the  performance  of any other of the  covenants  or
agreements in such  Indenture  applicable  to all  outstanding  Debt  Securities
issued under such  Indenture and then  outstanding  or due to certain  events of
bankruptcy,  insolvency or reorganization of the Company shall have occurred and
be  continuing,  either  the  Trustee  or the  holders  of not less  than 25% in
principal  amount of all Debt  Securities  issued under such  Indenture and then
outstanding  (treated as one class) may declare the  principal  of all such Debt
Securities and interest accrued thereon to be due and payable  immediately,  but
upon certain  conditions such declarations may be annulled and past defaults may
be waived  (except a continuing  default in payment of principal of (or premium,
if any) or  interest  on such Debt  Securities)  by the holders of a majority in
principal  amount  of the Debt  Securities  of all  such  affected  series  then
outstanding. (Indentures, Sections 5.1 and 5.10)

         Each Indenture contains a provision  entitling the Trustee,  subject to
the duty of the Trustee  during a default to act with the  required  standard of
care, to be indemnified by the holders of Debt Securities (treated as one class)
issued under such  Indenture  before  proceeding  to exercise any right or power
under such Indenture at the request of such holders.  (Indentures,  Section 6.2)
Subject to such  provisions  in each  Indenture for the  indemnification  of the
Trustee and certain  other  limitations,  the holders of a majority in principal
amount of the outstanding  Debt  Securities  (treated as one class) issued under
such  Indenture  may  direct  the  time,  method  and  place of  conducting  any
proceeding for any remedy  available to the Trustee,  or exercising any trust or
power conferred on the Trustee. (Indentures, Section 5.9)

         Each Indenture  provides that no holder of Debt Securities issued under
such Indenture may institute any action against the Company under such Indenture
(except actions for payment of overdue principal or interest) unless such holder
previously  shall  have  given to the  Trustee  written  notice of  default  and
continuance  thereof  and unless the  holders of not less than 25% in  principal
amount of the Debt  Securities  of each affected  series  (treated as one class)
issued  under such  Indenture  and then  outstanding  shall have  requested  the
Trustee to institute  such action and shall have offered the Trustee  reasonable
indemnity, the Trustee shall not have instituted such action within 60 days

                                        7








of such request and the Trustee shall not have received  direction  inconsistent
with such written  request by the holders of a majority in  principal  amount of
the Debt  Securities of each affected series (treated as one class) issued under
such Indenture and then outstanding. (Indentures, Sections 5.6 and 5.9)

         Each Indenture  contains a covenant that the Company will file annually
with the Trustee a  certificate  of no default or a certificate  specifying  any
default that exists. (Indentures, Section 3.5)



Discharge, Defeasance and Covenant Defeasance

         The Company can discharge or defease its obligations under an Indenture
as set forth below. (Indentures, Section 10.1)

         Under terms  satisfactory  to the  Trustee,  the Company may  discharge
certain  obligations  to holders of any series of Debt  Securities  issued under
such  Indenture  which  have not  already  been  delivered  to the  Trustee  for
cancellation  and which have either become due and payable or are by their terms
due and payable within one year (or scheduled for redemption within one year) by
irrevocably  depositing with the Trustee cash or, in the case of Debt Securities
payable only in U.S. dollars,  U.S.  Government  Obligations (as defined in such
Indenture),  as trust funds in an amount  certified to be  sufficient  to pay at
maturity  (or upon  redemption)  the  principal  of and  interest  on such  Debt
Securities.

         The  Company  may  also  discharge  any and all of the  obligations  to
holders of any series of Debt  Securities  issued under an Indenture at any time
("defeasance"),  but may not thereby  avoid any duty to register the transfer or
exchange of such series of Debt Securities, to replace any mutilated, destroyed,
lost,  or stolen  Debt  Securities  of such  series or to  maintain an office or
agency in respect of such series of Debt Securities. Under terms satisfactory to
the relevant  Trustee,  the Company may instead be released  with respect to any
outstanding  series of Debt Securities issued under the relevant  Indenture from
the  obligations  imposed  by  Sections  3.6 (in the  case  of the  Senior  Debt
Indenture)  and 9.1  (which  Sections  contain  the  covenants  described  above
limiting liens and consolidations,  mergers,  asset sales and leases), and elect
not to comply with such Sections without creating an Event of Default ("covenant
defeasance").  Defeasance or covenant  defeasance may be effected only if, among
other things:  (i) the Company  irrevocably  deposits with the relevant  Trustee
cash or,  in the case of Debt  Securities  payable  only in U.S.  dollars,  U.S.
Government  Obligations,  as trust funds in an amount certified to be sufficient
to pay at maturity  (or upon  redemption)  the  principal of and interest on all
outstanding Debt Securities of such series issued under such Indenture; (ii) the
Company  delivers  to the  relevant  Trustee an opinion of counsel to the effect
that the holders of such series of Debt  Securities  will not recognize  income,
gain or loss for United States  federal  income tax purposes as a result of such
defeasance or covenant  defeasance  and that  defeasance or covenant  defeasance
will not  otherwise  alter  such  holders'  United  States  federal  income  tax
treatment of principal and interest  payments on such series of Debt  Securities
(in the case of a  defeasance,  such  opinion  must be based on a ruling  of the
Internal  Revenue  Service or a change in United States  federal  income tax law
occurring after the date of such Indenture,  since such a result would not occur
under current tax law); and (iii) in the case of the Subordinated Debt Indenture
(a) no event or  condition  shall  exist that,  pursuant  to certain  provisions
described under "Subordinated Debt" above, would prevent the Company from making
payments of principal of (and premium,  if any) and interest on the subordinated
Debt Securities at the date of the irrevocable  deposit  referred to above or at
any time during the period  ending on the 91st day after such  deposit  date and
(b) the Company delivers to the Trustee for the  Subordinated  Debt Indenture an
opinion of counsel to the effect that (1) the trust funds will not be subject to
any  rights  of  holders  of  Senior  Indebtedness  and (2)  after  the 91st day
following the deposit,  the trust funds will not be subject to the effect of any
applicable  bankruptcy,  insolvency,  reorganization  or similar laws  affecting
creditors' rights generally,  except that if a court were to rule under any such
law in any case or  proceeding  that the trust  funds  remained  property of the
Company,  then the  relevant  Trustee and the holders of the  subordinated  Debt
Securities  would be entitled  to certain  rights as secured  creditors  in such
trust funds.



Modification of the Indentures

         Each Indenture provides that the Company and the Trustee may enter into
supplemental  indentures  without the consent of the holders of Debt  Securities
to: (a) secure any Debt  Securities,  (b) evidence the assumption by a successor
corporation  of the  obligations  of the  Company,  (c)  add  covenants  for the
protection of the holders of Debt

                                        8








Securities,  (d)  cure  any  ambiguity  or  correct  any  inconsistency  in such
Indenture, (e) establish the forms or terms of Debt Securities of any series and
(f) evidence the acceptance of appointment by a successor trustee.  (Indentures,
Section 8.1)

         Each Indenture also contains provisions  permitting the Company and the
Trustee,  with the  consent  of the  holders  of not  less  than a  majority  in
principal  amount of Debt  Securities of all series issued under such  Indenture
then outstanding and affected  (voting as one class),  to add any provisions to,
or change in any manner or eliminate any of the provisions of, such Indenture or
modify in any manner the rights of the  holders of the Debt  Securities  of each
series so affected;  provided that the Company and the Trustee may not,  without
the consent of the holder of each  outstanding Debt Security  affected  thereby,
(a) extend the stated maturity of the principal of any Debt Security,  or reduce
the principal amount thereof or reduce the rate or extend the time of payment of
interest thereon,  or reduce any amount payable on redemption  thereof or change
the currency in which the principal thereof  (including any amount in respect of
original issue  discount),  premium,  if any, or interest  thereon is payable or
reduce  the  amount  of  any  original  issue  discount  security  payable  upon
acceleration  or provable in  bankruptcy  or alter  certain  provisions  of such
Indenture  relating to the Debt Securities  issued thereunder not denominated in
U.S.  dollars or impair the right to institute  suit for the  enforcement of any
payment on any Debt Security when due or (b) reduce the aforesaid  percentage in
principal  amount of Debt  Securities of any series issued under such Indenture,
the  consent of the  holders  of which is  required  for any such  modification.
(Indentures, Section 8.2)

         The  Subordinated  Debt  Indenture  may not be  amended  to  alter  the
subordination  of any  outstanding  subordinated  Debt  Securities  without  the
consent of each holder of Senior  Indebtedness  then  outstanding  that would be
adversely affected thereby. (Subordinated Debt Indenture, Section 8.6)



Concerning the Trustees

         The Chase Manhattan Bank and The First National Bank of Chicago are two
of a number  of banks  with  which the  Company  and its  subsidiaries  maintain
ordinary banking  relationships  and with which the Company and its subsidiaries
maintain credit facilities.



                             DESCRIPTION OF WARRANTS

         The Company may issue,  together with Debt  Securities  or  separately,
Debt  Warrants for the purchase of Debt  Securities on terms to be determined at
the time of sale. The Company may also issue  Universal  Warrants to purchase or
sell (i) securities of an entity unaffiliated with the Company, a basket of such
securities,  an index or indices of such  securities or any  combination  of the
above, (ii) currencies or composite currencies or (iii) commodities, on terms to
be determined at the time of sale. The Company may satisfy its  obligations,  if
any,  with  respect to any  Universal  Warrants  by  delivering  the  underlying
securities,  currencies or commodities or, in the case of underlying  securities
or  commodities,  the  cash  value  thereof,  as set  forth  in  the  applicable
Prospectus  Supplement.  Warrants may be offered separately or together with one
or more  additional  Warrants,  Purchase  Contracts  or Debt  Securities  or any
combination  thereof  in the  form of  Units,  as set  forth  in the  applicable
Prospectus  Supplement.   If  Warrants  are  issued  as  part  of  a  Unit,  the
accompanying  Prospectus  Supplement  will specify  whether such Warrants may be
separated  from  the  other  Securities  in such  Unit  prior  to the  Warrants'
expiration  date. The Warrants  offered by this Prospectus and the  accompanying
Prospectus Supplement are referred to herein as the "Offered Warrants."

         The  Offered  Warrants  are to be  issued  under  one or  more  Warrant
Agreements (each, a "Warrant  Agreement") to be entered into between the Company
and a bank or trust company, as Warrant Agent (the "Warrant Agent"),  and may be
issued  in one or more  series,  all as  shall be set  forth  in the  Prospectus
Supplement relating thereto.  Reference is made to the Prospectus Supplement for
any further  description  of the terms of any Warrant  Agreement  governing  the
Offered  Warrants.  The forms of Warrant Agreement for the Warrants are filed as
exhibits to the  Registration  Statement of which this Prospectus is a part. The
following  summaries of certain  provisions of the applicable  Warrant Agreement
and the Warrants do not purport to be complete and such summaries are subject to
the detailed  provisions of such Warrant  Agreement to which reference is hereby
made for a full  description  of such  provisions,  including the  definition of
certain terms used herein, and for other information regarding the

                                        9








Warrants.  Wherever particular  provisions of the Warrant Agreement are referred
to, such  provisions are  incorporated  by reference as a part of the statements
made, and the statements are qualified in their entirety by such reference.


