PROSPECTUS SUPPLEMENT
(To Prospectus dated February 25, 1998)
$750,000,000
Morgan Stanley Capital Trust II
7 1/4% CAPITAL SECURITIES
guaranteed by
Morgan Stanley Dean Witter & Co.
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Morgan Stanley Capital Trust II, formerly known as MSDW Capital Trust II, is
offering capital securities that Morgan Stanley Dean Witter & Co., referred to
in this prospectus supplement as Morgan Stanley, will fully and
unconditionally guarantee, based on its combined obligations under a
guarantee, a trust agreement and a junior subordinated debt indenture. Morgan
Stanley Capital Trust II will redeem the capital securities on July 31, 2031,
which date may be extended to a date not later than July 31, 2050, and may
redeem them earlier.
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The capital securities have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, and trading of the capital
securities on the New York Stock Exchange is expected to commence within 30
days after they are first issued. The New York Stock Exchange symbol for the
capital securities is "MWJ."
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Investing in the capital securities involves risks. See "Risk Factors"
beginning on page S-9.
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PRICE $25 PER CAPITAL SECURITY
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Underwriting Proceeds To
Price To Discounts and Morgan Stanley
Public(1) Commissions(2) Capital Trust II(1)(2)
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Per Capital Security...................... $25 $.7875 $25
Total .................................... $750,000,000 $23,625,000 $750,000,000
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(1) Plus accumulated distributions, if any, from July 19, 2001.
(2) Because Morgan Stanley Capital Trust II will use all of the proceeds from
the sale of the capital securities and its common securities to purchase
junior subordinated debentures of Morgan Stanley, Morgan Stanley will pay all
underwriting discounts and commissions. For sales of 10,000 or more capital
securities to a single purchaser, the underwriting commission will be $.50 per
capital security.
This prospectus supplement and the accompanying prospectus may be used by the
underwriters in connection with offers and sales of the capital securities in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale or otherwise. The underwriters may act as principal
or agent in such transactions.
The underwriters may purchase up to an additional 4,500,000 capital securities
for $25 per capital security and accumulated distributions, if any, within 30
days from the date of this prospectus supplement to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the capital securities to purchasers on
July 19, 2001.
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MORGAN STANLEY
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
UBS WARBURG
July 12, 2001
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TABLE OF CONTENTS
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Prospectus Supplement Prospectus
Page Page
Prospectus Supplement Summary..............................S-3 Available Information...............................3
Risk Factors...............................................S-9 Incorporation of Certain
Morgan Stanley Capital Trust II...........................S-13 Documents by Reference.............................3
Consolidated Ratios of Earnings to Fixed Charges The Company.........................................5
and Earnings to Fixed Charges and Preferred The Issuer Trusts...................................6
Stock Dividends...........................................S-14 Use of Proceeds.....................................7
Accounting Treatment......................................S-14 Consolidated Ratios of Earnings to Fixed
Description of Capital Securities.........................S-15 Charges and Earnings to Fixed Charges
Description of Junior Subordinated Debentures.............S-23 and Preferred Stock Dividends......................7
Description of Guarantee..................................S-30 Description of Debt Securities......................8
Relationship Among the Capital Securities, the Junior Description of Capital Securities..................16
Subordinated Debentures and the Guarantee.................S-31 Global Securities..................................22
United States Federal Income Tax Consequences.............S-33 Description of Guarantees..........................24
Certain ERISA Considerations..............................S-37 Plan of Distribution...............................27
Underwriters..............................................S-40 Validity of Securities.............................28
Validity of Securities....................................S-43 Experts............................................28
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus.
Morgan Stanley Trust and Morgan Stanley have not authorized anyone to provide
you with information other than that contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. Morgan Stanley
Trust and Morgan Stanley are offering to sell the capital securities, and are
seeking offers to buy the capital securities, only in jurisdictions where
offers and sales are permitted. In this prospectus supplement, references to
Morgan Stanley Trust mean Morgan Stanley Capital Trust II and references to
Morgan Stanley mean Morgan Stanley Dean Witter & Co.
Except as otherwise noted, the discussion in this prospectus
supplement assumes that the underwriters will only purchase 30,000,000 capital
securities and will not purchase any additional securities pursuant to their
over-allotment option.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering of the capital securities in certain jurisdictions
may be restricted by law. Persons outside the United States who came into
possession of this prospectus supplement and accompanying prospectus must
inform themselves about and observe any restrictions relating to the offering
of the capital securities and the distribution of this prospectus supplement
and the accompanying prospectus outside the United States.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following information concerning Morgan Stanley, Morgan Stanley
Trust, the 7 1/4% capital securities to be issued by Morgan Stanley Trust, the
guarantee to be issued by Morgan Stanley with respect to the capital
securities and the 7 1/4>% junior subordinated debentures due July 31, 2031 to
be issued by Morgan Stanley supplements, and should be read in conjunction
with, the information contained in the accompanying prospectus. Terms defined
in the accompanying prospectus have the same meanings in this prospectus
supplement.
Morgan Stanley Dean Witter & Co.
Morgan Stanley is a global financial services firm that maintains
leading market positions in each of its three business segments: Securities,
Investment Management and Credit Services.
