-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Os0xAfyxfJmB3dby+hsDe1I6pfvvyqy1tjVNg2tU+NkFxDlTVysoT0Wa/bsLoYkO BCo7Xyl/TPMkJRde46KIGw== 0000950103-96-000821.txt : 19960424 0000950103-96-000821.hdr.sgml : 19960424 ACCESSION NUMBER: 0000950103-96-000821 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960423 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-57833 FILM NUMBER: 96549531 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 424B2 1 PROSPECTUS SUPPLEMENT ISSUED April 22, 1996 (Subject to Completion) (To Prospectus dated March 29, 1995) 1,000,000 PEEQS SM Protected Exchangeable EQuity-linked Securities SM Morgan Stanley Group Inc. PEEQS DUE MAY , 2001 ------------ Exchangeable For an Amount Payable in U.S. Dollars based on 10% of the level of the S&P 500 COMPOSITE STOCK PRICE INDEX ------------ The principal amount of each of the Protected Exchangeable EQuity- linked Securities Due May , 2001 ("PEEQS") of Morgan Stanley Group Inc. (the "Company") will be $ ("Par"), and there will be no periodic payments of interest. The PEEQS will mature on May , 2001 (the "Maturity Date"). At maturity, the holder of a PEEQS will receive, subject to a prior exercise of the Exchange Right (as described below) with respect to such PEEQS, the greater of (i) Par and (ii) an amount in dollars equal to 10% of the Final Index Value (as defined herein) of the S&P 500 Composite Stock Price Index (the "S&P 500 Index"), published by Standard & Poor's ("S&P"), a Division of the McGraw-Hill Companies, Inc. The PEEQS will not be redeemable by the Company in whole or in part prior to the Maturity Date. On any Exchange Date (as defined below), the holder of a PEEQS will have the right (the "Exchange Right"), subject to the completion by the holder and delivery to the Company and the Calculation Agent of an Official Notice of Exchange prior to 11:00 a.m. New York City time on such date, to exchange a minimum of 100 PEEQS for an amount in dollars per PEEQS equal to 10% of the applicable Index Value of the S&P 500 Index. An Exchange Date will be any Trading Day (as defined herein) that falls during the period beginning November , 1997 and ending on the seventh scheduled Trading Day prior to the Maturity Date. For information as to the calculation of Index Values, the Final Index Value and certain tax consequences to beneficial owners of PEEQS, see "Description of PEEQS-Exchange Right" and "United States Federal Taxation" in this Prospectus Supplement. The Company will cause Index Values and the Final Index Value to be determined by Morgan Stanley & Co. Incorporated (the "Calculation Agent") for Chemical Bank, as Trustee under the Senior Debt Indenture. The Index Value (as defined herein) on the date of this Prospectus Supplement was . ------------ An investment in PEEQS entails risks not associated with similar investments in a conventional debt security, as described under "Risk Factors" on S-6 through S-8 herein. ------------ The PEEQS have been approved for listing on the American Stock Exchange, Inc. (the "AMEX"), subject to official notice of issuance. The AMEX symbol for the PEEQS is "MPQ." ------------ "PEEQS" and "Protected Exchangeable EQuity-linked Securities" are service marks 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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------- PRICE $ A PEEQS ------------------- Underwriting Price to Discounts and Proceeds to Public(1) Commissions(1)(2) Company(3) --------- ----------------- ----------- Per PEEQS... $ $ $ Total(4).... $ $ $ - ---------- (1) The price to public and underwriting discounts and commissions for investors purchasing 100,000 or more PEEQS in any single transaction will be $ and $ , respectively, subject to the holding period requirement described under "Underwriters" herein. Should investors who are subject to the holding period requirements sell their PEEQS once the holding period requirement is no longer applicable, the market price of the PEEQS may be adversely affected. See "Underwriters" herein. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (3) Before deducting expenses payable by the Company estimated at $ . (4) The Company has granted to the Underwriters an option, exercisable within 30 days of the date of this Prospectus Supplement, to purchase up to an aggregate of 150,000 additional PEEQS at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Company will, subject to note 1 above, be $ , $ , and $ , respectively. See "Underwriters." ------------ The PEEQS are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the PEEQS will be made on or about 1996, at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ------------ MORGAN STANLEY & CO. Incorporated DONALDSON, LUFKIN & JENRETTE Securities Corporation , 1996 Information contained in this preliminary prospectus supplement is subject to completion or amendment. This prospectus supplement and the accompanying prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PEEQS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the consolidated ratio of earnings to fixed charges for the Company for the periods indicated.
(Unaudited) Fiscal Three Months Ended Period Ended Fiscal Year Ended Year Ended February 29 January 31 November 30 January 31 December 31 ----------- ---------- ------------ ---------------------------- ----------- 1996 1995 1995 1995 1994 1993 1991 ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges.. 1.2 1.0 1.2 1.1 1.2 1.2 1.2
For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and fixed charges (exclusive of preferred stock dividends). Fixed charges for the purpose of calculating the ratio of earnings to fixed charges include interest expense, capitalized interest and that portion of rentals representative of an interest factor. DESCRIPTION OF PEEQS The following description of the particular terms of the PEEQS offered hereby (referred to in the Prospectus as the "Offered Debt Securities") supplements the description of the general terms and provisions of the Debt Securities set forth in the Prospectus, to which description reference is hereby made. In particular, as used under this caption, the term "Company" means Morgan Stanley Group Inc. The following summary of the PEEQS is qualified in its entirety by reference to the Senior Debt Indenture referred to in the Prospectus. The aggregate number of PEEQS to be issued will be 1,000,000, subject to the over-allotment option granted by the Company to the Underwriters (see "Underwriters" herein). The PEEQS will mature on May , 2001, will constitute part of the senior debt of the Company and will