General

         Reference is made to the Prospectus  Supplement for the following terms
of  and  information  relating  to  the  Offered  Warrants:   (i)  the  specific
designation  and the  aggregate  number of and the  price at which  the  Offered
Warrants will be issued;  (ii) the currency or composite  currency for which the
Offered Warrants may be purchased; (iii) the date on which the right to exercise
the Offered Warrants shall commence and the date (the "Warrant Expiration Date")
on  which  such  right  shall  expire  or,  if  the  Offered  Warrants  are  not
continuously  exercisable  throughout such period, the specific date or dates on
which they will be  exercisable  (each,  a "Warrant  Exercise  Date," which term
shall also mean, with respect to Offered Warrants continuously exercisable for a
period of time,  every date  during  such  period);  (iv)  whether  the  Warrant
certificates representing the Offered Warrants (the "Warrant Certificates") will
be in registered form ("Registered Warrants") or bearer form ("Bearer Warrants")
or both; (v) whether any Offered Warrants will be issued in global or definitive
form or both; (vi) any applicable United States federal income tax consequences;
(vii) the identity of the Warrant  Agent in respect of the Offered  Warrants and
of  any  other  depositaries,  execution  or  paying  agents,  transfer  agents,
registrars or determination  or other agents;  (viii) the proposed  listing,  if
any, of the Offered Warrants or the securities purchasable upon exercise thereof
on any  securities  exchange;  (ix) whether the Offered  Warrants are to be sold
separately or with other Offered  Securities as part of Units; and (x) any other
terms of the Offered Warrants.

         Reference is made to the Prospectus  Supplement for the following terms
of and information  relating to any Offered Debt Warrants:  (i) the designation,
aggregate principal amount, currency or composite currency and terms of the Debt
Securities  that may be purchased  upon  exercise of the Offered Debt  Warrants,
(ii) if applicable,  the designation and terms of the Debt Securities with which
the Offered Debt Warrants are issued and the number of the Offered Debt Warrants
issued with each of such Debt Securities,  (iii) if applicable,  the date on and
after  which the Offered  Securities  and the related  Debt  Securities  will be
separately  transferable  and  (iv)  the  principal  amount  of Debt  Securities
purchasable  upon exercise of each Offered Debt Warrant,  the price at which and
the  currency  or  composite  currency  in which such  principal  amount of Debt
Securities may be purchased upon such exercise and the method of such exercise.

         Reference is made to the Prospectus  Supplement for the following terms
of and information relating to any Offered Universal Warrants:  (i) whether such
Offered  Universal  Warrants  are put  Warrants  or call  Warrants  (ii)(a)  the
specific  security,  basket of  securities,  index or indices of  securities  or
combination  of the above and the amount  thereof,  (b)  currencies or composite
currencies  or (c)  commodities  (and, in each case,  the amount  thereof or the
method for determining  the same)  purchasable or saleable upon exercise of each
Offered  Universal  Warrant;  (iii)  the  price at  which  and the  currency  or
composite  currency  with  which  such  underlying  securities,   currencies  or
commodities  may be  purchased  or sold upon  such  exercise  (or the  method of
determining the same);  (iv) whether such exercise price may be paid in cash, by
the exchange of any other Security offered with such Offered Universal  Warrants
or both and the method of such  exercise  and (v) whether  the  exercise of such
Offered  Universal  Warrants  is to be  settled  in cash or by  delivery  of the
underlying securities or commodities or both.

         Registered  Warrants  of each  series  will  be  evidenced  by  Warrant
Certificates  in registered  form,  which may be global  Registered  Warrants or
definitive  Registered  Warrants,  as  specified  in the  applicable  Prospectus
Supplement.  Bearer  Warrants of each series  will be  evidenced  by one or more
global Warrant  Certificates  in bearer form and, if specified in the applicable
Prospectus  Supplement,  in  definitive  form.  Bearer Debt Warrants will not be
issued in definitive form. See "Global Securities" herein.

         At the option of the holder upon  request  confirmed  in  writing,  and
subject to the terms of the applicable Warrant Agreement, Registered Warrants in
definitive  form may be presented for exchange and for  registration of transfer
(with the form of transfer  endorsed  thereon duly  executed)  at the  corporate
trust  office of the Warrant  Agent for such  series of  Warrants  (or any other
office  indicated  in the  Prospectus  Supplement  relating  to such  series  of
Warrants)  without  service  charge  and upon  payment  of any  taxes  and other
governmental  charges as described in such Warrant  Agreement.  Such transfer or
exchange  will be effected only if the Warrant Agent for such series of Warrants
is satisfied  with the  documents of title and identity of the person making the
request.


                                       10








Modifications

         Each  Warrant  Agreement  and the terms of the Warrants and the Warrant
Certificates  may be amended by the Company and the Warrant  Agent,  without the
consent of the holders,  for the purpose of curing any ambiguity,  or of curing,
correcting or supplementing  any defective or inconsistent  provision therein or
in any other manner which the Company may deem  necessary or desirable and which
will not adversely  affect the interests of the affected holders in any material
respect.

         The Company and any Warrant  Agent may also modify or amend the Warrant
Agreement between them and the terms of the Warrants issued thereunder, with the
consent  of the  owners  of not  less  than a  majority  in  number  of the then
outstanding unexercised Warrants affected, provided that no such modification or
amendment  that changes the exercise  price of the Warrants,  reduces the amount
receivable  upon exercise,  cancellation  or expiration,  shortens the period of
time during which the Warrants  may be  exercised  or otherwise  materially  and
adversely  affects  the rights of the  owners of the  Warrants  or  reduces  the
percentage of outstanding Warrants,  the consent of whose owners is required for
modification  or amendment of the applicable  Warrant  Agreement or the terms of
the Warrants  issued  thereunder,  may be made without the consent of the owners
affected thereby.



Merger, Consolidation, Sale or Other Disposition

         If at any time there shall be a merger or  consolidation of the Company
or a  transfer  of  substantially  all of its  assets,  as  permitted  under the
applicable Indentures, the successor corporation thereunder shall succeed to and
assume all  obligations  of the Company  under each  Warrant  Agreement  and the
Warrant  Certificates.  The  Company  shall  notify  the  Warrantholders  of the
occurence of any such event.  See  "Description  of Debt  Securities  -- Certain
Covenants."



Enforceability of Rights of Warrantholders; Governing Law

         The  Warrant  Agents  will act  solely  as  agents  of the  Company  in
connection with the Warrant  Certificates  and will not assume any obligation or
relationship of agency or trust for or with any holders of Warrant  Certificates
or beneficial  owners of Warrants.  Any holder of Warrant  Certificates  and any
beneficial  owner of Warrants may, without the consent of the Warrant Agent, any
other holder or beneficial owner, the relevant  Trustee,  the holder of any Debt
Securities  or other  securities  issuable  upon  exercise  of  Warrants  or, if
applicable, the common depositary for the Euroclear System currently operated by
Morgan Guaranty Trust Company of New York,  Brussels Office, or its successor as
operator of the Euroclear System  ("Euroclear") and Cedel Bank,  societe anonyme
or its successor ("Cedel Bank"), enforce by appropriate legal action, on its own
behalf,   its  right  to  exercise  the  Warrants   evidenced  by  such  Warrant
Certificates,  in the manner  provided  therein  and in the  applicable  Warrant
Agreement.  No holder of any  Warrant  Certificate  or  beneficial  owner of any
Warrants  shall  be  entitled  to any of the  rights  of a  holder  of the  Debt
Securities  or other  securities  purchasable  upon  exercise of such  Warrants,
including,  without  limitation,  the right to receive the payment of dividends,
principal of or premium, if any, or interest, if any, on such Debt Securities or
other  securities  or to enforce any of the  covenants or rights in the relevant
Indenture  or any  other  similar  agreement.  The  Warrants  and  each  Warrant
Agreement will be governed by, and construed in accordance with, the laws of the
State of New York.


Unsecured Oblications of the Company

         The Warrants are unsecured  contractual  obligations of the Company and
will rank pari passu with the Company's other unsecured contractual  obligations
and with the Company's unsecured and unsubordinated  debt. Most of the assets of
the Company are owned by its subsidiaries.  Therefore,  the Company's rights and
the rights of its  creditors,  including  Warrantholders,  to participate in the
distribution of assets of any subsidiary upon such  subsidiary's  liquidation or
recapitalization  will be  subject  to the  prior  claims  of such  subsidiary's
creditors,  except to the extent that the Company may itself be a creditor  with
recognized  claims against the  subsidiary.  In addition,

                                       11






dividends,  loans and  advances  from  certain  of the  Company's  subsidiaries,
including MS & Co., to the Company are  restricted  by net capital  requirements
under the Exchange Act and under rules of certain exchanges and various domestic
and foreign regulatory bodies.



                        DESCRIPTION OF PURCHASE CONTRACTS

         The Company may issue  Purchase  Contracts  for the purchase or sale of
(i)  securities  of an entity  unaffiliated  with the Company,  a basket of such
securities,  an index or indices of such  securities or any  combination  of the
above as specified in the applicable Prospectus  Supplement,  (ii) currencies or
composite  currencies or (iii) commodities.  Each Purchase Contract will entitle
the holder  thereof to purchase  or sell,  and  obligate  the Company to sell or
purchase,  on specified dates,  such securities,  currencies or commodities at a
specified  purchase  price,  all  as set  forth  in  the  applicable  Prospectus
Supplement.  The applicable  Prospectus Supplement will also specify the methods
by which the  holders  may  purchase  or sell  such  securities,  currencies  or
commodities  and any  acceleration,  cancellation  or termination  provisions or
other provisions relating to the settlement of a Purchase Contract.

         Purchase  Contracts may require  holders to satisfy  their  obligations
thereunder  when  such  Purchase   Contracts  are  issued  ("Pre-paid   Purchase
Contracts"). The Company's obligation to settle such Pre-paid Purchase Contracts
on  the  relevant   settlement  date  will  constitute  Senior  Indebtedness  or
subordinated  indebtedness of the Company.  Accordingly,  such Pre-paid Purchase
Contracts  will be issued under the Senior Debt  Indenture  or the  Subordinated
Debt Indenture, as specified in the applicable Prospectus Supplement.


                              DESCRIPTION OF UNITS

         As  specified  in the  applicable  Prospectus  Supplement,  Units  will
consist of one or more Purchase  Contracts,  Warrants and Debt Securities or any
combination thereof.  Reference is made to the applicable  Prospectus Supplement
for (i) all  terms of Units and of the  Purchase  Contracts,  Warrants  and Debt
Securities, or any combination thereof, comprising such Units, including whether
and under what circumstances the Securities comprising such Units may or may not
be traded  separately,  (ii) a  description  of the terms of any Unit  Agreement
governing the Units and (iii) a description  of the  provisions for the payment,
settlement, transfer or exchange of the Units.

LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER DEBT WARRANTS

         In  compliance   with  United  States   federal  income  tax  laws  and
regulations,  Bearer Securities (including Bearer Securities in global form) and
Bearer Debt Warrants will not be offered, sold, resold or delivered, directly or
indirectly,  in the United States or its possessions or to United States persons
(as defined  below),  except as otherwise  permitted by United  States  Treasury
Regulations  Section  1.163-5(c)(2)(i)(D).  Any underwriters,  agents or dealers
participating  in the offerings of Bearer  Securities  or Bearer Debt  Warrants,
directly or  indirectly,  must agree that (i) they will not, in connection  with
the original  issuance of any Bearer  Securities or during the restricted period
(as    defined    in    United    States    Treasury     Regulations     Section
1.163-5(c)(2)(i)(D)(7))  (the  "restricted  period"),  offer,  sell,  resell  or
deliver,  directly or indirectly,  any Bearer Securities in the United States or
its  possessions  or to United  States  persons  (other than as permitted by the
applicable Treasury Regulations  described above) and (ii) they will not, at any
time, offer,  sell, resell or deliver,  directly or indirectly,  any Bearer Debt
Warrants in the United States or its  possessions  or to United  States  persons
(other  than as  permitted  by the  applicable  Treasury  Regulations  described
above).  In  addition,  any such  underwriters,  agents  or  dealers  must  have
procedures  reasonably  designed to ensure that its  employees or agents who are
directly engaged in selling Bearer  Securities or Bearer Debt Warrants are aware
of the above  restrictions on the offering,  sale,  resale or delivery of Bearer
Securities or Bearer Debt  Warrants.  Moreover,  Bearer  Securities  (other than
temporary  global  Debt  Securities  and  Bearer  Securities  that  satisfy  the
requirements     of    United    States     Treasury     Regulations     Section
1.163-5(c)(2)(i)(D)(3)(iii))  and any Coupons  appertaining  thereto will not be
delivered in definitive  form, and no interest will be paid thereon,  unless the
Company  has  received  a  signed  certificate  in  writing  (or  an  electronic
certificate   described   in  United   States   Treasury   Regulations   Section
1.163-5(c)(2)(i)(D)(3)(ii))  stating that on such


                                       12






date such Bearer  Security (i) is owned by a person that is not a United  States
person,  (ii) is owned by a United States person that (a) is a foreign branch of
a United States  financial  institution  (as defined in United  States  Treasury
Regulations Section  1.165-12(c)(1)(v)) (a "financial  institution")  purchasing
for its own  account or for resale,  or (b) is  acquiring  such Bearer  Security
through a foreign branch of a United States financial  institution and who holds
the Bearer Security through such financial institution through such date (and in
either case (a) or (b) above,  each such  United  States  financial  institution
agrees,  on its own behalf or through its agent, that the Company may be advised
that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Internal Revenue Code of 1986, as amended,  and the regulations  thereunder)
or (iii) is owned by a United States or foreign  financial  institution  for the
purposes of resale during the restricted  period and, in addition,  if the owner
of such Bearer  Security  is a United  States or foreign  financial  institution
described in clause (iii) above  (whether or not also described in clause (i) or
clause  (ii)  above),  such  financial  institution  certifies  that  it has not
acquired the Bearer  Security for purposes of resale directly or indirectly to a
United States person or to a person within the United States or its possessions.
Bearer Debt Warrants will not be issued in definitive  form.  Payments on Bearer
Securities  and Bearer Debt Warrants will be made only outside the United States
and its possessions except as permitted by the above regulations.