Morgan Stanley's Securities business segment includes:
o investment banking, including securities underwriting and
distribution, financial advisory services, including advice on
mergers and acquisitions, restructurings, real estate and project
finance, and financing and investing;
o sales, trading, financing and market-making activities to
facilitate client orders and on a proprietary basis, in such
products as equity securities and related products, fixed income
securities and related products, including foreign exchange and
commodities, and derivatives;
o principal investing, including private equity activities; and
o securities services to accommodate individual investor needs,
including full-service brokerage services for investors seeking
financial advice, online execution capabilities for self-directed
investors desiring to invest with limited professional assistance
and financial advisory services for high net worth clients.
Morgan Stanley's Investment Management business segment provides
global asset management products and services to individual and institutional
investors through three principal distribution channels: Morgan Stanley's
financial advisors; a non-proprietary channel consisting of broker-dealers,
banks and financial planners; and Morgan Stanley's proprietary institutional
channel.
Morgan Stanley's Credit Services business segment includes Discover
Financial Services, which offers the Discover(R) Card, the Discover Platinum
Card, the Morgan Stanley Dean Witter(TM) Card and other proprietary general
purpose credit cards and Discover Business Services, a proprietary network of
merchant and cash access locations in the United States.
Morgan Stanley provides its products and services to a large and
diversified group of clients and customers, including corporations,
governments, financial institutions and individuals. Morgan Stanley conducts
its business from its headquarters in New York City, its regional offices and
branches throughout the U.S. and its principal offices in London, Tokyo, Hong
Kong and other financial centers throughout the world.
Morgan Stanley Capital Trust II
Morgan Stanley Trust is a statutory Delaware business trust. Morgan
Stanley Trust exists solely to:
S-3
o issue and sell its common securities to Morgan Stanley;
o issue and sell its capital securities to the public;
o use the proceeds from the sale of its common securities and capital
securities to purchase junior subordinated debentures from Morgan
Stanley; and
o engage in other activities that are necessary, convenient or
incidental to these purposes.
The Bank of New York will act as the property trustee of Morgan
Stanley Trust. The Bank of New York (Delaware) will act as the Delaware
trustee of Morgan Stanley Trust. Two employees, officers or affiliates of
Morgan Stanley or its subsidiaries will act as administrators of Morgan
Stanley Trust. The principal offices and telephone number of Morgan Stanley
Trust are 1585 Broadway, New York, New York 10036 and (212) 761-4000.
The Offering
Morgan Stanley Trust is offering its capital securities for $25 per
security. Morgan Stanley Trust will use all of the proceeds from the sale of
its capital securities and its common securities to purchase junior
subordinated debentures of Morgan Stanley. The junior subordinated debentures
will be Morgan Stanley Trust's only assets. Morgan Stanley will fully and
unconditionally guarantee the obligations of Morgan Stanley Trust, based on
its combined obligations under a guarantee, a trust agreement and a junior
subordinated debt indenture.
The Capital Securities
If you purchase capital securities, you will be entitled to receive
cumulative cash distributions at an annual rate of $1.8125 for each capital
security, which represents 7 1/4% of the liquidation amount of $25 for each
capital security. If Morgan Stanley Trust is terminated and its assets
distributed, for each capital security you own, you are entitled to receive
the liquidation amount of $25 plus accumulated but unpaid distributions from
the assets of Morgan Stanley Trust available for distribution, after it has
paid liabilities owed to its creditors. Accordingly, you may not receive the
full liquidation amount and accumulated but unpaid distributions if Morgan
Stanley Trust does not have enough funds.
Distributions will accumulate from the date Morgan Stanley Trust
issues its capital securities. Morgan Stanley Trust will pay the distributions
quarterly on January 31, April 30, July 31 and October 31 of each year,
beginning October 31, 2001. These distributions may be deferred for up to 20
consecutive quarters. Morgan Stanley Trust will only pay distributions when it
has funds available for payment.
If you purchase the capital securities, you will have limited voting
rights. You will be entitled to vote on the following matters:
o removal of the property trustee or the Delaware trustee when there
is an event of default under the junior subordinated debentures,
o certain modifications to the terms of the capital securities
and the guarantee, and
o the exercise of Morgan Stanley Trust's rights as holder of the
junior subordinated debentures.
S-4
A more detailed description of your voting rights is contained under
"Description of Capital Securities--Removal of Issuer Trustees; Appointment of
Successors," "--Voting Rights; Amendment of Trust Agreements" and "Description
of Guarantees--Amendments and Assignment" on pages 18, 20 and 25 of the
accompanying prospectus.
The Common Securities
Morgan Stanley will acquire all of the common securities of Morgan
Stanley Trust. The common securities will have an aggregate liquidation amount
of at least 3% of the total capital of Morgan Stanley Trust. Except as
described under "Ranking" below, the common securities will rank equal to the
capital securities in priority of payment. Normally, the common securities
will have sole voting power on matters to be voted upon by Morgan Stanley
Trust's security holders.
The Junior Subordinated Debentures
Morgan Stanley Trust will purchase the junior subordinated debentures
from Morgan Stanley with the proceeds from the sale of its capital securities
and its common securities. Morgan Stanley will issue the junior subordinated
debentures under a junior subordinated debt indenture between Morgan Stanley
and The Bank of New York, as indenture trustee. The junior subordinated
debentures will:
o have an aggregate principal amount equal to $773,195,900, which is
the aggregate liquidation amount of the capital securities plus the
capital contributed by Morgan Stanley for the common securities;
o bear interest at an annual rate of 7 1/4%;
o pay interest quarterly, subject to the right o Morgan Stanley to
defer interest payments for up to 20 consecutive quarters as
described below; and
o mature on July 31, 2031, although Morgan Stanley may redeem them
earlier or accelerate or extend their maturity under the
circumstances described below.