rank pari passu with all other unsecured and unsubordinated debt of the Company. There will be no periodic payments of interest on the PEEQS. Payment at Maturity At maturity (including as a result of acceleration or otherwise), the holder of a PEEQS will receive, subject to a prior exercise of the Exchange Right with respect to such PEEQS, the greater of (i) Par and (ii) an amount in dollars, as determined by the Calculation Agent, equal to 10% of the Final Index Value (as defined herein) of the S&P 500 Index. References to "PEEQS" refer to each $ principal amount of any PEEQS. Exchange Right On any Exchange Date, the holder of a PEEQS will be entitled upon (i) completion by the holder and delivery to the Company and the Calculation Agent of an Official Notice of Exchange (in the form of Annex A attached hereto) prior to 11:00 a.m. New York City time on such date and (ii) delivery on such date of such PEEQS to the Trustee, to exchange a minimum of 100 PEEQS for an amount in dollars per PEEQS, as determined by the Calculation Agent, equal to 10% of the Index Value of the S&P 500 Index on the applicable Determination Date. Such payment will be made five Business Days after the Determination Date with respect to any Exchange Date, subject to delivery of any such PEEQS to the Trustee on the Exchange Date. Upon an exercise of the Exchange Right or at maturity, the Company shall, or shall cause the Calculation Agent to, deliver to the Trustee for delivery to the holders the cash to which the holders are entitled. All dollar amounts resulting from the calculation of the payment amounts due upon exchange or at maturity will be rounded to the nearest cent with one-half cent being rounded upwards. An "Exchange Date" will be any Trading Day that falls during the period beginning November , 1997 and ending on the seventh scheduled Trading Day prior to the Maturity Date. The "Final Index Value" will be the Index Value on the Determination Date with respect to the Maturity Date, as determined by the Calculation Agent. The "Index Value", as of any Determination Date, will equal the closing value of the S&P 500 Index or any Successor Index (as defined below) at the regular official weekday close of trading on such Determination Date. See "S&P 500 Index -- Discontinuance of the S&P 500 Index; Alteration of Method of Calculation" below. References herein to the S&P 500 Index shall be deemed to include any Successor Index, unless the context requires otherwise. A "Trading Day" means a day, as determined by the Calculation Agent, on which trading is generally conducted (i) on the New York Stock Exchange ("NYSE"), the American Stock Exchange, Inc. ("AMEX"), and the NASDAQ National Market ("NASDAQ NMS"), (ii) on the Chicago Mercantile Exchange, (iii) on the Chicago Board of Options Exchange and (iv) in the over-the-counter market for equity securities in the United States. A "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. The "Determination Date" will be (i) with respect to any Exchange Date, such Exchange Date and (ii) with respect to the Maturity Date, the seventh scheduled Trading Day prior to the Maturity Date, unless, in either case, there is a Market Disruption Event on such Trading Day. If a Market Disruption Event occurs on any such Trading Day, the Determination Date shall be the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred; provided that if a Market Disruption Event has occurred on each of the five Trading Days immediately succeeding (a) such Exchange Date or (b) such seventh scheduled Trading Day prior to the Maturity Date, then the relevant Determination Date will be deemed to be the earlier of (x) such fifth succeeding Trading Day or (y) the second scheduled Trading Day prior to the Maturity Date, notwithstanding the occurrence of a Market Disruption Event on such day (an "Extended Determination Date"). With respect to any such Extended Determination Date on which a Market Disruption Event occurs, the Calculation Agent will determine the value of the S&P 500 Index on such Extended Determination Date in accordance with the formula for and method of calculating the S&P 500 Index last in effect prior to the commencement of the Market Disruption Event, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such Trading Day of each security most recently comprising the S&P 500 Index. "Market Disruption Event" means, with respect to the S&P 500 Index: (i) a suspension, absence or material limitation of trading of 100 or more of the securities included in the S&P 500 Index on the primary market for such securities for more than two hours of trading or during the one-half hour period preceding the close of trading in such market; or the suspension, absence or material limitation of trading on the primary market for trading in futures or options contracts related to the S&P 500 Index during the one-half hour period preceding the close of trading in the applicable market, in each case as determined by the Calculation Agent in its sole discretion; and (ii) a determination by the Calculation Agent in its sole discretion that the event described in clause (i) above materially interfered with the ability of the Company or any of its affiliates to unwind all or a material portion of the hedge with respect to the PEEQS. For purposes of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract will not constitute a Market Disruption Event, (3) limitations pursuant to New York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or promulgated by the NYSE, any other self-regulatory organization or the Securities and Exchange Commission of similar scope as determined by the Calculation Agent) on trading during significant market fluctuations shall constitute a Market Disruption Event, (4) a suspension of trading in a futures or options contract on the S&P 500 Index by the primary securities market related to such contract by reason of (x) a price change exceeding limits set by such exchange or market, (y) an imbalance of orders relating to such contracts or (z) a disparity in bid and ask quotes relating to such contracts will constitute a suspension or material limitation of trading in futures or options contracts related to the S&P 500 Index and (5) "a suspension, absence or material limitation of trading" on the primary market on which futures or options contracts related to the S&P 500 Index are traded will not include any time when such market is itself closed for trading under ordinary circumstances. Redemption; Defeasance The PEEQS are not subject to redemption prior to maturity and are not subject to