         As used in the preceding  two  paragraphs,  the term Bearer  Securities
includes  Bearer  Securities  that are parts of Units and the term   Bearer Debt
Warrants includes Bearer Debt Warrants that are parts of Units Bearer Securities
(other than temporary global  Securities) and any Coupons  appertaining  thereto
will bear the  following  legend:  "Any  United  States  person  who holds  this
obligation will be subject to limitations under the United States federal income
tax laws,  including the limitations  provided in Sections 165(j) and 1287(a) of
the United  States  Internal  Revenue  Code." The  sections  referred to in such
legend provide that, with certain exceptions, a United States person will not be
permitted  to  deduct  any  loss,  and will not be  eligible  for  capital  gain
treatment with respect to any gain, realized on the sale, exchange or redemption
of such Bearer Security or Coupon.

         As used herein, "United States person" means, for United States federal
income tax purposes,  a citizen or resident of the United States, a corporation,
partnership  or other  entity  created or  organized in or under the laws of the
United States or any political  subdivision  thereof, or an estate the income of
which is subject to United  States  federal  income  taxation  regardless of its
source,  or a trust  if  both:  (A) a United  States  court is able to  exercise
primary  supervision over the  administration  of the trust, and (B) one or more
United  States  trustees  or  fiduciaries  have the  authority  to  control  all
substantial decisions of the trust.



                          DESCRIPTION OF CAPITAL STOCK

         As of the date of this  Prospectus,  the Company's  authorized  capital
stock consists of 600,000,000 shares of Common Stock, par value $1.00 per share,
and 30,000,000  shares of Preferred  Stock,  no par value per share  ("Preferred
Stock").  The Board of Directors of the Company has the power,  without  further
action by the  stockholders  unless  action is  required by  applicable  laws or
regulations or by the terms of outstanding  Preferred  Stock, to issue Preferred
Stock  in one  or  more  series  and to fix  the  voting  rights,  designations,
preferences and relative, participating,  optional and other special rights, and
the qualifications, limitations and restrictions applicable thereto.

         The  rights of holders  of the  Preferred  Stock  offered  hereby  (the
"Offered Preferred Stock") will be subject to, and may be adversely affected by,
the rights of holders of any  Preferred  Stock that may be issued in the future.
The Board of  Directors  may cause  shares  of  Preferred  Stock to be issued to
obtain  additional  financing,  in connection  with  acquisitions,  to officers,
directors or employees of the Company and its  subsidiaries  pursuant to benefit
plans or otherwise and for other proper corporate purposes.  Shares of Preferred
Stock issued by the Company may have the effect,  under  certain  circumstances,
alone or in combination with certain other provisions of the Company's  Restated
Certificate of  Incorporation  described  below,  of rendering more difficult or
discouraging  an acquisition  of the Company deemed  undesirable by the Board of
Directors.


         As of August 31, 1996,  there were  152,419,789  shares of Common Stock
outstanding.  On August 31, 1996, the Company also had outstanding the following
series of Preferred Stock: 3,711,165 shares of ESOP Convertible Preferred Stock,
with a  liquidation  value of $35.88  per share (the  "ESOP  Preferred  Stock"),
issued in  connection  with the Company's  Employee  Stock  Ownership  Plan (the
"ESOP"), 975,000 shares of 8.88% Cumulative Preferred Stock, with a stated value
of $200.00 per share (the "8.88% Preferred Stock"), 750,000


                                       13






shares of 8 3/4% Cumulative  Preferred Stock, with a stated value of $200.00 per
share (the "8 3/4%  Preferred  Stock"),  1,000,000  shares of 7 3/8%  Cumulative
Preferred Stock, with a stated value of $200.00 per share (the "7 3/8% Preferred
Stock") and 1,000,000 shares of 7 3/4% Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "7 3/4% Preferred Stock"). All 975,000 shares of
the 8.88% Preferred Stock were redeemed on January 3, 1997. Subsequent to August
31, 1996 the Company issued 1,725,000 shares of Series A  Fixed/Adjustable  Rate
Cumulative  Preferred  Stock,  with a stated  value of  $200.00  per share  (the
"Series A Fixed/Adjustable  Rate Preferred Stock").  The 8 3/4% Preferred Stock,
the 7 3/8%  Preferred  Stock,  the 7 3/4%  Preferred  Stock  and  the  Series  A
Fixed/Adjustable Rate Preferred Stock are collectively referred to herein as the
"Existing Cumulative  Preferred Stock". In addition,  the Company and its wholly
owned subsidiary  Morgan Stanley Finance plc currently have outstanding  Capital
Units that may result in up to 611,237 shares of the Company's 7.82%  Cumulative
Preferred Stock,  with a stated value of $200.00 per share (the "7.82% Preferred
Stock"), being issued at any time, up to 1,150,000 shares of the Company's 7.80%
Cumulative Preferred Stock, with a stated value of $200.00 per share (the "7.80%
Preferred  Stock"),  being  issued  at any  time,  up to  720,900  shares of the
Company's 9.00% Cumulative  Preferred Stock,  with a stated value of $200.00 per
share (the "9.00%  Preferred  Stock"),  being issued at any time,  up to 996,775
shares of the Company's 8.40% Cumulative Preferred Stock, with a stated value of
$200.00 per share (the "8.40% Preferred Stock"), being issued at any time, up to
847,500 shares of the Company's 8.20% Cumulative  Preferred Stock, with a stated
value of $200.00 per share (the "8.20%  Preferred  Stock"),  being issued at any
time and up to 670,000 shares of the Company's 8.03% Cumulative Preferred Stock,
with a stated value of $200.00 per share (the "8.03%  Preferred  Stock"),  being
issued at any time on or after February 28, 1998. The following summary does not
purport to be complete and is qualified by the Company's Restated Certificate of
Incorporation,  by a Certificate of Designation of Preferences and Rights of the
ESOP Preferred  Stock, by a Certificate of Designation of Preferences and Rights
for each of the 7.82%  Preferred  Stock,  the 7.80% Preferred  Stock,  the 9.00%
Preferred  Stock,  the 8.40% Preferred  Stock, the 8.20% Preferred Stock and the
8.03%  Preferred  Stock and by a Certificate of  Designation of Preferences  and
Rights of each series of Existing Cumulative Preferred Stock.

Offered Preferred Stock

         The Board of  Directors of the Company has  authorized  the issuance in
series of additional shares of Preferred Stock and has authorized a committee of
the Board of Directors (the  "Committee") to establish and designate  series and
to fix the number of shares and the relative rights, preferences and limitations
of the respective  series of the Offered  Preferred Stock (except for the voting
rights of the Offered Preferred Stock, which will be established by the Board of
Directors). The shares of Offered Preferred Stock, when issued and sold, will be
fully paid and nonassessable.

         The following  description of the terms of the Offered  Preferred Stock
sets forth certain  general terms and provisions of the Offered  Preferred Stock
to which a Prospectus  Supplement  relates.  The number of shares and all of the
terms and conditions of the relative rights,  preferences and limitations of the
respective  series of Offered  Preferred  Stock as  established  by the Board of
Directors  or the  Committee  will be set  forth  in the  Prospectus  Supplement
accompanying  this  Prospectus  relating  to the  particular  series of  Offered
Preferred Stock being offered thereby. The terms of particular series of Offered
Preferred Stock may differ, among other things, in (i) the number of shares that
constitute  such series,  (ii) the dividend  rate (or the method of  calculation
thereof) on the shares of such series, (iii) the dividend periods (or the method
of calculation thereof), (iv) the stated value of the shares of such series, (v)
the voting rights of the shares of such series,  (vi) the preferences and rights
of the shares of such series upon any  liquidation or winding-up of the Company,
(vii) whether or not and on what terms the shares of such series will be subject
to redemption at the option of the Company,  (viii)  whether  depositary  shares
representing  shares of such series of Offered  Preferred  Stock will be offered
and,  if so,  the  fraction  or  multiple  of a share of such  series of Offered
Preferred Stock  represented by each depositary  share and (ix) the other rights
and  privileges and any  qualifications,  limitations  or  restrictions  of such
rights or privileges of such series.

         As described under  "Depositary  Shares" below, the Company may, at its
option,  elect to offer depositary shares (the "Depositary Shares") evidenced by
depositary receipts, each representing a fraction or a multiple (to be specified
in the  Prospectus  Supplement  relating  to the  particular  series of  Offered
Preferred Stock) of a share of the particular  series of Offered Preferred Stock
issued and deposited with a depositary, in lieu of offering individual shares of
such series of Offered Preferred Stock.

                                       14






         The following statements are brief summaries of certain provisions that
will be contained in the Certificate of Designation  authorizing the issuance of
a series of Offered  Preferred  Stock,  do not  purport to be  complete  and are
qualified in their entirety by reference to such Certificate of Designation, the
form of which has been  filed as an  exhibit to the  Registration  Statement  of
which this  Prospectus is a part, and by the Company's  Restated  Certificate of
Incorporation. The resolutions to be set forth in the Certificate of Designation
will be adopted by the Board of Directors or the Committee prior to the issuance
of a series of Offered  Preferred  Stock  (except  for the voting  rights of the
Offered  Preferred Stock,  which will be established by the Board of Directors),
and such Certificate of Designation will be filed with the Secretary of State of
the State of Delaware as soon thereafter as reasonably practicable. In the event
the Company elects to issue Depositary Shares, each representing a fraction or a
multiple of a share of a particular series of Offered  Preferred Stock,  subject
to the terms of the Deposit  Agreement (as defined below),  each such Depositary
Share will be entitled,  in proportion to the applicable fraction or multiple of
a share of Offered  Preferred Stock represented by such Depositary Share, to all
the rights and preferences of the Offered  Preferred Stock  represented  thereby
(including dividend, voting, redemption and liquidation rights). See "Depositary
Shares" below. The following statements concerning Depositary Shares, Depositary
Receipts  (as  defined  below) and the  Deposit  Agreement  do not purport to be
complete and are  qualified in their  entirety by reference to the forms of such
documents,  which have been filed as exhibits to the  Registration  Statement of
which this Prospectus is a part.