The Guarantee of the Capital Securities
Morgan Stanley will guarantee the capital securities on a limited
basis under the guarantee.
The guarantee requires Morgan Stanley to pay accumulated but unpaid
distributions, redemption payments and liquidation payments on the capital
securities on behalf of Morgan Stanley Trust only in an amount equal to the
sum of the payments Morgan Stanley has made to Morgan Stanley Trust on the
junior subordinated debentures. It does not, however, require Morgan Stanley
to make payments on behalf of Morgan Stanley Trust if Morgan Stanley Trust
does not have sufficient funds to make payments on the capital securities
because Morgan Stanley has not made payments on the junior subordinated
debentures.
Ranking
The capital securities will generally rank equal to the common
securities in priority of payment. Morgan Stanley Trust will make payments on
the capital securities and the common securities based on a proportionate
allocation of the payments it receives on the junior subordinated debentures.
However, the capital securities will rank prior to the common securities as to
payment if and so long as Morgan Stanley fails to pay any amounts
S-5
under the junior subordinated debentures when due. For a more detailed
explanation, see "Description of Capital Securities--Subordination of Common
Securities" on page 17 of the accompanying prospectus.
The junior subordinated debentures and the guarantee will be
unsecured and will rank subordinate and junior in right of payment to all of
Morgan Stanley's current and future senior indebtedness, liabilities and
obligations, including senior subordinated debt of Morgan Stanley, and
effectively subordinated to all indebtedness and other liabilities of its
subsidiaries. For a more detailed explanation, see "Description of Debt
Securities--Subordinated Debt--Junior Subordinated Debt" on page 11 of the
accompanying prospectus and "Description of Guarantees--Status of the
Guarantees" on page 25 of the accompanying prospectus.
Deferral of Distributions
Unless there is an event of default under the junior subordinated
debentures, Morgan Stanley can defer interest payments on the junior
subordinated debentures during any period of up to 20 consecutive quarters,
but not beyond their maturity date. After Morgan Stanley makes all interest
payments that it has deferred, including accrued interest on the deferred
payments, Morgan Stanley can again defer interest payments during new periods
of up to 20 consecutive quarters as long as Morgan Stanley adheres to the same
requirements.
If Morgan Stanley defers interest payments on the junior subordinated
debentures, Morgan Stanley Trust will defer distributions on the capital
securities. During any deferral period, distributions will continue to
accumulate on the capital securities at an annual rate of 7 1/4>% of the
liquidation amount of $25 per capital security. Also, the deferred
distributions will accrue additional distributions, as permitted by applicable
law, at an annual rate of 7 1/4%%, compounded quarterly.
While Morgan Stanley defers interest payments on the junior
subordinated debentures, Morgan Stanley will generally not be permitted to:
o declare or pay any dividends or any distributions on, or
redeem, purchase, acquire or make a liquidation payment on
any of its capital stock; or
o make any payment of principal of or interest or premium, if any, on
or repay, repurchase or redeem debt securities of Morgan Stanley
that rank equal or junior to the junior subordinated debentures.
If Morgan Stanley defers payments of interest on the junior
subordinated debentures, the capital securities would at that time be treated
as being issued with original issue discount for United States federal income
tax purposes. This means that you would be required to include accrued
interest in your income for United States federal income tax purposes before
you receive any cash distributions. Please see "United States Federal Income
Tax Consequences" on page S-33 for a more complete discussion.
Redemption of Capital Securities and the Junior Subordinated Debentures
Morgan Stanley Trust will redeem all of the outstanding capital
securities and common securities when Morgan Stanley redeems the junior
subordinated debentures or repays the junior subordinated debentures at
maturity on July 31, 2031, which date may be accelerated under the limited
circumstances described under "Conditional Right to Shorten Maturity" below or
extended as described under "Option to Extend Maturity Date" below. If Morgan
Stanley redeems any junior subordinated debentures before their maturity,
Morgan Stanley Trust will use the cash it receives from the redemption to
redeem capital securities and common securities.
S-6
Except as described above under "Ranking," the aggregate liquidation
amount of capital and common securities to be redeemed will be allocated
approximately 97% to the capital securities and approximately 3% to the common
securities.
Morgan Stanley can redeem the junior subordinated debentures before
their maturity at 100% of their principal amount plus accrued interest to the
date of redemption:
o on or after July 31, 2006, in whole or in part, on one or more
occasions, at any time; and
o before July 31, 2006, in whole only and only if adverse changes in
tax or investment company law described on pages S-17 and S-18,
respectively, occur and are continuing.
Distribution of the Junior Subordinated Debentures
Morgan Stanley has the right to terminate Morgan Stanley Trust at any
time. If Morgan Stanley decides to exercise its right to terminate Morgan
Stanley Trust, Morgan Stanley Trust will distribute approximately 97% of the
junior subordinated debentures to holders of the capital securities and
approximately 3% to the holders of the common securities. However, if an event
of default has occurred with respect to the junior subordinated debentures,
holders of capital securities will have priority over holders of common
securities as described under "Ranking" above. If the junior subordinated
debentures are distributed, Morgan Stanley will use its reasonable best
efforts to list the junior subordinated debentures on the New York Stock
Exchange or any other exchange on which the capital securities are then
listed.