the defeasance provisions described in the accompanying Prospectus under "Description of Debt Securities -- Discharge, Defeasance and Covenant Defeasance." Certificates The PEEQS initially will be evidenced by certificates in fully registered form (each, a "Certificate"). Chemical Bank, as trustee (the "Trustee"), will from time to time register the transfer of any outstanding Certificate upon surrender thereof at the office of the Trustee, which is currently located at 55 Water Street, 2nd Floor, Room 234, North Building, New York, New York 10041 (the "Trustee's Office"), duly endorsed by, or accompanied by a written instrument or instruments of transfer in a form satisfactory to the Trustee duly executed by the holder thereof, a duly appointed legal representative or a duly authorized attorney. Such signature must be guaranteed by a bank or trust company having a correspondent office in New York City or by a broker or dealer that is a member of the National Association of Securities Dealers, Inc. (the "NASD") or a member of a U.S. national securities exchange. A new Certificate will be issued to the transferee upon any such registration of transfer. At the option of a holder, Certificates may be exchanged for other Certificates representing a like number of PEEQS, upon surrender to the Trustee at the Trustee's Office of the Certificates to be exchanged. The Company will thereupon execute, and the Trustee will authenticate and deliver, one or more new Certificates representing such like number of PEEQS. If any Certificate is mutilated, lost, stolen or destroyed, the Company shall execute, and the Trustee shall authenticate and deliver, in exchange and substitution for such mutilated Certificate, or in replacement for such lost, stolen or destroyed Certificate, a new Certificate representing the same number of PEEQS represented by such Certificate, but only upon receipt of evidence satisfactory to the Company and to the Trustee of loss, theft or destruction of such Certificate and security or indemnity, if requested, satisfactory to them. Holders requesting replacement Certificates must also comply with such other reasonable regulations as the Company or the Trustee may prescribe. No service charge will be made for any registration of transfer or exchange of Certificates, but the Company may require the payment of a sum sufficient to cover any tax or government charge that may be imposed in connection therewith, other than exchanges not involving any transfer. In the case of the replacement of mutilated, lost, stolen or destroyed Certificates, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses (including the fees and expenses of the Trustee) connected therewith. Book-Entry PEEQS Optional Exchange for Book-Entry PEEQS. Following the issuance of the PEEQS, the Company may, at its option, elect to make the PEEQS available in book-entry form ("Book-Entry PEEQS"). If the Company makes such an election, holders may (but are not required to) exchange Certificates for Book-Entry PEEQS, which will be represented by a beneficial interest in a Global Security (as defined below), by causing the Certificates to be delivered to The Depository Trust Company (the "Depositary"), in proper form for deposit into the Depositary's book-entry system, on or after the Initial Exchange Date (as defined below). Certificates received by the Depositary for exchange during the period commencing on a date designated by the Company (the "Initial Exchange Date") and ending on the 45th day after the Initial Exchange Date (the "Initial Exchange Period") will be exchanged for Book-Entry PEEQS by the close of business on the Business Day on which they are received by the Depositary (if received by the Depositary by its then applicable cut-off time for same day credit) or on the following Business Day (if received by the Depositary by its then applicable cut-off time for next-day credit). After the last day of the Initial Exchange Period, the Depositary will not be required to accept delivery of Certificates in exchange for Book-Entry PEEQS, but the Depositary may permit such Certificates to be so exchanged on a case-by-case basis. It is anticipated that after the Initial Exchange Period, Certificates delivered to the Depositary in good order and in proper form for deposit will be accepted by the Depositary for exchange for Book-Entry PEEQS generally within three to four Business Days after delivery to the Depositary. However, there can be no assurance that such Certificates will be accepted for exchange or, if accepted, that such exchange will occur within such time period. Certificates surrendered at any time for exchange for Book-Entry PEEQS may not be delivered for settlement or transfer until such exchange has been effected. Accordingly, persons purchasing PEEQS in secondary market trading after the Initial Exchange Date may wish to make specific arrangements with brokers or the Depositary's participants if they wish to purchase only Book-Entry PEEQS and not Certificates. In the event that the Company elects to make the PEEQS available in book-entry form, it will notify the Depositary and the Trustee by facsimile and first-class mail and each holder of a Certificate by first-class mail. Exchanges of Certificates for Book-Entry PEEQS will commence on the Initial Exchange Date, which will be approximately five Business Days after the date on which the Company notifies the Depositary that it has elected to permit such exchanges. In order to be exchanged for Book-Entry PEEQS, a Certificate must be delivered to the Depositary, in proper form for deposit, by a participant. Accordingly, holders of PEEQS that are not participants must deliver their Certificates, in proper form for deposit, to a participant, either directly or through a brokerage firm that maintains an account with a participant, in order to have their Certificates exchanged for Book-Entry PEEQS. Holders of PEEQS that desire to exchange their Certificates for Book-Entry PEEQS should contact their broker or a participant to ascertain whether the Company has elected to make Book-Entry PEEQS available, and if the Company has made such election, to obtain information on procedures for submitting their Certificates to the Depositary, including the proper form for submission and (during the Initial Exchange Period) the cut-off times for same-day and next-day exchange. A Certificate that is held on behalf of a beneficial owner in nominee or "street name" may be automatically exchanged for Book-Entry PEEQS by the broker or other entity that is the registered holder of such