         Rank. Each series of Offered Preferred Stock will rank, with respect to
voting  powers,  preferences  or  relative,  participating,  optional  and other
special rights and the  qualifications,  limitations and  restrictions  thereof,
including  with  respect to the payment of  dividends  and the  distribution  of
assets,  whether upon liquidation or otherwise,  junior to any series of capital
stock of the Company expressly stated to be senior to such series of the Offered
Preferred  Stock,  senior to any class of capital stock  expressly  stated to be
junior to such series of the Offered  Preferred Stock, and on a parity with each
other series of Offered  Preferred  Stock and all other classes of capital stock
of the  Company.  The  Offered  Preferred  Stock  will  rank,  as to  payment of
dividends  and amounts  payable on  liquidation,  prior to the Common Stock (see
"Common Stock" below) and on a parity with the ESOP Preferred Stock, each series
of the Existing  Cumulative  Preferred Stock and, if issued, the 7.82% Preferred
Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40% Preferred
Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock.


         Dividends.  Holders of shares of the  Offered  Preferred  Stock will be
entitled to  receive,  when and as  declared  by the Board of  Directors  or the
Committee out of funds legally available for payment,  cumulative cash dividends
at an annual rate set forth in, or determined  or calculated in accordance  with
the  method or  formula  set forth in, and on the  dates,  for the  periods  and
otherwise in the manner set forth in, the  Prospectus  Supplement.  Dividends on
the Offered  Preferred Stock will be payable to holders of record as they appear
on the stock books of the Company on such  record  dates,  not more than 60 days
nor less than 10 days preceding the payment dates thereof,  as shall be fixed by
the Board of Directors or the Committee.  Dividends will be cumulative  from the
date of  original  issue of such  series.  The Offered  Preferred  Stock will be
junior as to dividends to any  Preferred  Stock that may be issued in the future
that is expressly  senior as to dividends to the Offered  Preferred Stock. If at
any time the  Company  has failed to pay  accrued  dividends  on any such senior
shares at the time such  dividends  are  payable,  the  Company  may not pay any
dividend  on any  series of  Offered  Preferred  Stock or  redeem  or  otherwise
repurchase  any  shares of any  series of  Offered  Preferred  Stock  until such
accumulated  but unpaid  dividends on such senior  shares have been paid (or set
aside for payment) in full by the Company.

         No  dividends  may be  declared or paid or set apart for payment on any
Preferred  Stock ranking on a parity as to dividends with the Offered  Preferred
Stock unless there shall also be or have been declared and paid or set apart for
payment on the outstanding  shares of Offered  Preferred Stock dividends for all
dividend payment periods of each series of the Offered Preferred Stock ending on
or before the dividend payment date of such parity stock,  ratably in proportion
to the respective  amounts of dividends (i) accumulated and unpaid or payable on
such parity stock,  on the one hand, and (ii)  accumulated and unpaid or payable
through  the  dividend  payment  period or periods of each series of the Offered
Preferred Stock next preceding such dividend payment date, on the other hand.

         Except as set forth  above,  unless full  cumulative  dividends  on the
outstanding  shares of Offered Preferred Stock have been paid,  dividends (other
than in Common  Stock) may not be paid or declared and set aside for payment and
other  distributions  may not be made  upon the  Common  Stock  or on any  other
Preferred Stock of the Company ranking junior to or on a parity with the Offered
Preferred Stock as to dividends (which parity Preferred


                                       15






Stock currently  includes the ESOP Preferred  Stock and the Existing  Cumulative
Preferred  Stock and, if issued,  would include the 7.82% Preferred  Stock,  the
7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40% Preferred Stock, the
8.20% Preferred Stock and the 8.03% Preferred  Stock),  nor may any Common Stock
or such other Preferred Stock of the Company be redeemed, purchased or otherwise
acquired  by the  Company  for any  consideration  or any  payment be made to or
available  for a sinking  fund for the  redemption  of any shares of such stock;
provided,  however,  that any monies  theretofore  deposited in any sinking fund
with respect to any Preferred  Stock in compliance  with the  provisions of such
sinking fund may  thereafter  be applied to the purchase or  redemption  of such
Preferred Stock in accordance with the terms of such sinking fund, regardless of
whether at the time of such application full cumulative dividends upon shares of
the Offered  Preferred Stock  outstanding on the last dividend  payment date for
any series of Offered  Preferred  Stock shall have been paid or declared and set
apart for payment; and provided further that any such junior or parity Preferred
Stock or  Common  Stock  may be  converted  into or  exchanged  for stock of the
Company ranking junior to the Offered Preferred Stock as to dividends.

         The amount of dividends  payable for the initial dividend period or any
period  shorter than a full dividend  period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.

         The ability of the Company,  as a holding company,  to pay dividends on
the Offered  Preferred  Stock will be dependent upon,  among other factors,  the
Company's  earnings,  financial condition and cash requirements at the time such
payment is  considered,  and the payment to it of  dividends  or  principal  and
interest  by,  or the  availability  of  other  funds  from,  its  subsidiaries.
Dividends, loans and advances from certain subsidiaries,  including MS & Co., to
the Company are  restricted by net capital  requirements  under the Exchange Act
and under rules of certain exchanges and various domestic and foreign regulatory
bodies.  Such  restrictions  could  limit  the  ability  of the  Company  to pay
dividends to its stockholders.

         Liquidation  Rights.  In the event of any  liquidation,  dissolution or
winding up of the Company, the holders of shares of Offered Preferred Stock will
be  entitled  to  receive  out  of  the  assets  of the  Company  available  for
distribution to stockholders,  before any distribution is made to holders of (i)
any other  shares of Preferred  Stock  ranking  junior to the Offered  Preferred
Stock as to rights  upon  liquidation,  dissolution  or  winding  up that may be
issued in the  future or (ii)  Common  Stock,  liquidating  distributions  in an
amount equal to the stated  value per share of each series of Offered  Preferred
Stock, as set forth in the applicable  Prospectus  Supplement,  plus accrued and
accumulated  but unpaid  dividends  to the date of final  distribution;  but the
holders of the shares of Offered Preferred Stock will not be entitled to receive
the  liquidation  price of such shares until the  liquidation  preference of any
other  shares of the  Company's  capital  stock  ranking  senior to the  Offered
Preferred Stock as to rights upon  liquidation,  dissolution or winding up shall
have been paid (or a sum set aside  therefor  sufficient to provide for payment)
in full. If upon any liquidation,  dissolution or winding up of the Company, the
amounts  payable  with  respect  to the  Offered  Preferred  Stock and any other
Preferred Stock ranking as to rights upon liquidation, dissolution or winding up
on a parity with the Offered  Preferred  Stock are not paid in full, the holders
of the  Offered  Preferred  Stock and of such other  Preferred  Stock will share
ratably  in  any  such   distribution  in  proportion  to  the  full  respective
preferential  amounts  to which  they are  entitled.  After  payment of the full
amount of the liquidating  distribution to which they are entitled,  the holders
of the Offered Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company.  Neither a consolidation or merger
of the  Company  with  or into  another  corporation  nor a  merger  of  another
corporation  with or into the  Company  nor a sale or transfer of all or part of
the Company's  assets for cash or securities  shall be considered a liquidation,
dissolution or winding up of the Company.

         Because the Company is a holding company,  its rights and the rights of
its  creditors  and its  stockholders,  including  the  holders of the shares of
Offered Preferred Stock, to participate in the assets of any subsidiary upon the
latter's  liquidation or recapitalization  may be subject to the prior claims of
the subsidiary's creditors,  except to the extent that the Company may itself be
a creditor with recognized claims against the subsidiary.

         Optional Redemption.  The Prospectus  Supplement will indicate whether,
and if so on what terms,  shares of a series of the Offered Preferred Stock will
be subject to any mandatory redemption or sinking fund provision. The Prospectus
Supplement will also indicate  whether,  and if so on what terms  (including the
date on or after which redemption may occur),  shares of a series of the Offered
Preferred Stock will be redeemable.  Any such redemption  would be effected upon
not less than 30 days' notice at a redemption  price of not less than the stated
value per share of the applicable series of Offered Preferred Stock plus accrued
and  accumulated  but  unpaid  dividends  to but


                                       16






excluding the date fixed for  redemption.  If full  cumulative  dividends on all
outstanding  shares of Offered  Preferred Stock have not been paid, no shares of
Offered Preferred Stock may be redeemed in part and the Company may not purchase
or acquire any shares of Offered  Preferred  Stock  otherwise than pursuant to a
purchase or exchange  offer made on the same terms to all holders of the Offered
Preferred Stock. If fewer than all the outstanding shares of a series of Offered
Preferred Stock are to be redeemed, the Company will select those to be redeemed
by lot or a substantially equivalent method.

         Voting Rights. Unless otherwise determined by the Board of Directors of
the Company and indicated in the Prospectus  Supplement,  holders of the Offered
Preferred  Stock will not have any voting rights except as set forth below or as
otherwise from time to time required by law. Whenever dividends on any shares of
Offered  Preferred  Stock or any other  class or series  of stock  ranking  on a
parity with the Offered Preferred Stock with respect to the payment of dividends
shall be in arrears for dividend periods, whether or not consecutive, containing
in the  aggregate a number of days  equivalent  to six  calendar  quarters,  the
holders of shares of each series of Offered  Preferred Stock (voting  separately
as a class with all other  series of  Preferred  Stock  (including  the Existing
Cumulative  Preferred  Stock) upon which like voting rights have been  conferred
and are  exercisable)  will be entitled  to vote for the  election of two of the
authorized  number of  directors  of the Company at the next  annual  meeting of
stockholders and at each subsequent  meeting until all dividends  accumulated on
such  series of  Offered  Preferred  Stock have been fully paid or set apart for
payment. The term of office of all directors elected by the holders of Preferred
Stock  shall  terminate  immediately  upon the  termination  of the right of the
holders of Preferred  Stock to vote for directors.  Each holder of shares of the
Offered  Preferred Stock will have one vote for each share of Offered  Preferred
Stock held.

         So  long  as  any  shares  of  the  Offered   Preferred   Stock  remain
outstanding,  the  Company  shall not,  without the consent of the holders of at
least  two-thirds of the shares of Offered  Preferred  Stock  outstanding at the
time,  voting  separately  as a class with all other series of  Preferred  Stock
(including the Existing  Cumulative  Preferred  Stock and, if issued,  the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred  Stock,  the 8.20% Preferred Stock and the 8.03% Preferred Stock) upon
which like voting rights have been conferred and are  exercisable,  (i) issue or
increase the authorized  amount of any class or series of stock ranking prior to
the outstanding  Offered  Preferred Stock as to dividends or upon liquidation or
(ii) amend, alter or repeal the provisions of the Company's Restated Certificate
of  Incorporation  or  of  the  resolutions  contained  in  the  Certificate  of
Designation,  whether by merger, consolidation or otherwise, so as to materially
and adversely  affect any power,  preference or special right of the outstanding
Offered  Preferred Stock or the holders  thereof;  provided,  however,  that any
increase in the amount of the  authorized  Common Stock or authorized  Preferred
Stock or the  creation and issuance of other series of Common Stock or Preferred
Stock  ranking on a parity with or junior to the Offered  Preferred  Stock as to
dividends and upon  liquidation  shall not be deemed to materially and adversely
affect such powers, preferences or special rights.


         The transfer agent,  dividend  disbursing  agent and registrar for each
series of Offered Preferred Stock will be The Bank of New York.



Depositary Shares

         General.  The Company  may, at its  option,  elect to offer  fractional
shares or some  multiple  of shares of  Offered  Preferred  Stock,  rather  than
individual  shares of  Offered  Preferred  Stock.  In the event  such  option is
exercised,  the Company will issue receipts for Depositary Shares, each of which
will  represent  a  fraction  or a multiple  (to be set forth in the  Prospectus
Supplement  relating to a  particular  series of Offered  Preferred  Stock) of a
share of a particular series of Offered Preferred Stock as described below.