Conditional Right To Shorten Maturity
If adverse changes in tax law described on page S-17, respectively,
occur, Morgan Stanley will have the right, prior to the termination of Morgan
Stanley Trust, to shorten the maturity of the junior subordinated debentures.
Morgan Stanley may only shorten the maturity to the extent necessary so that
the interest paid on the junior subordinated debentures will continue to be
tax deductible by Morgan Stanley. The shortened term of the junior
subordinated debentures may not be less than 15 years from the date of their
original issuance.
Option to Extend Maturity Date
Morgan Stanley can extend the maturity of the junior subordinated
debentures to a date no later than July 31, 2050, so long as at the time such
election is made and at the time such extension commences:
o no event of default under the junior subordinated debentures
has occurred and is continuing,
o Morgan Stanley Trust is not in arrears on payments of distributions
on the capital securities and no deferred distributions on the
capital securities are accumulated, and
o the junior subordinated debentures are and after such extension
will be rated at least BBB- by Standard & Poor's Ratings Services,
at least Baa3 by Moody's Investors Service, Inc. or at least the
equivalent by any other nationally recognized statistical rating
organization.
Use of Proceeds
Morgan Stanley Trust will invest all of the proceeds from the sale of
the capital securities in the junior subordinated debentures. Morgan Stanley
intends to use the net proceeds from the sale of the junior subordinated
S-7
debentures for general corporate purposes, which may include additions to
working capital, the redemption of outstanding preferred stock, the repurchase
of outstanding common stock and the repayment of indebtedness.
Listing of the Capital Securities
The capital securities have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, and trading of the
capital securities on the New York Stock Exchange is expected to commence
within 30 days after they are first issued. You should be aware that the
listing of the capital securities will not necessarily ensure that a liquid
trading market will be available for the capital securities or that you will
be able to sell your capital securities at the price you originally paid for
them.
Risk Factors
Your investment in the capital securities will involve risks. You
should carefully consider the discussion of risks that follows below in the
section entitled "Risk Factors", and the other information in this prospectus
supplement and the accompanying prospectus, before deciding whether an
investment in the capital securities is suitable for you.
Form of Capital Securities
The capital securities will be represented by one or more global
securities that will be deposited with and registered in the name of The
Depository Trust Company ("DTC") or its nominee. This means that you will not
receive a certificate for your capital securities and the capital securities
will not be registered in your name. Rather, your broker or other direct or
indirect participant of DTC will maintain your position in the capital
securities.
S-8
RISK FACTORS
An investment in the capital securities involves a number of risks.
You should carefully review the information contained in the other sections of
this prospectus supplement and the accompanying prospectus and should
particularly consider the following matters before purchasing any capital
securities.
Because Morgan Stanley Trust will rely on the payments it receives on
the junior subordinated debentures to fund all payments on the capital
securities, and because Morgan Stanley Trust may distribute the junior
subordinated debentures in exchange for the capital securities, you are making
an investment decision with regard to the junior subordinated debentures as
well as the capital securities. You should carefully review the information in
this prospectus supplement and the accompanying prospectus about both of these
securities and the guarantee.
Holders of Morgan Stanley's Senior Indebtedness Will Get Paid Before Morgan
Stanley Trust Will Get Paid Under the Junior Subordinated Debentures and
Before You Will Get Paid Under the Guarantee
Morgan Stanley's obligations under the junior subordinated debentures
and the guarantee are unsecured and will rank in priority of payment junior to
all of Morgan Stanley's current and future senior indebtedness, liabilities
and obligations, including the senior subordinated debentures of Morgan
Stanley. As of May 31, 2001, there was approximately $93.8 billion of
outstanding senior indebtedness of Morgan Stanley (including senior
indebtedness consisting of guaranteed obligations of the indebtedness of
subsidiaries).
Morgan Stanley's obligations under the junior subordinated debentures
and the guarantee will also be effectively subordinated to all current and
future indebtedness and other liabilities of its subsidiaries.
The capital securities, the junior subordinated debentures and the
guarantee do not limit the ability of Morgan Stanley or any of its
subsidiaries to incur additional indebtedness, liabilities and obligations,
including indebtedness, liabilities and obligations that rank senior to or
equal with the junior subordinated debentures and the guarantee. For more
information on the ranking of Morgan Stanley's obligations under the junior
subordinated debentures and the guarantee, see "Description of Debt
Securities--Subordinated Debt--Junior Subordinated Debt" on page 11 of the
accompanying prospectus and "Description of Guarantees--Status of the
Guarantees" on page 25 of the accompanying prospectus.
If Morgan Stanley Does Not Make Payments on the Junior Subordinated
Debentures, Morgan Stanley Trust Will Not be Able to Pay Distributions on the
Capital Securities and the Guarantee Will Not Apply
The ability of Morgan Stanley Trust to timely pay distributions on
the capital securities and the liquidation amount of $25 per capital security
depends solely upon Morgan Stanley's making the related payments on the junior
subordinated debentures when due. If Morgan Stanley defaults on its obligation
to pay the principal of or interest on the junior subordinated debentures,
Morgan Stanley Trust will not have sufficient funds to pay distributions on,
or the $25 liquidation amount per security of, the capital securities.