PEEQS, without any action of or consent by the beneficial owner of the PEEQS. Book-Entry System. Any Book-Entry PEEQS will be represented by a single global security (a "Global Security"), which will be deposited with, or on behalf of, the Depositary, and registered in the name of a nominee of the Depositary. Certificates that have been exchanged for Book-Entry PEEQS may not be reexchanged for Certificates, except under the limited circumstances described in the accompanying Prospectus under "Description of Debt Securities - -- Global Securities." Unless and until it is exchanged in whole or in part for Certificates, the Global Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary. The Depositary has advised the Company as follows: The Depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. The Depositary was created to hold securities of its participants and to facilitate the clearance and settlement of transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depositary's participants include securities brokers and dealers (including the Underwriters), banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own the Depositary. Access to the Depositary book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. A further description of the Depositary's procedures with respect to the Global Notes is set forth in the Prospectus under "Description of Debt Securities--Global Securities." The Depositary has confirmed to the Company, the Underwriters and the Trustee that it intends to follow such procedures. Calculation Agent The "Calculation Agent" for the PEEQS will be Morgan Stanley & Co. Incorporated ("MS&Co."). All determinations made by the Calculation Agent shall be at the sole discretion of the Calculation Agent and shall, in the absence of manifest error, be conclusive for all purposes and binding on the Company and holders of the PEEQS. Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the PEEQS, including with respect to certain determinations and judgments that the Calculation Agent must make in determining the Index Values or whether a Market Disruption Event has occurred. See "S&P 500 Index -- Discontinuance of the S&P Index; Alteration of Method of Calculation" below and "Market Disruption Event" above. MS&Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. RISK FACTORS An investment in the PEEQS entails significant risks not associated with similar investments in a conventional security, including the following. Comparison to Other Debt Securities If an amount in dollars equal to 10% of the Final Index Value of the S&P 500 Index does not exceed Par, the holders of the PEEQS will receive only the par amount of each PEEQS at maturity. Because the Final Index Value will be based upon the closing value of the S&P 500 Index on a specified Determination Date), a significant increase in the S&P 500 Index subsequent to issuance may be substantially or entirely offset by subsequent decreases in the value of the S&P 500 Index on or prior to such Determination Date. The PEEQS do not bear any periodic payment of interest. Because an amount in dollars equal to 10% of the Final Index Value of the S&P 500 Index may be less than, equal to or only slightly above Par, the effective yield to maturity may be less than that which would be payable on a conventional fixed-rate debt security. The return of only the par amount of a PEEQS at maturity may not compensate the holder for any opportunity cost implied by inflation and other factors relating to the time value of money. Any appreciation of the S&P 500 Index so that 10% of the Final Index Value is greater than Par will not reflect the payment of dividends on the stocks underlying the S&P 500 Index. Therefore the yield to maturity based on any appreciation of the Final Index Value relative to Par will not be the same yield as would be produced if such underlying stocks were purchased and held for a similar period. Possible Illiquidity of the Secondary Market There can be no assurance as to whether there will be a secondary market in the PEEQS or if there were to be such a secondary market, whether such market would be liquid or illiquid. It is expected that the secondary market for the PEEQS will be affected by the creditworthiness of the Company and by a number of factors, including, but not limited to, the volatility of the S&P 500 Index, dividend rates on the stocks underlying the S&P 500 Index, the time remaining to the maturity of the PEEQS and market interest rates. In addition, the Final Index Value depends on a number of interrelated factors, including economic, financial and political events, over which the Company has no control. The value of the PEEQS prior to maturity is expected to depend primarily on the extent of the appreciation or depreciation of the S&P 500 Index and market interest rates. The price at which a holder will be able to sell the PEEQS prior to maturity may be at a discount, which could be substantial, from the par amount thereof, if, at such time, the S&P 500 Index is less than, equal to, or not sufficiently above the Index Value on the date of this Prospectus Supplement. Relationship of PEEQS and the S&P 500 Index The historical S&P 500 Index values should not be taken as an indication of the future performance of the S&P 500 Index during the term of the PEEQS. While the trading prices of the stocks underlying the S&P 500 Index will determine the value of the S&P 500 Index, it is impossible to predict whether the value of the S&P 500 Index will fall or rise. Trading prices of the stocks underlying the S&P 500 Index will be influenced by both the complex and interrelated political, economic, financial and other factors that can affect the capital markets generally and the equity trading markets on which the underlying stocks are traded, and by various circumstances that can influence the values of the underlying stocks in a specific market segment or a particular underlying stock. The policies of S&P concerning additions, deletions and substitutions of the stocks underlying the S&P 500 Index and the manner in which S&P takes account of certain changes affecting such underlying stocks may affect the value of the S&P 500 Index. The policies of S&P with respect to the calculation of the S&P 500 could also affect the value of the S&P 500 Index. S&P may discontinue or suspend calculation or dissemination of the S&P 500 Index. Any such actions could affect the value of the PEEQS. See "S&P 500 Index" below. Affiliation of the Company and Calculation Agent Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the PEEQS, including