         The shares of any  series of Offered  Preferred  Stock  represented  by
Depositary  Shares will be deposited  under a Deposit  Agreement  (the  "Deposit
Agreement")  among  the  Company,  The  Bank of New  York,  as  depositary  (the
"Preferred Stock  Depositary"),  and the holders from time to time of depositary
receipts issued thereunder.  Subject to the terms of the Deposit Agreement, each
holder of a Depositary  Share will be entitled,  in proportion to the applicable
fraction or multiple of a share of Offered  Preferred Stock  represented by such
Depositary  Share,  to all the rights and  preferences of the Offered  Preferred
Stock represented thereby (including dividend, voting and liquidation rights).


                                       17






         The Depositary  Shares will be evidenced by depositary  receipts issued
pursuant to the Deposit Agreement ("Depositary  Receipts").  Depositary Receipts
will be  distributed  to those  persons  purchasing  the  fractional or multiple
shares of the related series of Offered Preferred Stock.  Copies of the forms of
Deposit  Agreement  and  Depositary   Receipt  are  filed  as  exhibits  to  the
Registration  Statement of which this  Prospectus  is a part,  and the following
summary is qualified in its entirety by reference to such exhibits.  Immediately
following the issuance of shares of a series of Offered  Preferred  Stock by the
Company,  the  Company  will  deposit  such  shares  with  the  Preferred  Stock
Depositary,  which will then issue and  deliver the  Depositary  Receipts to the
purchasers  thereof.  Depositary  Receipts will only be issued  evidencing whole
Depositary  Shares.  A  Depositary  Receipt  may  evidence  any  number of whole
Depositary Shares.

         Pending the preparation of definitive engraved Depositary Receipts, the
Preferred  Stock  Depositary  may, upon the written order of the Company,  issue
temporary  Depositary  Receipts  substantially  identical to (and  entitling the
holders  thereof  to all the rights  pertaining  to) the  definitive  Depositary
Receipts but not in  definitive  form.  Definitive  Depositary  Receipts will be
prepared thereafter without  unreasonable  delay, and such temporary  Depositary
Receipts  will  be  exchangeable  for  definitive  Depositary  Receipts  at  the
Company's expense.

         Dividends and Other Distributions.  The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect of
the  related  series  of  Offered  Preferred  Stock  to the  record  holders  of
Depositary  Shares  relating  to such  series  of  Offered  Preferred  Stock  in
proportion to the number of such Depositary Shares owned by such holders.

         In the event of a distribution  other than in cash, the Preferred Stock
Depositary  will  distribute  property  received by it to the record  holders of
Depositary  Shares  entitled  thereto in  proportion to the number of Depositary
Shares owned by such holders,  unless the Preferred Stock Depositary  determines
that such distribution cannot be made proportionately among such holders or that
it is not feasible to make such distribution,  in which case the Preferred Stock
Depositary  may,  with the  approval  of the  Company,  sell such  property  and
distribute  the net proceeds from such sale to such holders in proportion to the
number of Depositary Shares owned by such holders.

         The amount distributed in any of the foregoing cases will be reduced by
any  amounts  required to be  withheld  by the  Company or the  Preferred  Stock
Depositary on account of taxes or other governmental charges.

         Withdrawal of Stock.  Upon surrender of the Depositary  Receipts at the
corporate trust office of the Preferred Stock Depositary and upon payment of the
taxes, charges and fees provided for in the Deposit Agreement and subject to the
terms thereof, the holder of the Depositary Shares evidenced thereby is entitled
to delivery at such office,  to or upon his or her order, of the number of whole
shares of the related series of Offered  Preferred  Stock and any money or other
property,  if any, represented by such Depositary Shares.  Holders of Depositary
Shares will be entitled to receive whole shares of the related series of Offered
Preferred  Stock,  but holders of such whole shares of Offered  Preferred  Stock
will not  thereafter  be  entitled to deposit  such shares of Offered  Preferred
Stock  with the  Preferred  Stock  Depositary  or to receive  Depositary  Shares
therefor.  If the Depositary  Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary  Shares  representing
the number of whole shares of the related series of Offered  Preferred  Stock to
be withdrawn,  the Preferred Stock  Depositary  will deliver to such holder,  or
upon his or her order, at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.

         Voting  the  Offered  Preferred  Stock.  Upon  receipt of notice of any
meeting at which the  holders of any series of the Offered  Preferred  Stock are
entitled to vote,  the  Preferred  Stock  Depositary  will mail the  information
contained  in such  notice of meeting to the  record  holders of the  Depositary
Shares relating to such series of Offered Preferred Stock. Each record holder of
such  Depositary  Shares on the record  date (which will be the same date as the
record date for the related series of Offered  Preferred Stock) will be entitled
to instruct  the  Preferred  Stock  Depositary  as to the exercise of the voting
rights  pertaining  to the number of shares of the  series of Offered  Preferred
Stock  represented  by such holder's  Depositary  Shares.  The  Preferred  Stock
Depositary will endeavor,  insofar as practicable,  to vote or cause to be voted
the  number  of  shares  of the  Offered  Preferred  Stock  represented  by such
Depositary Shares in accordance with such  instructions,  provided the Preferred
Stock  Depositary  receives such  instructions  sufficiently  in advance of such
meeting  to  enable it to so vote or cause to be voted  the  shares  of  Offered
Preferred Stock,  and the Company will agree to take all reasonable  action that
may be deemed necessary by the Preferred Stock Depositary in order to enable the
Preferred Stock Depositary to do so. The Preferred Stock


                                       18






Depositary will abstain from voting shares of the Offered Preferred Stock to the
extent it does not receive specific  instructions from the holders of Depositary
Shares representing such Offered Preferred Stock.

         Redemption of Depositary  Shares.  If a series of the Offered Preferred
Stock underlying the Depositary Shares is subject to redemption,  the Depositary
Shares will be  redeemed  from the  proceeds  received  by the  Preferred  Stock
Depositary resulting from any redemption, in whole or in part, of such series of
the  Offered  Preferred  Stock  held  by the  Preferred  Stock  Depositary.  The
redemption price per Depositary  Share will be equal to the applicable  fraction
or multiple  of the  redemption  price per share  payable  with  respect to such
series of the Offered Preferred Stock. If the Company redeems shares of a series
of Offered Preferred Stock held by the Preferred Stock Depositary, the Preferred
Stock  Depositary  will  redeem  as of the same  redemption  date the  number of
Depositary  Shares  representing  the  shares  of  Offered  Preferred  Stock  so
redeemed.  If less  than  all the  Depositary  Shares  are to be  redeemed,  the
Depositary  Shares  to be  redeemed  will be  selected  by lot or  substantially
equivalent method determined by the Preferred Stock Depositary.

         After the date fixed for  redemption,  the Depositary  Shares so called
for redemption  will no longer be deemed to be outstanding and all rights of the
holders of the  Depositary  Shares will  cease,  except the right to receive the
moneys payable upon such redemption and any money or other property to which the
holders of such  Depositary  Shares were  entitled  upon such  redemption,  upon
surrender  to  the  Preferred  Stock  Depositary  of  the  Depositary   Receipts
evidencing such Depositary  Shares.  Any funds deposited by the Company with the
Preferred  Stock  Depositary for any Depositary  Shares that the holders thereof
fail to redeem will be returned to the Company  after a period of two years from
the date such funds are so deposited.

         Amendment  and  Termination  of the  Deposit  Agreement.  The  form  of
Depositary  Receipt  evidencing the  Depositary  Shares and any provision of the
Deposit  Agreement may at any time and from time to time be amended by agreement
between the Company and the Preferred Stock Depositary.  However,  any amendment
that  materially  and  adversely  alters the rights of the holders of Depositary
Shares will not be  effective  unless such  amendment  has been  approved by the
holders  of at least a  majority  of the  Depositary  Shares  then  outstanding.
Notwithstanding the foregoing, in no event may any amendment impair the right of
any holder of any Depositary Shares,  upon surrender of the Depositary  Receipts
evidencing such Depositary Shares and subject to any conditions specified in the
Deposit Agreement,  to receive shares of the related series of Offered Preferred
Stock and any money or other property  represented  thereby,  except in order to
comply with mandatory provisions of applicable law. The Deposit Agreement may be
terminated  by the Company at any time upon not less than 60 days' prior written
notice to the  Depositary,  in which  case,  on a date that is not later than 30
days after the date of such notice, the Preferred Stock Depositary shall deliver
or make available for delivery to holders of Depositary  Shares,  upon surrender
of the Depositary  Receipts  evidencing such Depositary  Shares,  such number of
whole or fractional  shares of the related series of Offered  Preferred Stock as
are  represented  by  such  Depositary   Shares.  The  Deposit  Agreement  shall
automatically  terminate after there has been a final distribution in respect of
the  related  series  of  Offered   Preferred   Stock  in  connection  with  any
liquidation,  dissolution or winding up of the Company and such distribution has
been distributed to the holders of Depositary Shares.

         Charges  of  Preferred  Stock  Depositary.  The  Company  will  pay all
transfer  and other  taxes and  governmental  charges  arising  solely  from the
existence of the  depositary  arrangements.  The Company will pay charges of the
Preferred  Stock  Depositary,  including  charges in connection with the initial
deposit  of the  related  series of  Offered  Preferred  Stock  and the  initial
issuance of the Depositary  Shares and all  withdrawals of shares of the related
series of Offered Preferred Stock, except that holders of Depositary Shares will
pay other  transfer  and other  taxes and  governmental  charges  and such other
charges as are  expressly  provided  in the  Deposit  Agreement  to be for their
accounts.

         Miscellaneous.  The  Preferred  Stock  Depositary  will  forward to the
holders of  Depositary  Shares all reports and  communications  from the Company
that are delivered to the Preferred  Stock  Depositary  and which the Company is
required to furnish to the holders of the Offered Preferred Stock.

         Neither the Preferred  Stock  Depositary nor the Company will be liable
if it is prevented or delayed by law or any  circumstance  beyond its control in
performing its obligations under the Deposit  Agreement.  The obligations of the
Company and the Preferred Stock Depositary  under the Deposit  Agreement will be
limited to  performance  with best  judgment  and in good faith of their  duties
thereunder, except that they are liable for negligence and willful misconduct in
the  performance of their duties  thereunder,  and they will not be obligated to
appear in, prosecute or


                                       19




defend any legal  proceeding in respect of any Depositary  Receipts,  Depositary
Shares or series of Offered  Preferred  Stock unless  satisfactory  indemnity is
furnished.  The Preferred Stock Depositary and the Company may rely on advice of
legal counsel or accountants of their choice, or information provided by persons
presenting Offered Preferred Stock for deposit,  holders of Depositary Shares or
other persons  believed in good faith to be competent and on documents  believed
to be genuine.

         The Preferred  Stock  Depositary's  corporate trust office is currently
located at 101 Barclay  Street,  New York, New York 10286.  The Preferred  Stock
Depositary will act as transfer agent and registrar for Depositary  Receipts and
if shares of a series of Offered  Preferred Stock are redeemable,  the Preferred
Stock Depositary will act as redemption agent for the  corresponding  Depositary
Receipts.

         Resignation  and Removal of Preferred Stock  Depositary.  The Preferred
Stock  Depositary  may resign at any time by delivering  to the Company  written
notice of its  election  to do so, and the  Company  may at any time  remove the
Preferred Stock Depositary,  any such resignation or removal to take effect upon
the  appointment of a successor  Preferred  Stock  Depositary,  which  successor
Preferred Stock  Depositary  must be appointed  within 60 days after delivery of
the notice of  resignation or removal and must be a bank or trust company having
its  principal  office in the United  States and having a combined  capital  and
surplus of at least $50,000,000.