In that case, you will not be able to rely upon the guarantee for
payment of these amounts because the guarantee only applies if Morgan Stanley
makes the corresponding payment of principal of or interest on the junior
subordinated debentures. Instead, you or the property trustee will have to
bring a legal action against Morgan Stanley to enforce the property trustee's
rights under the indenture relating to the junior subordinated debentures.
See "You May Not Be Able to Enforce Your Rights Against Morgan
Stanley Directly If an Event of Default Occurs; You May Have to Rely on the
Property Trustee to Enforce Your Rights" immediately below and
S-9
"Description of Guarantee" on page S-30 for more information on how to bring a
legal action against Morgan Stanley.
You May Not Be Able To Enforce Your Rights Against Morgan Stanley Directly If
An Event Of Default Occurs; You May Have To Rely On The Property Trustee To
Enforce Your Rights
You will not always be able to directly enforce your rights against
Morgan Stanley if an event of default occurs.
If an event of default under the junior subordinated debentures
occurs and is continuing, that event will also be an event of default under
the capital securities. In that case, you may have to rely on the property
trustee, as the holder of the junior subordinated debentures, to enforce your
rights against Morgan Stanley.
You may bring a legal action against Morgan Stanley if holders of a
majority in liquidation amount of the capital securities direct the property
trustee to enforce its rights under the indenture but it does not enforce its
rights as directed. You may only bring a legal action against Morgan Stanley
directly if the event of default under the trust agreement occurs because of
Morgan Stanley's failure to pay when due interest on or the principal of on
the junior subordinated debentures.
See "Description of Junior Subordinated Debentures--Events of Default
and the Rights of Capital Securities Holders to Take Action Against Morgan
Stanley" on page S-30.
Distributions on the Capital Securities Could be Deferred; You May Have to
Include Interest in Your Taxable Income Before You Receive Cash
As long as Morgan Stanley is not in default under the junior
subordinated debentures, it may defer interest payments on the junior
subordinated debentures one or more times. Each deferral period may last for
up to 20 consecutive quarters, but not beyond the maturity date of the junior
subordinated debentures. During a deferral period, Morgan Stanley Trust would
defer distributions on the capital securities in a corresponding amount.
If Morgan Stanley defers interest payments on the junior subordinated
debentures and Morgan Stanley Trust defers distributions on the capital
securities, you will have to accrue interest income as original issue discount
for United States federal income tax purposes on your proportionate share of
the deferred interest on the junior subordinated debentures held by Morgan
Stanley Trust. As a result, you would have to include that accrued interest in
your gross income for United States federal income tax purposes before you
actually receive any cash attributable to that income. You will also not
receive the cash distribution related to any accrued and unpaid interest from
Morgan Stanley Trust if you sell the capital securities before the record date
for any deferred distributions, even if you held the capital securities on the
date that the payments would normally have been paid.
Morgan Stanley has no current intention of exercising its right to
defer payments of interest on the junior subordinated debentures. However, if
Morgan Stanley exercises this right, the market price of the capital
securities may be adversely affected. If you sell your capital securities when
distributions are being deferred, you may not receive the same return on
investment as someone who continues to hold the capital securities. In
addition, because of Morgan Stanley's right to defer interest payments, the
market price of the capital securities may be more volatile than the market
prices of other securities that are not subject to interest deferrals.
See "Description of Capital Securities--Deferral of Distributions" on
page S-16, "Description of Junior Subordinated Debentures--Option to Extend
Interest Payment Period" on page S-24, and "United States Federal Income Tax
Consequences-US Holders-Interest Income and Original Issue Discount" and
"--Sales of Capital Securities" on pages S-34 and S-35, respectively, for more
information regarding the interest payment deferral option.
S-10
The Capital Securities May be Redeemed Prior to Maturity; You May be Taxed on
the Proceeds and You May Not be Able to Reinvest the Proceeds at the Same or a
Higher Rate of Return
If adverse changes in the tax laws or investment company law
discussed on pages S-17 and S-18, respectively, occur and are continuing,
Morgan Stanley may redeem the junior subordinated debentures in whole, but not
in part, within 90 days following the occurrence of the event. Morgan Stanley
may also redeem the capital securities at its option in whole or in part on
one or more occasions at any time on or after July 31, 2006.
If the junior subordinated debentures are redeemed, the capital
securities will be redeemed at a redemption price equal to the $25 per capital
security liquidation amount plus accumulated but unpaid distributions to the
redemption date. Under current United States federal income tax law, the
redemption of the capital securities would be a taxable event to you.
In addition, you may not be able to reinvest the money you receive
upon redemption at a rate that is equal to or higher than the rate of return
you receive on the capital securities.
See "Description of Junior Subordinated Debentures--Redemption" on
page S-25 and "Description of Capital Securities-- Redemption" on page S-17
and "--Liquidation Distribution Upon Dissolution" on page S-19 for more
information on redemption of the junior subordinated debentures.
Morgan Stanley Trust May Distribute the Junior Subordinated Debentures to the
Holders of the Capital Securities and the Junior Subordinated Debentures May
Trade at a Price that is Lower than the Price You Paid for the Capital
Securities
If Morgan Stanley terminates Morgan Stanley Trust before the maturity
of the junior subordinated debentures, the property trustee will distribute
the junior subordinated debentures to the holders of the capital securities
and the common securities in liquidation of Morgan Stanley Trust.
No one can accurately predict the market prices for the junior
subordinated debentures that may be distributed. Accordingly, the junior
subordinated debentures that you receive upon a distribution, or the capital
securities you hold pending the distribution, may trade at a lower price than
what you paid to purchase the capital securities.