with respect to certain determinations and judgments that the Calculation Agent must make in determining the Index Values or whether a Market Disruption Event has occurred. See "S&P 500 Index -- Discontinuance of the S&P Index; Alteration of Method of Calculation" below and "Market Disruption Event" above. MS&Co., as a registered broker-dealer, is required to maintain policies and procedures regarding the handling and use of confidential proprietary information, and such policies and procedures will be in effect throughout the term of the PEEQS to restrict the use of information relating to the calculation of the Index Values that the Calculation Agent may be required to make prior to their dissemination. MS&Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. Other Considerations If a bankruptcy proceeding is commenced in respect of the Company, the claim of a holder of a PEEQS may, under Section 502(b)(2) of Title 11 of the United States Code, be limited to the par amount of such PEEQS. It is suggested that prospective investors who consider purchasing the PEEQS should reach an investment decision only after carefully considering the suitability of the PEEQS in light of their particular circumstances. Investors should also consider the tax consequences of investing in the PEEQS. See "United States Federal Taxation" below. S&P 500 INDEX The S&P 500 Index is published by S&P and is intended to provide a performance benchmark for the U.S. equity markets. The calculation of the value of the S&P 500 Index (discussed below in further detail) is based on the relative value of the aggregate Market Value (as defined below) of the common stocks of 500 companies (the "Component Stocks") as of a particular time as compared to the aggregate average Market Value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. The "Market Value" of any Component Stock is the product of the market price per share and the number of the then outstanding shares of such Component Stock. The 500 companies are not the 500 largest companies listed on the NYSE and not all 500 companies are listed on such exchange. S&P chooses companies for inclusion in the S&P 500 Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 Index to achieve the objectives stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the company's common stock is widelyheld and the Market Value and trading activity of the common stock of that company. The S&P 500 Index is calculated using a base-weighted aggregate methodology: the level of the Index reflects the total Market Value of all 500 Component Stocks relative to the S&P 500 Index's base period of 1941-43 (the "Base Period"). An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. The actual total Market Value of the Component Stocks during the Base Period has been set equal to an indexed value of 10. This is often indicated by the notation 1941-43=10. In practice, the daily calculation of the S&P 500 Index is computed by dividing the total Market Value of the Component Stocks by a number called the Index Divisor. By itself, the Index Divisor is an arbitrary number. However, in the context of the calculation of the S&P 500 Index, it is the only link to the original base period value of the Index. The Index Divisor keeps the Index comparable over time and is the manipulation point for all adjustments to the S&P 500 Index ("Index Maintenance"). Index Maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to company restructurings or spinoffs. To prevent the value of the Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the Index require an Index Divisor adjustment. By adjusting the Index Divisor for the change in total Market Value, the value of the S&P 500 Index remains constant. This helps maintain the value of the Index as an accurate barometer of stock market performance and ensures that the movement of the Index does not reflect the corporate actions of individual companies in the Index. All Index Divisor adjustments are made after the close of trading and after the calculation of the closing value of the S&P 500 Index. Some corporate actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the stock prices of the companies in the Index and do not require Index Divisor adjustments. The table below summarizes the types of S&P 500 Index maintenance adjustments and indicates whether or not an Index Divisor adjustment is required. Divisor Type of Corporate Adjustment Action Adjustment Factor Required - ----------------- ----------------- ---------- Stock split Shares Outstanding multiplied by 2; Stock Price No (i.e. 2x1) divided by 2 Share issuance Shares Outstanding plus newly issued Shares Yes (i.e. Change > 5%) Share repurchase Shares Outstanding minus Repurchased Shares Yes (i.e. Change > 5%) Special cash dividends Share Price minus Special Dividend Yes Company change Add new company Market Value minus old company Yes Market Value Rights offering Price of parent company minus Yes Price of Rights --------------- Right Ratio Spin-Offs Price of parent company minus Yes Price of Spin-Off Co. --------------------- Share Exchange Ratio Stock splits and stock dividends do not affect the Index Divisor of the S&P 500 Index, because following a split or dividend both the stock price and number of shares outstanding are adjusted by S&P so that there is no change in the Market Value of the Component Stock. All stock split and dividend adjustments are made after the close of trading on the day before the ex-date. Each of the corporate events exemplified in the table requiring an adjustment to the Index Divisor has the effect of altering the Market Value of the Component Stock and consequently of altering the aggregate Market Value of the Component Stocks (the "Post-Event Aggregate Market Value"). In order that the level of the Index (the "PreEvent Index Value") not be affected by the altered Market Value (whether increase or decrease) of the affected Component Stock, a new Index Divisor ("New Divisor") is derived as follows: Post-Event Aggregate Market Value = Pre-Event Index Value --------------------------------- New Divisor New Divisor = Post-Event Aggregate Market Value --------------------------------- Pre-Event Index Value A large part of the S&P 500 Index maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P 500 Index companies. Four times a year, on a Friday shortly prior to the end of each calendar quarter, the share totals of companies in the Index are updated as required by any changes in the number of shares outstanding. After the totals are updated, the Index Divisor is adjusted to compensate