Common Stock

         Each  holder of Common  Stock is entitled to one vote per share for the
election of directors  and for all other matters to be voted on by the Company's
stockholders.  Except as  otherwise  provided  by law,  the holders of shares of
Common Stock vote as one class,  together with the ESOP Preferred  Stock and any
other class or series of stock conferred with general class voting rights by the
Company's Restated Certificate of Incorporation. Holders of Common Stock may not
cumulate their votes in the election of directors,  which means that the holders
of Common Stock,  together  with the holders of ESOP  Preferred  Stock,  who are
entitled to exercise  more than 50% of the voting  rights  generally are able to
elect all of the  directors  to be elected at each annual  meeting and to cast a
sufficient  number of votes to control the  affairs of the Company  subject to a
vote of  stockholders.  As of  February  7,  1996,  certain  current  and former
Managing  Directors  and  Principals  of  MS &  Co.  owned,  in  the  aggregate,
47,650,342  shares of Common Stock subject to voting  restrictions  contained in
certain  agreements  (the  "Voting  Agreements").  As of such date,  such shares
constituted  approximately  29% of the votes that are entitled to be cast by the
Common  Stock  and  ESOP  Preferred  Stock  at  any  meeting  of  the  Company's
stockholders.

         The holders of the Common Stock are  entitled to share  equally in such
dividends  as may be declared  by the Board of  Directors  out of funds  legally
available  therefor,  but only after payment of dividends required to be paid on
outstanding  shares of Offered Preferred Stock,  ESOP Preferred Stock,  Existing
Cumulative  Preferred  Stock  and any  other  class or  series  of stock  having
preference  over the Common Stock as to  dividends,  including,  if issued,  the
7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the
8.40% Preferred  Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock.
The ability of the Company, as a holding company, to pay dividends on its Common
Stock will be dependent  upon,  among other  factors,  the  Company's  earnings,
financial   condition  and  cash  requirements  at  the  time  such  payment  is
considered,  and payment to it of dividends or principal and interest by, or the
availability  of other  funds  from,  its  subsidiaries.  Dividends,  loans  and
advances  from  certain  subsidiaries,  including  MS & Co.,  to the Company are
restricted by net capital requirements under the Exchange Act and under rules of
certain  exchanges  and various  domestic and foreign  regulatory  bodies.  Such
restrictions  could  limit the ability of the  Company to pay  dividends  to its
stockholders.

         Upon voluntary or involuntary liquidation, dissolution or winding up of
the  Company,  the  holders  of the  Common  Stock  share pro rata in the assets
remaining  after  payments to creditors and provision for the  preference of any
Offered Preferred Stock,  ESOP Preferred Stock,  Existing  Cumulative  Preferred
Stock and any other class or series of stock having  preference  over the Common
Stock upon liquidation,  dissolution or winding up that may be then outstanding,
including,  if issued, the 7.82% Preferred Stock, the 7.80% Preferred Stock, the
9.00% Preferred  Stock, the 8.40% Preferred Stock, the 8.20% Preferred Stock and
the 8.03% Preferred Stock. There are no preemptive or other subscription rights,
conversion  rights or  redemption  or sinking  fund  provisions  with respect to
shares of Common Stock.

         All of the  outstanding  shares  of Common  Stock  are  fully  paid and
nonassessable.


                                       20






         The transfer  agent and registrar for the Common Stock is First Chicago
Trust Company of New York.

ESOP Convertible Preferred Stock

         The ESOP  Preferred  Stock is senior to the Company's  Common Stock and
ranks on a parity with the Offered  Preferred Stock and the Existing  Cumulative
Preferred Stock (and, if issued,  the 7.82% Preferred Stock, the 7.80% Preferred
Stock, the 9.00% Preferred Stock, the 8.40% Preferred Stock, the 8.20% Preferred
Stock and the 8.03%  Preferred  Stock) as to the payment of  dividends  and upon
liquidation.  The holders of shares of the ESOP Preferred  Stock are entitled to
receive,  when declared out of funds legally available therefor,  cash dividends
in the  amount of $2.78 per share per  annum,  subject  to  adjustment,  payable
either  annually or  semiannually,  at the election of the Board of Directors of
the Company.  Holders of ESOP Preferred Stock are entitled to receive $35.88 per
share,  subject to adjustment (the "ESOP Preferred  Stock  Liquidation  Price"),
upon dissolution or liquidation of the Company.

         So long as any shares of ESOP Preferred Stock shall be outstanding,  no
dividend  shall be declared or paid or set apart for payment on any other series
of stock  ranking  on a parity  with the ESOP  Preferred  Stock as to  dividends
(which parity Preferred Stock currently includes the Offered Preferred Stock and
the Existing Cumulative  Preferred Stock and, if issued, would include the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred  Stock,  the 8.20%  Preferred  Stock and the 8.03%  Preferred  Stock),
unless  there  shall  also be or have  been  declared  and paid or set apart for
payment on the ESOP  Preferred  Stock like  dividends  for all dividend  payment
periods of the ESOP  Preferred  Stock ending on or before the  dividend  payment
date of such parity stock,  ratably in proportion to the  respective  amounts of
dividends (i) accumulated and unpaid or payable on such parity stock, on the one
hand, and (ii)  accumulated  and unpaid  through the dividend  payment period or
periods of the ESOP Preferred  Stock next preceding such dividend  payment date,
on the other hand.

         Holders of ESOP  Preferred  Stock are  entitled  to vote on all matters
submitted to a vote of the holders of shares of Common  Stock,  voting  together
with the  holders  of shares of Common  Stock as one  class.  Each share of ESOP
Preferred  Stock is  entitled  to the  number of votes  equal to 1.35  times the
number of shares of Common Stock into which such share of ESOP  Preferred  Stock
could be  converted on the record date for such vote.  Shares of ESOP  Preferred
Stock are allocated to each participant in the ESOP on December 31 in each year.

         Each share of ESOP Preferred Stock is convertible into shares of Common
Stock  by the  trustee  of the ESOP at any time  prior  to the  date  fixed  for
redemption of the ESOP Preferred Stock at a conversion rate of one share of ESOP
Preferred  Stock to two  shares  of  Common  Stock,  which  rate is  subject  to
adjustment.  The conversion price per share at which shares of Common Stock will
be issued  upon  conversion  of any  shares of ESOP  Preferred  Stock is $35.88,
subject to adjustment.

         The ESOP Preferred  Stock is redeemable at the Company's  option at the
ESOP Preferred Stock  Liquidation Price plus accrued dividends at any time after
September 19, 2000 and prior thereto  under certain  circumstances  at specified
prices.  The Company may pay the redemption price of the ESOP Preferred Stock in
cash, in shares of Common Stock or a combination thereof. Neither ESOP Preferred
Stock nor shares of Common Stock issued to  participants in the ESOP are subject
to  the  restrictions  on  voting  and  disposition   contained  in  the  Voting
Agreements.


Existing Cumulative Preferred Stock

         Other than as described below, the terms of the 8 3/4% Preferred Stock,
the 7 3/8%  Preferred  Stock,  the 7 3/4%  Preferred  Stock  and  the  Series  A
Fixed/Adjustable Rate Preferred Stock are identical. Unless otherwise indicated,
the terms and provisions  described below relate to each of the 8 3/4% Preferred
Stock,  the 7 3/8% Preferred  Stock, the 7 3/4% Preferred Stock and the Series A
Fixed/Adjustable Rate Preferred Stock, which are collectively referred to as the
"Existing  Cumulative  Preferred  Stock." Unless otherwise  indicated below, the
terms and provisions described below for the Existing Cumulative Preferred Stock
also relate to each of the 7.82% Preferred Stock, the 7.80% Preferred Stock, the
9.00% Preferred  Stock, the 8.40% Preferred Stock, the 8.20% Preferred Stock and
the 8.03% Preferred Stock, if issued.

                                       21






         Each series of the Existing Cumulative  Preferred Stock and, if issued,
the 7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock,
the 8.40%  Preferred  Stock,  the 8.20%  Preferred Stock and the 8.03% Preferred
Stock ranks on a parity with each other and with the Offered Preferred Stock and
the ESOP  Preferred  Stock  and  prior to the  Common  Stock  as to  payment  of
dividends and amounts payable on liquidation.  The shares of Existing Cumulative
Preferred  Stock are fully  paid and  nonassessable,  are not  convertible  into
Common Stock of the Company and have no preemptive rights.

         Dividends. Holders of the shares of Existing Cumulative Preferred Stock
(except for the Series A Fixed/Adjustable  Rate Preferred Stock) are entitled to
receive,  when and as declared by the Board of  Directors  of the Company out of
funds legally available therefor, cumulative cash dividends payable quarterly at
the rate of 8 3/4% per  annum,  7 3/8% per annum,  7 3/4% per  annum,  7.82% per
annum (if the 7.82%  Preferred  Stock is issued),  7.80% per annum (if the 7.80%
Preferred  Stock is issued),  9.00% per annum (if the 9.00%  Preferred  Stock is
issued),  8.40% per annum (if the 8.40%  Preferred  Stock is issued),  8.20% per
annum (if the 8.20% Preferred Stock is issued) and the 8.03% Preferred Stock (if
the 8.03% Preferred Stock is issued),  as the case may be. Holders of the shares
of Series A Fixed/Adjustable  Rate Preferred Stock are entitled to receive, when
and as declared by the Board of  Directors  of the Company out of funds  legally
available  therefor,  cumulative cash dividends  payable  quarterly at a rate of
5.91% per annum through  November 30, 2001 and thereafter at a rate of .37% plus
the highest of the Treasury Bill Rate, the Ten-Year  Constant  Maturity Rate and
the  Thirty-Year  Constant  Maturity  Rate (each as  defined  in the  applicable
Certificate of Designation). The amount of dividends payable in respect of the 7
3/4% Preferred Stock and the Series A Fixed/Adjustable Rate Preferred Stock will
be  adjusted  in the event of certain  amendments  to the Code in respect of the
dividends received deduction.  The Existing  Cumulative  Preferred Stock will be
junior as to dividends to any  preferred  stock that may be issued in the future
that is expressly  senior as to dividends to the Existing  Cumulative  Preferred
Stock.  If at any time the Company has failed to pay  accrued  dividends  on any
such senior shares at the time such  dividends are payable,  the Company may not
pay any  dividend  on the  Existing  Cumulative  Preferred  Stock or  redeem  or
otherwise  repurchase any shares of Existing  Cumulative  Preferred  Stock until
such  accumulated but unpaid  dividends on such senior shares have been paid (or
set aside for payment) in full by the Company.

         No  dividends  may be  declared or paid or set apart for payment on any
preferred stock ranking on a parity as to dividends with the Existing Cumulative
Preferred Stock unless there shall also be or have been declared and paid or set
apart for  payment on each series of the  Existing  Cumulative  Preferred  Stock
dividends for all dividend payment periods of the Existing Cumulative  Preferred
Stock  ending on or before  the  dividend  payment  date of such  parity  stock,
ratably in proportion to the respective amounts of dividends (i) accumulated and
unpaid or payable on such parity stock,  on the one hand,  and (ii)  accumulated
and unpaid or payable  through  the  dividend  payment  period or periods of the
Existing  Cumulative  Preferred Stock next preceding such dividend payment date,
on the other hand.

         Except as set forth  above,  unless full  cumulative  dividends  on the
Existing  Cumulative  Preferred Stock have been paid,  dividends  (other than in
Common  Stock) may not be paid or  declared  and set aside for payment and other
distributions  may not be made upon the Common  Stock or on any other  preferred
stock  of the  Company  ranking  junior  to or on a  parity  with  the  Existing
Cumulative  Preferred  Stock  as to  dividends  (which  parity  preferred  stock
currently  includes the Offered  Preferred Stock and the ESOP Preferred  Stock),
nor may any  Common  Stock  or such  other  preferred  stock of the  Company  be
redeemed,  purchased or otherwise  acquired by the Company for any consideration
or any payment be made to or available for a sinking fund for the  redemption of
any  shares  of such  stock;  provided,  however,  that any  monies  theretofore
deposited in any sinking fund with respect to any preferred  stock in compliance
with the  provisions  of such  sinking  fund may  thereafter  be  applied to the
purchase or redemption of such preferred  stock in accordance  with the terms of
such sinking fund  regardless  of whether at the time of such  application  full
cumulative  dividends  upon  shares of each  series of the  Existing  Cumulative
Preferred  Stock  outstanding on the last dividend  payment date shall have been
paid or declared and set apart for payment;  and provided  further that any such
junior  or parity  preferred  stock or Common  Stock  may be  converted  into or
exchanged  for stock of the Company  ranking  junior to the Existing  Cumulative
Preferred Stock as to dividends.