Although Morgan Stanley has agreed to use its reasonable best efforts
to list the junior subordinated debentures on the New York Stock Exchange or
any other exchange on which the capital securities are then listed, Morgan
Stanley cannot assure you that the New York Stock Exchange will approve the
junior subordinated debentures for listing or that a trading market will exist
for the junior subordinated debentures.
Under the current United States federal income tax law, the
distribution of junior subordinated debentures upon the termination of Morgan
Stanley Trust would generally not be taxable to you. If, however, Morgan
Stanley Trust is characterized for United States federal income tax purposes
as an association taxable as a corporation at the time of the liquidation, the
distribution of the junior subordinated debentures would be taxable to you.
Please see "Description of the Capital Securities--Liquidation
Distribution Upon Dissolution" on page S-19 for more information.
S-11
Morgan Stanley May Shorten the Maturity of the Junior Subordinated Debentures,
Which Will Result in Early Redemption of the Capital Securities; You May Be
Taxed on the Proceeds and You May Not Be Able to Reinvest the Proceeds at the
Same or a Higher Rate of Return
Upon the occurrence and continuation of adverse tax events as
explained in "Description of the Junior Subordinated Debentures--Option to
Accelerate the Maturity Date" on page S-26, Morgan Stanley may, instead of
redeeming the junior subordinated debentures, shorten the stated maturity of
the junior subordinated debentures to a date not less than 15 years from the
date of original issuance. In that event, the mandatory redemption date for
the capital securities will be correspondingly shortened.
Under current United States federal income tax law, the redemption of
the capital securities would be a taxable event to you.
In addition, you may not be able to reinvest the money you receive
upon redemption at a rate that is equal to or higher than the rate of return
you received on the capital securities.
Morgan Stanley May Extend the Maturity of the Junior Subordinated Debentures,
Which Will Delay the Mandatory Redemption Date for the Capital Securities by
Up To 19 Years
Morgan Stanley can extend the maturity of the junior subordinated
debentures to a date no later than July 31, 2050, so long as at the time such
election is made and at the time such extension commences:
o no event of default under the junior subordinated debentures
has occurred and is continuing,
o Morgan Stanley Trust is not in arrears on payments of distributions
on the capital securities and no deferred distributions on the
capital securities are accumulated, and
o the junior subordinated debentures are and after such extension
will be rated at least BBB- by Standard & Poor's Ratings Services,
at least Baa3 by Moody's Investors Service, Inc. or at least the
equivalent by any other nationally recognized statistical rating
organization.
If You Sell Your Capital Securities Between Record Dates for Distribution
Payments, You Will Have to Include Accrued but Unpaid Distributions in Your
Taxable Income
The capital securities may trade at prices that do not fully reflect
the value of accrued but unpaid interest on the underlying junior subordinated
debentures.
If you dispose of your capital securities before the record date for
a distribution payment, you will have to treat a portion of your proceeds from
the disposition as ordinary income for United States federal income tax
purposes in an amount equal to the accrued but unpaid interest on your
proportionate share of the junior subordinated debentures through the date of
your disposition.
Upon the sale of your capital securities you will recognize a capital
loss if the amount you receive is less than your adjusted tax basis in the
capital securities. The amount you receive for your capital securities may not
fully reflect the value of any accrued but unpaid interest at the time of the
sale while your adjusted tax basis will include any accrued but unpaid
interest. Normally, you may not apply capital losses to offset ordinary income
for United States federal income tax purposes.
See "United States Federal Income Tax Consequences--Sales of Capital
Securities" on page S-35 for more information.
S-12
Morgan Stanley Generally Will Control Morgan Stanley Trust Because Your Voting
Rights Are Very Limited; Your Interests May Not Be the Same as Morgan
Stanley's Interests
You will have limited voting rights. For example, you may not elect
or remove any trustees, except when there is a default under the junior
subordinated debentures. In general, only Morgan Stanley, as the sole holder
of the common securities of Morgan Stanley Trust, can replace or remove any of
the trustees of Morgan Stanley Trust.
Morgan Stanley and the administrators of Morgan Stanley Trust, who
are employees or officers of Morgan Stanley or its affiliates, may amend the
trust agreement without the consent of holders of capital securities as
described under "Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreements" on page 20 of the accompanying prospectus.
An Active Trading Market for the Capital Securities May Not Develop
The capital securities constitute a new issue of securities with no
established trading market. The capital securities have been approved for
listing on the New York Stock Exchange, subject to official notice of
issuance, and trading of the capital securities on the New York Stock Exchange
is expected to begin within a 30-day period after the date of this prospectus
supplement. Listing of the capital securities on the New York Stock Exchange
does not guarantee that a trading market for the capital securities will
develop or, if a trading market for the capital securities does develop, the
depth of that market or the ability of holders to sell their capital
securities easily.
MORGAN STANLEY CAPITAL TRUST II
Morgan Stanley Trust is a statutory business trust formed under
Delaware law by:
o the execution of a trust agreement by Morgan Stanley, as
depositor, and the trustees of Morgan Stanley Trust, and
o the filing of a certificate of trust with the Secretary of
State of the State of Delaware.
The capital securities offered hereby will constitute all of the
capital securities of Morgan Stanley Trust. Morgan Stanley, or one of its
affiliates, will acquire all of the common securities of Morgan Stanley Trust,
which have an aggregate liquidation amount equal to at least 3% of the total
capital of Morgan Stanley Trust.