for the net change in the total Market Value of the Index. In addition, any changes over 5% in the current common shares outstanding for the S&P 500 Index companies are carefully reviewed on a weekly basis, and when appropriate, an immediate adjustment is made to the Index Divisor. Discontinuance of the S&P 500 Index; Alteration of Method of Calculation If S&P discontinues publication of the S&P 500 Index and S&P or another entity publishes a successor or substitute index that the Calculation Agent determines, in its sole discretion, to be comparable to the discontinued S&P 500 Index (such index being referred to herein as a "Successor Index"), then the relevant Index Value shall be determined by reference to the value of such Successor Index at the close of trading on the NYSE, the AMEX, NASDAQ NMS or the relevant exchange or market for the Successor Index on the applicable Determination Date. Upon any selection by the Calculation Agent of a Successor Index, the Calculation Agent shall cause written notice thereof to be furnished to the Trustee, to the Company and to the holders of the PEEQS within three Trading Days of such selection. If S&P discontinues publication of the S&P 500 Index prior to, and such discontinuance is continuing on, any Determination Date and the Calculation Agent determines that no Successor Index is available at such time, then on such Determination Date, the Calculation Agent shall determine the Index Value on such Determination Date. The Index Value shall be computed by the Calculation Agent in accordance with the formula for and method of calculating the S&P 500 Index last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such Determination Date of each security most recently comprising the S&P 500 Index. Notwithstanding these alternative arrangements, discontinuance of the publication of the S&P 500 Index may adversely affect the value of the PEEQS. If at any time the method of calculating the S&P 500 Index or a Successor Index, or the value thereof, is changed in a material respect, or if the S&P 500 Index or a Successor Index is in any other way modified so that such index does not, in the opinion of the Calculation Agent, fairly represent the value of the S&P 500 Index or such Successor Index had such changes or modifications not been made, then, from and after such time, the Calculation Agent shall, at the close of business in New York City on each Determination Date, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to the S&P 500 Index or such Successor Index, as the case may be, as if such changes or modifications had not been made, and calculate the Index Value with reference to the S&P 500 Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the S&P 500 Index or a Successor Index is modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent shall adjust such index in order to arrive at a value of the S&P 500 Index or such Successor Index as if it had not been modified (e.g., as if such split had not occurred). Alternate Determination Date in case of an Event of Default In case an Event of Default with respect to any PEEQS shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the PEEQS will be determined by the Calculation Agent and will be equal to, for each $ principal amount of such PEEQS, the greater of (i) Par and (ii) an amount in dollars equal to 10% of the Index Value of the S&P 500 Index determined as though the Determination Date were the date of acceleration. Public Information All disclosure contained in this Prospectus Supplement regarding the S&P 500 Index, including, without limitation, its composition, method of calculation and changes in its components, is derived from publicly available information prepared by S&P. Neither the Company nor the Underwriters take any responsibility for the accuracy or completeness of such information. Historical Information The following table sets forth the high and low daily closing values, as well as end-of-quarter closing values, of the S&P 500 Index for each quarter in the period from January 1, 1991 through April 18, 1996. The historical values of the S&P 500 Index should not be taken as an indication of future performance, and no assurance can be given that the S&P 500 Index will increase so as to cause an amount in dollars equal to 10% of the S&P 500 to be greater than Par. Daily Index Values ----------------------------- High Low Period End ------- --- ---------- 1991 1st Quarter..................... 376.72 311.49 375.22 2nd Quarter..................... 390.45 368.57 371.16 3rd Quarter..................... 396.64 373.33 387.86 4th Quarter..................... 417.09 375.22 417.09 1992 1st Quarter..................... 420.77 403.00 403.69 2nd Quarter..................... 418.49 394.50 408.14 3rd Quarter..................... 425.27 409.16 417.80 4th Quarter..................... 441.28 402.66 435.71 1993 1st Quarter..................... 456.34 429.05 451.67 2nd Quarter..................... 453.85 433.54 450.53 3rd Quarter..................... 463.56 441.43 458.93 4th Quarter..................... 470.94 457.48 466.45 1994 1st Quarter..................... 482.00 445.55 445.76 2nd Quarter..................... 462.37 438.92 444.27 3rd Quarter..................... 476.07 446.13 462.71 4th Quarter..................... 473.77 445.45 459.27 1995 1st Quarter..................... 503.90 459.11 500.71 2nd Quarter..................... 551.07 501.85 544.75 3rd Quarter..................... 586.77 547.09 584.41 4th Quarter..................... 621.69 576.72 615.93 1996 1st Quarter..................... 661.45 548.48 645.50 2nd Quarter (through April 18, 1996)..................... 655.88 631.18 643.61 License Agreement S&P and MS&Co. have entered into a non-exclusive license agreement providing for the license to MS&Co., and any of its affiliated or subsidiary companies, in exchange for a fee, of the right to use the S&P 500 Index, which is owned and published by S&P, in connection with certain securities, including the PEEQS. The license agreement between S&P and MS&Co. provides that the following language must be set forth in this Prospectus Supplement: The PEEQS are not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the holders of the PEEQS or any member of the public regarding the advisability of investing in securities generally or in the PEEQS particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Company is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which is determined, composed and calculated by S&P without regard to the Company or the PEEQS. S&P has no obligation to take the needs of the Company or the holders of the PEEQS into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the PEEQS to be issued or in the determination or calculation of the equation by which the PEEQS are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the PEEQS. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, HOLDERS OF THE PEEQS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. "Standard & Poor's[Registered]", "S&P[Registered]", "S&P 500[Registered]", "Standard & Poor's 500," and "500" are trademarks of McGraw-Hill, Inc. and have been licensed for use by MS&Co. USE OF PROCEEDS AND HEDGING The net proceeds to be received by the Company from the sale of the PEEQS will be used for general corporate purposes and, in part, by the Company or one or more of its affiliates in connection with hedging the Company's obligations under the PEEQS. On or prior to the date of this Prospectus Supplement, the Company, through its subsidiaries and others, will hedge its anticipated exposure in connection with the PEEQS by the purchase and sale of exchange traded and over the counter options on the S&P 500 Index, individual stocks included in the S&P 500 Index, futures contracts on the S&P 500 Index and options on such futures contracts. The Company, through its subsidiaries, is likely to modify its hedge position throughout the life of the PEEQS by purchasing and selling such instruments and any other instruments that it may wish to use in connection with such hedging. Although the Company has no reason to believe that its hedging activity will have a material impact on the price of such options, stocks, futures contracts and options on futures contracts or on the value of the S&P 500 Index, there can be no assurance that the Company will not affect such prices or value as a result of its hedging activities. See also "Use of Proceeds" in the accompanying Prospectus. UNITED STATES FEDERAL TAXATION In the opinion of Davis Polk & Wardwell, special tax counsel to the Company, the discussion set forth below is a summary of the material U.S. federal income tax considerations that are generally relevant to holders of the PEEQS. The summary is based on tax laws in effect as of the date hereof, which are subject to change by legislative, judicial or regulatory action that in some cases may have retroactive effect. This summary does not address all of the tax considerations that may be relevant to a holder in light of such holder's particular circumstances. In particular, this summary addresses only persons who hold PEEQS as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code"), and does not deal with persons subject to special rules, such as foreign persons, certain financial institutions, insurance companies, dealers in options or securities or purchasers holding PEEQS as a part of a hedging transaction or straddle or as part of a "synthetic security" or other integrated investments. This summary also does not deal with holders other than initial holders of the PEEQS who purchase PEEQS at Par. Because of the absence of authority on point, there are substantial uncertainties regarding the U.S. federal income tax consequences of an investment in the PEEQS. As used herein, the term "United States Holder" means a holder of PEEQS that is (i) a United States citizen or a resident of the United States for U.S. federal income tax purposes, (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 or trust the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a person otherwise subject to U.S. federal income taxation on a net income basis in respect of such holder's ownership of the PEEQS. The PEEQS will be treated as indebtedness of the Company for United States Federal income tax purposes. Although proposed Treasury regulations addressing the treatment of contingent debt instruments were issued on December 15, 1994, such regulations, which generally would require current accrual of contingent amounts and would affect the character of gain on the sale, exchange or retirement of debt, by their terms apply only to debt instruments issued on or after the 60th day after the regulations are finalized. Under general United States federal income tax principles, upon exercise of the Exchange Right or at maturity, a United States Holder will recognize gain or loss, if any, equal to the difference between the amount realized and such Holder's tax basis in the PEEQS. Any loss recognized upon exchange or at maturity will be capital loss. It is unclear under existing law whether gain recognized will be treated as ordinary or capital in character. Subject to further guidance from the Internal Revenue Service, however, the Company intends to treat such gain as interest income and to report such amounts accordingly. Prospective investors should consult with their tax advisors regarding the character of gain recognized upon exchange or at maturity. United States Holders that have acquired debt instruments similar to the PEEQS and have accounted for such debt instruments under proposed, but subsequently withdrawn, Treasury regulation Section 1.1275-4 may be deemed to have established a method of accounting that must be followed with respect to the PEEQS, unless consent of the Commissioner of the Internal Revenue Service is obtained to change such method. Absent such consent, such a Holder would be required to account for the PEEQS in the manner prescribed in such withdrawn Treasury regulations. The Internal Revenue Service, however, would not be required to accept such method as correct. Any gain or loss recognized on the sale or other taxable disposition of a PEEQS prior to maturity will be treated as capital in character. There can be no assurance that the ultimate tax treatment of the PEEQS would not differ significantly from the description herein. Prospective investors are urged to consult their tax advisors as to the possible consequences of holding the PEEQS. Back-up Withholding Certain noncorporate United States Holders may be subject to backup withholding at a rate of 31% on payments of principal, premium and interest (including original issue discount, if any) on, and the proceeds of disposition of, a PEEQS. Backup withholding will apply only if the Holder (i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an individual, would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service that it has failed to properly report payments of interest and dividends or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the Internal Revenue Service that it is subject to backup withholding for failure to report interest and dividend payments. United States Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption if applicable. The amount of any backup withholding from a payment to a United States Holder will be allowed as a credit against such Holder's United States federal income tax liability and may entitle such Holder to a refund, provided that the required information is furnished to the Internal Revenue Service. ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES The Company and certain affiliates of the Company, including MS&Co., 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 PEEQS are acquired by or with the assets of a pension or other employee benefit plan subject to ERISA or the Code with respect to which MS&Co. or any of its affiliates is a service provider, unless such PEEQS 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 such 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. Any insurance company or pension or employee benefit plan proposing to invest in the PEEQS should consult with its legal counsel. UNDERWRITERS Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof, the Underwriters have severally agreed to purchase the respective number of PEEQS set forth opposite their respective names below: Principal Amount Name of PEEQS ---- ---------------- Morgan Stanley & Co. Incorporated..... Donaldson, Lufkin & Jenrette Securities Corporation.............. --------- Total ........................... 1,000,000 ========= The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the PEEQS are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are committed to take and pay for all of the PEEQS if any such PEEQS are taken. The Underwriters propose initially to offer the PEEQS directly to the public at the maximum public offering price set forth on the cover page hereof (except that the price will be $ for the purchase of 100,000 or more PEEQS in any single transaction, subject to the holding period requirements described herein) and to certain dealers at a price that represents a concession not in excess of $ per PEEQS. After the initial offering of the PEEQS, the offering price and other selling terms may from time to time be varied by the Underwriters. Generally, delivery of approximately % of the PEEQS (the "Delivered PEEQS") purchased by an investor at the reduced price will be made on the date of delivery of the PEEQS referred to on the cover of this Prospectus Supplement. The balance of approximately % of the PEEQS (the "Escrowed PEEQS") purchased by each such investor will be held in escrow and delivered to such investor if the investor and any accounts in which the investor may have deposited any of its Delivered PEEQS have held all of the Delivered PEEQS for 45 days following the date of this Prospectus Supplement or any shorter period deemed appropriate by MS&Co. If an investor or any account in which the investor has deposited any of its Delivered Escrowed PEEQS fails to satisfy the holding period requirement, as determined by MS&Co., all of the investor's Escrowed PEEQS will be forfeited by the investor and not delivered to it. The Escrowed PEEQS will instead be delivered to the Underwriters for sale to investors. This forfeiture will have the effect of increasing the purchase price per PEEQS for such investors to % of the principal amount of the PEEQS. Should investors who are subject to the holding period requirement sell their PEEQS once the holding period is no longer applicable, the market price of the PEEQS may be adversely affected. See also "Plan of Distribution" in the accompanying Prospectus Supplement. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make in respect thereof. The PEEQS may be offered to investors outside the United States. The Underwriters have further agreed that any offers and sales made outside the United States will be made in compliance with any selling restrictions applicable in the jurisdictions where such offers and sales are made. This Prospectus Supplement and the accompanying Prospectus may be used by MS&Co. in connection with offers and sales of the PEEQS in market-making transactions at negotiated prices related to prevailing market prices at the time of sale or otherwise. MS&Co. may act as principal or agent in such transactions. MS&Co. is a wholly-owned subsidiary of the Company. MS&Co.'s participation in the offering of the PEEQS and its market-making activities, if any, with respect to the PEEQS will be conducted in compliance with Schedule E of the By-Laws of the NASD. The Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. ANNEX A OFFICIAL NOTICE OF EXCHANGE Dated: [On or after November ___, 1997] Morgan Stanley Group Inc. 1585 Broadway New York, New York 10036 Morgan Stanley & Co. Incorporated, as Calculation Agent 1585 Broadway New York, New York 10036 (Attn: Alan Thomas) Fax: 212-761-0028 Dear Sirs: The undersigned holder of the Protected Exchangeable EQuity-linked Securities Due May , 2001 of Morgan Stanley Group Inc. (the "PEEQS") hereby irrevocably elects to exercise with respect to the number of PEEQS indicated below, as of the date hereof (or, if this letter is received after 11:00 a.m. on any Trading Day, as of the next Trading Day, provided that such day is on or prior to the seventh scheduled Trading Day prior to May , 2001), the Exchange Right as described in the Prospectus Supplement dated May , 1996 and the Prospectus dated March 29, 1995 related to Registration Statement No. 33-57833. Capitalized terms not defined herein have the meanings given to such terms in the Prospectus Supplement. Please date and acknowledge receipt of this notice in the place provided below on the date of receipt, and fax a copy to the fax number indicated. Upon receipt of this notice, the Company will deliver five Business Days after the Determination Date with respect to such Exchange Date, an amount in dollars, as determined by the Calculation Agent, equal to 10% of the Final Index Value of the S&P 500 Index, in accordance with the terms of the PEEQS, as described in the Pricing Supplement. Very truly yours, _________________________________________ [Name of Holder] By:______________________________________ [Title] _________________________________________ [Fax No.] _________________________________________ Number of PEEQS (minimum of 100) surrendered for exchange Receipt of the above Official Notice of Exchange is hereby acknowledged MORGAN STANLEY GROUP INC., as Issuer MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent By:____________________________________ Title: Date and time of acknowledgement_______ -----END PRIVACY-ENHANCED MESSAGE-----