         Optional  Redemption.  The Existing  Cumulative  Preferred Stock is not
subject to any  mandatory  redemption  or  sinking  fund  provision.  The 8 3/4%
Preferred  Stock is not  redeemable  prior to May 30, 1997, the 7 3/8% Preferred
Stock is not redeemable  prior to August 30, 1998, the 7 3/4% Preferred Stock is
not  redeemable  prior to August 30, 2001,  the Series A  Fixed/Adjustable  Rate
Preferred Stock is not redeemable prior to November 30,


                                       22






2001,  if issued,  the 7.82%  Preferred  Stock will not be  redeemable  prior to
November 30, 1998, if issued,  the 7.80%  Preferred Stock will not be redeemable
prior to February 28, 1999,  if issued,  the 9.00%  Preferred  Stock will not be
redeemable prior to February 28, 2000, if issued, the 8.40% Preferred Stock will
not be redeemable prior to August 30, 2000, if issued, the 8.20% Preferred Stock
will not be  redeemable  prior to November  30,  2000 and, if issued,  the 8.03%
Preferred  Stock will not be redeemable  prior to February 28, 2007. On or after
such dates, the applicable series of Existing Cumulative Preferred Stock will be
redeemable at the option of the Company, in whole or in part, upon not less than
30 days' notice at a redemption  price equal to $200.00 per share in the case of
each of the series of Existing  Cumulative  Preferred Stock and, if issued,  the
7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the
8.40% Preferred  Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock,
in each case plus accrued and accumulated but unpaid  dividends to but excluding
the date fixed for redemption.

         Liquidation  Rights.  In the event of any  liquidation,  dissolution or
winding  up of the  Company,  the  holders  of  shares  of  Existing  Cumulative
Preferred  Stock will be  entitled  to receive  out of the assets of the Company
available for distribution to  stockholders,  before any distribution is made to
holders  of (i) any  other  shares  of  preferred  stock  ranking  junior to the
Existing Cumulative  Preferred Stock as to rights upon liquidation,  dissolution
or  winding  up  which  may be  issued  in the  future  and (ii)  Common  Stock,
liquidating distributions in the amount of $200.00 per share in the case of each
of the series of Existing  Cumulative  Preferred Stock and, if issued, the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred  Stock,  the 8.20% Preferred  Stock and the 8.03% Preferred  Stock, in
each case plus accrued and accumulated but unpaid dividends to the date of final
distribution,  but the  holders of the shares of Existing  Cumulative  Preferred
Stock will not be entitled to receive the liquidation price of such shares until
the  liquidation  preference of any other shares of the Company's  capital stock
ranking  senior to the  Existing  Cumulative  Preferred  Stock as to rights upon
liquidation,  dissolution or winding up shall have been paid (or a sum set aside
therefor  sufficient to provide for payment) in full.  If upon any  liquidation,
dissolution  or winding up of the Company,  the amounts  payable with respect to
the Existing Cumulative Preferred Stock and any other preferred stock ranking as
to rights  upon  liquidation,  dissolution  or winding  up on a parity  with the
Existing Cumulative  Preferred Stock (including the Offered Preferred Stock) are
not paid in full, the holders of the Existing Cumulative  Preferred Stock and of
such  other  preferred  stock will share  ratably  in any such  distribution  in
proportion  to the  full  respective  preferential  amounts  to  which  they are
entitled.  After payment of the full amount of the  liquidating  distribution to
which they are entitled, the holders of Existing Cumulative Preferred Stock will
not be entitled to any further  participation  in any  distribution of assets by
the Company.


         Voting Rights.  Holders of Existing  Cumulative  Preferred Stock do not
have any voting  rights  except as set forth below or as otherwise  from time to
time required by law.  Whenever  dividends on any series of Existing  Cumulative
Preferred  Stock or any other class or series of stock  ranking on a parity with
such series of Existing  Cumulative  Preferred Stock with respect to the payment
of  dividends  shall  be  in  arrears  for  dividend  periods,  whether  or  not
consecutive,  containing  in the  aggregate a number of days  equivalent  to six
calendar quarters,  the holders of shares of such series of Existing  Cumulative
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting  rights have been  conferred  and are  exercisable)
will be entitled to vote for the  election  of two of the  authorized  number of
directors of the Company at the next annual meeting of stockholders  and at each
subsequent  meeting until all dividends  accumulated  on such series of Existing
Cumulative  Preferred  Stock have been fully paid or set aside for payment.  The
term of office of all directors  elected by the holders of Preferred Stock shall
terminate  immediately  upon the  termination  of the  right of the  holders  of
Preferred  Stock to vote for  directors.  Each  holder  of  shares  of  Existing
Cumulative  Preferred  Stock  will  have one vote  for  each  share of  Existing
Cumulative Preferred Stock held.

         So long as any shares of Existing  Cumulative  Preferred  Stock  remain
outstanding,  the  Company  shall not,  without the consent of the holders of at
least two-thirds of the shares of each series of Existing  Cumulative  Preferred
Stock  outstanding  at the time,  voting  separately  as a class  with all other
series of preferred  stock upon which like voting rights have been conferred and
are  exercisable,  (i) issue or increase the  authorized  amount of any class or
series of stock ranking prior to the Existing  Cumulative  Preferred Stock as to
dividends or upon  liquidation or (ii) amend,  alter or repeal the provisions of
the  Company's  Restated  Certificate  of  Incorporation  or of the  resolutions
contained in the Certificate of Designation  relating to such series of Existing
Cumulative Preferred Stock, whether by merger, consolidation or otherwise, so as
to  materially  and adversely  affect any power,  preference or special right of
such  series of Existing  Cumulative  Preferred  Stock or the  holders  thereof;
provided, however, that any

                                       23







increase in the amount of the  authorized  Common Stock or authorized  preferred
stock or the  creation and issuance of other series of Common Stock or preferred
stock  ranking on a parity with or junior to the Existing  Cumulative  Preferred
Stock as to dividends and upon liquidation shall not be deemed to materially and
adversely affect such powers, preferences or special rights.

         The transfer agent and registrar for each series of Existing Cumulative
Preferred Stock is The Bank of New York.


Additional Provisions of the Company's Restated Certificate of Incorporation

         Size of the  Board of  Directors,  Removal  of  Directors  and  Filling
Vacancies on the Board of  Directors.  The  Company's  Restated  Certificate  of
Incorporation provides that the number of directors shall be not fewer than four
nor greater than fifteen persons, as shall be established from time to time by a
majority of the Board of Directors. The Company currently has ten directors. The
Company's Restated Certificate of Incorporation also provides that directors may
be removed,  with or without cause,  only with the approval of the holders of at
least 80% of the voting power of the outstanding  shares of capital stock of the
Company entitled to be voted generally in the election of directors (the "Voting
Stock"),  voting  together as a single  class.  Furthermore,  any vacancy on the
Board of Directors or newly created  directorship  shall be filled by a majority
of the remaining  directors then in office,  though less than a quorum, and such
newly  elected  director  shall  serve the  balance of the term of the  replaced
director or, if there is no replaced director, until the next annual election of
directors.

         Calling  Special  Meetings  of  Stockholders.  The  Company's  Restated
Certificate of Incorporation  provides that special meetings of stockholders may
be called at any time and for any purpose by the  Chairman of the Board,  by the
President  or by order of the  Board of  Directors,  and  shall be called by the
Secretary of the Company upon the written request of the holders of at least 80%
of the  voting  power of the Voting  Stock,  setting  forth the  purpose of such
meeting.

         Amendment of Restated  Certificate of  Incorporation  and By-laws.  The
Company's  Restated  Certificate of Incorporation  provides that the affirmative
vote of the  holders  of at least 80% of the voting  power of the Voting  Stock,
voting  together as a single  class,  is required to amend,  repeal or adopt any
By-laws,  to adopt any amendment to the Restated  Certificate  of  Incorporation
inconsistent  with the By-laws of the Company or to amend or repeal, or to adopt
any provision  inconsistent with, any provisions of the Restated  Certificate of
Incorporation described above.

         Limitation of Directors' Liability. Section 102 of the Delaware General
Corporation  Law allows a  corporation  to eliminate  the personal  liability of
directors of a corporation to the corporation or to any of its  stockholders for
monetary  damages for a breach of  fiduciary  duty as a director,  except in the
case where the  director  breached  his duty of  loyalty,  failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock  repurchase  in  violation  of the
Delaware General Corporation Law or obtained an improper personal benefit. Under
the Company's Restated  Certificate of Incorporation,  a director of the Company
shall not be liable to the Company or its  stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation  thereof is not permitted under the General  Corporation
Law of Delaware as in effect or as the same may be amended.



                                GLOBAL SECURITIES

         The registered Debt Securities,  Warrants, Purchase Contracts and Units
of any series may be issued in the form of one or more fully  registered  global
Securities  (a  "Registered  Global  Security")  that will be  deposited  with a
depositary (a "Depositary") or with a nominee for a Depositary identified in the
Prospectus Supplement relating to such series and registered in the name of such
Depositary  or nominee  thereof.  In such case,  one or more  Registered  Global
Securities will be issued in a denomination or aggregate  denominations equal to
the portion of the aggregate principal or face amount of outstanding  registered
Securities of the series to be represented by such Registered Global Securities.
Unless  and  until  it is  exchanged  in  whole  for  Securities  in  definitive
registered form, a Registered Global Security may not be transferred except as a
whole by the Depositary for such Registered Global


                                       24






Security to a nominee of such  Depositary or by a nominee of such  Depositary to
such  Depositary or another  nominee of such Depositary or by such Depositary or
any  such  nominee  to a  successor  of such  Depositary  or a  nominee  of such
successor.

         The specific  terms of the depositary  arrangement  with respect to any
portion of a series of  Securities  to be  represented  by a  Registered  Global
Security will be described in the Prospectus Supplement relating to such series.
The  Company  anticipates  that  the  following  provisions  will  apply  to all
depositary arrangements.

         Ownership of beneficial  interests in a Registered Global Security will
be limited to persons that have accounts with the Depositary for such Registered
Global  Security  ("participants")  or persons that may hold  interests  through
participants.  Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry  registration
and transfer system, the participants' accounts with the respective principal or
face amounts of the Securities  represented by such  Registered  Global Security
beneficially  owned by such  participants.  The accounts to be credited shall be
designated  by  any  dealers,   underwriters  or  agents  participating  in  the
distribution  of such  Securities.  Ownership  of  beneficial  interests in such
Registered  Global Security will be shown on, and the transfer of such ownership
interests  will be effected only through,  records  maintained by the Depositary
for such Registered  Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through  participants).  The  laws of  some  states  may  require  that  certain
purchasers of securities take physical delivery of such securities in definitive
form.  Such  limits  and such laws may impair the  ability to own,  transfer  or
pledge beneficial interests in Registered Global Securities.