Morgan Stanley has agreed to pay all fees and expenses related to
Morgan Stanley Trust and the offering of the common securities and the capital
securities.
S-13
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth Morgan Stanley's consolidated ratios
of earnings to fixed charges and earnings to fixed charges and preferred stock
dividends for the periods indicated. The fiscal year information for 1996
combines the historical financial information of Dean Witter, Discover & Co.
for the fiscal year ended December 31, 1996 with the historical financial
information of Morgan Stanley Group Inc. for the fiscal year ended November
30, 1996. Subsequent to the merger between Dean Witter, Discover & Co. and
Morgan Stanley Group Inc. in May 1997, Morgan Stanley adopted a fiscal year
end of November 30. The fiscal year information for 1997 and subsequent
periods reflects the change in fiscal year end.
(Unaudited)
Six Months Ended Fiscal Year
------------------------ -----------------------------------------------------
May 31, May 31,
2001 2000 2000 1999 1998 1997 1996
------ ------- ---- ---- ---- ---- ----
Ratio of earnings to
fixed charges.......... 1.2 1.6 1.5 1.6 1.4 1.4 1.3
Ratio of earnings to
fixed charges and
preferred stock
dividends.............. 1.2 1.6 1.5 1.6 1.4 1.4 1.3
For purposes of calculating the ratio of earnings to fixed charges
and the ratio of earnings to fixed charges and preferred stock dividends,
earnings are the sum of:
o pre-tax income; fixed charges; and
o amortization of capitalized interest;
less:
o capitalized interest.
For purposes of calculating both ratios, fixed charges are the sum
of:
o interest expensed and capitalized;
o amortized premiums, discounts and capitalized expenses related to
indebtedness; and
o our estimate of the interest component of rental expenses.
Additionally, for purposes of calculating the ratio of earnings to
fixed charges and preferred stock dividends, preferred stock dividends are
included in the denominator of the ratio on a pre-tax basis. Distributions on
capital securities issued by MSDW Capital Trust I are included in fixed
charges as interest expense, not as preferred stock dividends.
ACCOUNTING TREATMENT
For financial reporting purposes, Morgan Stanley will treat Morgan
Stanley Trust as a subsidiary. Accordingly, Morgan Stanley will include the
accounts of Morgan Stanley Trust in its consolidated financial statements.
Morgan Stanley will include the capital securities in its consolidated balance
sheet, and will include appropriate disclosures about the capital securities,
the guarantee and the junior subordinated debentures in the notes to the
consolidated financial statements. For financial reporting purposes, Morgan
Stanley will record distributions on the capital securities in its
consolidated statements of income.
S-14
DESCRIPTION OF CAPITAL SECURITIES
The following, together with "Description of Capital Securities" on
page 16 of the accompanying prospectus, is a description of the material terms
of the capital securities. You should also read the trust agreement, the
Delaware Business Trust Act and the Trust Indenture Act. A form of the trust
agreement is on file at the SEC as an exhibit to the registration statement
pertaining to this prospectus supplement.
Morgan Stanley Trust will issue the capital securities under the
terms of the trust agreement. The trust agreement is qualified under the Trust
Indenture Act. The Bank of New York will act as the property trustee for
purposes of complying with the Trust Indenture Act. The terms of the capital
securities will include those stated in the trust agreement and the Delaware
Business Trust Act and those made part of the trust agreement by the Trust
Indenture Act.
General
The capital securities will be limited to $750,000,000 aggregate
liquidation amount outstanding, or $862,500,000 aggregate liquidation amount
if the underwriters purchase all the additional capital securities they are
entitled to purchase pursuant to their over-allotment option. The capital
securities will rank equal to, and payments will be made on the capital
securities on a proportional basis with, the common securities. However, the
capital securities will rank prior to the common securities as to payment if
and so long as Morgan Stanley fails to pay amounts under the junior
subordinated debentures when due as described under "Description of Capital
Securities--Subordination of Common Securities" on page 17 of the accompanying
prospectus. The trust agreement does not permit Morgan Stanley Trust to issue
any securities other than the common securities and the capital securities or
to incur any indebtedness.
Morgan Stanley will register the junior subordinated debentures in
the name of Morgan Stanley Capital Trust II. The property trustee will hold
the junior subordinated debentures in trust for the benefit of the holders of
the capital securities and the common securities.
Distributions
Distributions on the capital securities will be fixed at an annual
rate of 7 1/4% of the stated liquidation amount of $25 per capital security,
payable quarterly in arrears on January 31, April 30, July 31 and October 31
of each year, commencing October 31, 2001. If Morgan Stanley Trust is
terminated and its assets distributed, for each capital security you own, you
are entitled to receive the liquidation amount of $25 plus accumulated but
unpaid distributions from the assets of Morgan Stanley Trust available for
distribution, after it has paid liabilities owed to its creditors but before
it pays Morgan Stanley as holder of Morgan Stanley Trust's common securities.
Distributions to which holders of the capital securities are entitled and that
are past due will accumulate additional distributions at an annual rate of
71/4% of the unpaid distributions, compounded quarterly. The term
"distribution" includes any additional distributions payable unless otherwise
stated.
The amount of distributions payable for any period less than a full
distribution period will be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in a partial month in that
period. The amount of distributions payable for any full distribution period
will be computed by dividing the rate per annum by four.