         So long as the  Depositary  for a Registered  Global  Security,  or its
nominee,  is the  registered  owner of such  Registered  Global  Security,  such
Depositary  or such  nominee,  as the case may be, will be  considered  the sole
owner or holder of the Securities represented by such Registered Global Security
for all purposes under the applicable  Indenture,  Warrant  Agreement,  Purchase
Contract or Unit  Agreement.  Except as set forth  below,  owners of  beneficial
interests  in a  Registered  Global  Security  will not be  entitled to have the
Securities  represented by such Registered  Global Security  registered in their
names,  will not  receive or be entitled  to receive  physical  delivery of such
Securities in definitive  form and will not be considered  the owners or holders
thereof under the applicable Indenture, Warrant Agreement,  Purchase Contract or
Unit  Agreement.  Accordingly,  each person  owning a  beneficial  interest in a
Registered  Global  Security must rely on the  procedures of the  Depositary for
such Registered Global Security and, if such person is not a participant, on the
procedures of the  participant  through which such person owns its interest,  to
exercise  any  rights  of a  holder  under  the  applicable  Indenture,  Warrant
Agreement,  Purchase  Contract or Unit Agreement.  The Company  understands that
under existing industry practices, if it requests any action of holders or if an
owner of a beneficial  interest in a Registered  Global Security desires to give
or take  any  action  which a  holder  is  entitled  to give or take  under  the
applicable  Indenture,  Warrant Agreement,  Purchase Contract or Unit Agreement,
the  Depositary  for  such  Registered   Global  Security  would  authorize  the
participants  holding the  relevant  beneficial  interests  to give or take such
action, and such participants  would authorize  beneficial owners owning through
such  participants  to give or take such action or would  otherwise act upon the
instructions of beneficial owners holding through them.

         Principal,  premium,  if any, and interest payments on Debt Securities,
and any  payments to holders with  respect to  Warrants,  Purchase  Contracts or
Units,  represented by a Registered Global Security  registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company,  the  Trustees,  the Warrant  Agents,  the Unit Agents or any other
agent of the Company,  agent of the  Trustees or agent of the Warrant  Agents or
Unit  Agents will have any  responsibility  or  liability  for any aspect of the
records  relating  to or  payments  made  on  account  of  beneficial  ownership
interests in such Registered Global Security or for maintaining,  supervising or
reviewing any records relating to such beneficial ownership interests.

         The Company expects that the Depositary for any Securities  represented
by a  Registered  Global  Security,  upon  receipt of any payment of  principal,
premium,  interest or other distribution of underlying securities or commodities
to holders  in respect of such  Registered  Global  Security,  will  immediately
credit  participants'  accounts  in amounts  proportionate  to their  respective
beneficial  interests in such Registered Global Security as shown on the records
of such  Depositary.  The Company also expects that payments by  participants to
owners of beneficial  interests in such Registered  Global Security held through
such participants will be governed by standing customer


                                       25






instructions  and customary  practices,  as is now the case with the  securities
held for the  accounts  of  customers  in bearer form or  registered  in "street
name", and will be the responsibility of such participants.

         If the Depositary for any Securities represented by a Registered Global
Security is at any time  unwilling or unable to continue as Depositary or ceases
to be a clearing  agency  registered  under the  Exchange  Act,  and a

successor  Depositary  registered as a clearing agency under the Exchange Act is
not  appointed  by the  Company  within 90 days,  the  Company  will  issue such
Securities in definitive form in exchange for such Registered  Global  Security.
In addition,  the Company may at any time and in its sole  discretion  determine
not to  have  any of the  Securities  of a  series  represented  by one or  more
Registered  Global  Securities and, in such event, will issue Securities of such
series in definitive form in exchange for all of the Registered  Global Security
or Securities representing such Securities.  Any Securities issued in definitive
form in exchange for a Registered  Global  Security  will be  registered in such
name or names as the  Depositary  shall instruct the relevant  Trustee,  Warrant
Agent or other  relevant  agent of the  Company,  the  Trustees  or the  Warrant
Agents.  It is expected  that such  instructions  will be based upon  directions
received by the  Depositary  from  participants  with  respect to  ownership  of
beneficial interests in such Registered Global Security.

         The  Securities  of a series  may also be  issued in the form of one or
more  bearer  global  Securities  (a  "Bearer  Global  Security")  that  will be
deposited  with a common  depositary  for  Euroclear  and Cedel Bank,  or with a
nominee for such depositary  identified in the Prospectus Supplement relating to
such series. The specific terms and procedures,  including the specific terms of
the  depositary  arrangement,  with  respect  to  any  portion  of a  series  of
Securities to be  represented  by a Bearer Global  Security will be described in
the Prospectus Supplement relating to such series.



                              PLAN OF DISTRIBUTION

         The Company may sell the Securities being offered hereby in three ways:
(i) through agents,  (ii) through  underwriters and (iii) through  dealers.  Any
such underwriters, dealers or agents in the United States will include MS & Co.,
and any such  underwriters,  dealers or agents  outside  the United  States will
include MSIL or other affiliates of the Company.

         Offers to purchase  Securities may be solicited by agents designated by
the  Company  from  time to time.  Any such  agent,  who may be  deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Securities in respect of which this  Prospectus is delivered will
be named, and any commissions payable by the Company to such agent set forth, in
the Prospectus Supplement. Any such agent will be acting on a reasonable efforts
basis for the  period of its  appointment  or, if  indicated  in the  applicable
Prospectus Supplement,  on a firm commitment basis. Agents may be entitled under
agreements which may be entered into with the Company to  indemnification by the
Company  against  certain civil  liabilities,  including  liabilities  under the
Securities Act, and may be customers of, engage in transactions  with or perform
services for the Company in the ordinary course of business.

         If any  underwriters  are  utilized  in the sale of the  Securities  in
respect of which this  Prospectus is  delivered,  the Company will enter into an
underwriting  agreement with such  underwriters  at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus  Supplement,  which will be used by the  underwriters  to make
resales of the  Securities  in respect of which this  Prospectus is delivered to
the public.  The underwriters may be entitled,  under the relevant  underwriting
agreement,  to  indemnification  by the  Company  against  certain  liabilities,
including  liabilities under the Securities Act, and may be customers of, engage
in transactions  with or perform services for the Company in the ordinary course
of business.

         If a dealer is  utilized  in the sale of the  Securities  in respect of
which the Prospectus is delivered,  the Company will sell such Securities to the
dealer,  as principal.  The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Dealers
may be entitled to indemnification  by the Company against certain  liabilities,
including  liabilities under the Securities Act, and may be customers of, engage
in transactions  with or perform services for the Company in the ordinary course
of business.

         Securities  may  also be  offered  and  sold,  if so  indicated  in the
Prospectus Supplement,  in connection with a remarketing upon their purchase, in
accordance with their terms, by one or more firms, including MS & Co. and


                                       26






MSIL  ("remarketing  firms"),  acting as principals for their own accounts or as
agents for the Company. Any remarketing firm will be identified and the terms of
its agreement,  if any, with the Company and its compensation  will be described
in the Prospectus Supplement. Remarketing firms may be entitled under agreements
which may be entered  into with the  Company to  indemnification  by the Company
against certain civil  liabilities,  including  liabilities under the Securities
Act, and may be customers of, engage in  transactions  with or perform  services
for the Company in the ordinary course of business.

         If  so  indicated  in  the  Prospectus  Supplement,  the  Company  will
authorize  agents,   underwriters  or  dealers  to  solicit  offers  by  certain
purchasers to purchase  Offered Debt  Securities or Offered  Warrants,  Purchase
Contracts or Units,  as the case may be, from the Company at the public offering
price  set forth in the  Prospectus  Supplement  pursuant  to  delayed  delivery
contracts  providing for payment and delivery on a specified date in the future.
Such  contracts  will be  subject  to only  those  conditions  set  forth in the
Prospectus  Supplement,  and  the  Prospectus  Supplement  will  set  forth  the
commission payable for solicitation of such offers.

         Any underwriters,  agents or dealers utilized in the sale of Securities
will not  confirm  sales to  accounts  over  which they  exercise  discretionary
authority.

         MS & Co. and MSIL are wholly owned  subsidiaries  of the Company.  Each
offering of Securities and any market-making activities by MS & Co. with respect
to Securities will be conducted in compliance with the requirements of Rule 2720
of the National Association of Securities Dealers, Inc. (the "NASD") regarding a
NASD member firm's  distributing  the securities of an affiliate.  Following the
initial  distribution of any Securities,  MS & Co., MSIL and other affiliates of
the Company may offer and sell such  Securities in the course of their  business
as  broker-dealers  (subject,  in the case of  Preferred  Stock  and  Depositary
Shares, to obtaining any necessary  approval of the NYSE for any such offers and
sales  by MS &  Co.).  MS & Co.,  MSIL  and  such  other  affiliates  may act as
principals or agents in such  transactions.  This Prospectus may be used by MS &
Co., MSIL and such other affiliates in connection with such  transactions.  Such
sales,  if any,  will be made at varying  prices  related to  prevailing  market
prices at the time of sale or  otherwise.  Neither MS & Co., MSIL nor such other
affiliates are obligated to make a market in any Securities and may  discontinue
any market-making activities at any time without notice.

                                       27







                                  LEGAL MATTERS

         The validity of the  Securities  will be passed upon for the Company by
Jonathan M. Clark,  General  Counsel and Secretary of the Company and a Managing
Director of MS & Co., Ralph L.  Pellecchio,  Assistant  Secretary and Counsel of
the  Company  and a  Managing  Director  of MS & Co.,  or other  counsel  who is
satisfactory  to MS & Co. or MSIL,  as the case may be,  and an  officer  of the
Company.  Mr. Clark, Mr. Pellecchio and such other counsel  beneficially own, or
have  rights to  acquire  under an  employee  benefit  plan of the  Company,  an
aggregate  of less than 1% of the common  stock of the  Company.  Certain  legal
matters  relating to the Securities will be passed upon for the  Underwriters by
Davis Polk & Wardwell.  Davis Polk & Wardwell  has in the past  represented  and
continues  to  represent  the  Company  on a regular  basis and in a variety  of
matters, including in connection with its merchant banking and leveraged capital
activities.


                                     EXPERTS

         The consolidated  financial statements and financial statement schedule
of the Company  incorporated  by reference and included in the Company's  Annual
Report on Form 10-K for the fiscal  period  ended  November  30,  1995 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial   statements  and  financial   statement  schedule  are,  and  audited
consolidated  financial  statements  and  financial  statement  schedules  to be
included  in  subsequently  filed  documents  will be,  incorporated  herein  in
reliance  upon the  reports of Ernst & Young LLP  pertaining  to such  financial
statements and financial  statement schedules (to the extent covered by consents
filed with the  Commission)  given upon the authority of such firm as experts in
accounting and auditing.



             ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES

         The Company and certain  affiliates of the Company,  including MS & Co.
and MSIL, may each be considered a "party in interest" within the meaning of the
Employee  Retirement  Income  Security Act of 1974, as amended  ("ERISA"),  or a
"disqualified  person"  within  the  meaning  of the Code with  respect  to many
employee benefit plans.  Prohibited  transactions within the meaning of ERISA or
the Code may arise, for example,  if the Debt  Securities,  Warrants or Purchase
Contracts  (or  any  Units  including  Debt  Securities,  Warrants  or  Purchase
Contracts)  are  acquired  by or with the assets of a pension or other  employee
benefit  plan  with  respect  to which MS & Co.  or any of its  affiliates  is a
service provider,  unless such Debt Securities,  Warrants or Purchase  Contracts
(or any Units  including Debt  Securities,  Warrants or Purchase  Contracts) are
acquired  pursuant to an exemption for  transactions  effected on behalf of such
plan by a  "qualified  professional  asset  manager"  or  pursuant  to any other
available exemption.  The assets of a pension or other employee benefit plan may
include  assets held in the general  account of an  insurance  company  that are
deemed to be "plan  assets"  under ERISA.  In addition,  employee  benefit plans
subject  to ERISA (or  insurance  companies  deemed to be  investing  ERISA plan
assets) purchasing  Universal Warrants or Purchase Contracts should consider the
possible  implications of owning the securities  underlying such  instruments in
the event of settlement by physical  delivery.  Any insurance company or pension
or employee benefit plan proposing to invest in the Debt Securities, Warrants or
Purchase  Contracts  (or any  Units  including  Debt  Securities,  Warrants,  or
Purchase Contracts) should consult with its legal counsel.

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                            MORGAN STANLEY GROUP INC.