Distributions on the capital securities:
o will be cumulative;
o will accumulate from July 19, 2001, the date of initial issuance
of the capital securities; and
S-15
o will be payable quarterly in arrears on January 31, April 30, July
31 and October 31 of each year, commencing October 31, 2001 and
will be payable to the holder of record, as described below.
Funds available for distribution will be limited to payments received
from Morgan Stanley on the junior subordinated debentures.
Payment of Distributions
Morgan Stanley Trust will pay distributions on the capital securities
to DTC, which will credit the relevant accounts at DTC on the applicable
payment dates, or if DTC does not then hold the capital securities, Morgan
Stanley Trust will make the payments by check mailed to the addresses of the
holders as such addresses appear on the books and records of Morgan Stanley
Trust on the relevant record dates. However, a holder of $1 million or more in
aggregate liquidation amount of capital securities may receive distribution
payments, other than distributions payable at maturity, by wire transfer of
immediately available funds upon written request to Morgan Stanley Trust not
later than 15 calendar days prior to the date on which the distribution is
payable. The record dates will be the 15th calendar day, whether or not a
business day, before the relevant payment date.
Morgan Stanley Trust will pay distributions through the property
trustee. The property trustee will hold amounts received from the junior
subordinated debentures in the payment account for the benefit of the holders
of the capital securities and the common securities.
If a distribution is payable on a day that is not a business day,
then that distribution will be paid on the next day that is a business day,
and without any interest or other payment for any delay with the same force
and effect as if made on the payment date.
A business day is a day other than (a) a Saturday or Sunday, and (b)
a day on which banking institutions in The City of New York, New York are
authorized or required by law or executive order to close.
Deferral of Distributions
As long as there is no event of default under the junior subordinated
debentures, Morgan Stanley has the right to defer payments of interest on the
junior subordinated debentures at any time and from time to time by extending
the interest payment period for a period (an "extension period") of up to 20
consecutive quarters, but not beyond the maturity of the junior subordinated
debentures.
As a consequence, during an extension period, Morgan Stanley Trust
will defer payment of the quarterly distributions on the capital securities.
The accumulated but unpaid distributions will continue to accumulate
additional distributions, as permitted by applicable law, at an annual rate of
71/4%, compounded quarterly, during the extension period.
While Morgan Stanley defers interest payments on the junior
subordinated debentures, it will be restricted from (a) declaring or paying
any dividends or distributions on, or redeeming, purchasing, acquiring or
making a liquidation payment on, any shares of its capital stock and (b)
making payments on or repaying, repurchasing or redeeming any of its debt
securities that rank equal or junior to the junior subordinated debentures.
See "Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Period" and "--Restrictions on Certain Payments; Certain Covenants of
Morgan Stanley" on pages S-24 and S-26, respectively, for more information
regarding these restrictions and the applicable exceptions.
If Morgan Stanley Trust defers distributions, the deferred
distributions, including accumulated additional distributions, will be paid on
the distribution payment date following the last day of the extension period
to the holders on the record date for that distribution payment date. Upon
termination of an extension period and
S-16
payment of all amounts due on the capital securities, Morgan Stanley may elect
to begin a new extension period, subject to the above conditions.
Morgan Stanley has no current intention of deferring payments of
interest by extending the interest payment period on the junior subordinated
debentures.
Redemption
When Morgan Stanley repays or redeems the junior subordinated
debentures, whether at maturity or upon earlier redemption, the property
trustee will apply the proceeds from the repayment or redemption to redeem
capital securities and common securities having an aggregate liquidation
amount equal to that portion of the principal amount of junior subordinated
debentures being repaid or redeemed. The redemption price per security will
equal the $25 liquidation amount, plus accumulated but unpaid distributions to
the redemption date.
If less than all of the junior subordinated debentures are to be
repaid or redeemed, then the aggregate liquidation amount of the capital
securities and the common securities to be redeemed will be allocated
approximately 3% to the common securities and 97% to the capital securities,
except in the case of an event of default as a result of any failure by Morgan
Stanley to pay any amounts under the junior subordinated debentures when due.
See "Description of Capital Securities--Subordination of Common Securities" on
page 17 of the accompanying prospectus.
Morgan Stanley will have the right to redeem the junior subordinated
debentures:
o on or after July 31, 2006, in whole or in part, on one or more
occasions, at any time; and
o before July 31, 2006, in whole, but not in part, at any time
within 90 days following the occurrence and continuation of a tax
event or an investment company event, each as defined below.
A redemption of the junior subordinated debentures will cause a
mandatory redemption of the capital securities and the common securities. See
"Description of Junior Subordinated Debentures--Redemption" on page S-25.
"Tax event" means the receipt by Morgan Stanley Trust of an opinion
of counsel experienced in such matters, who is not an officer or employee of
Morgan Stanley or any of its affiliates, to the effect that as a result of:
o any amendment to, or change, including any announced prospective
change, in the laws, or any regulations thereunder, of the United
States or any political subdivision or taxing authority affecting
taxation which is effective on or after the date of this
prospectus supplement; or
o any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations which
is announced on or after the date of this prospectus supplement;
there is more than an insubstantial risk that:
(1) Morgan Stanley Trust is, or will be within 90 days of the delivery
of the opinion of counsel, subject to United States federal income
tax with respect to income received or accrued on the junior
subordinated debentures;
S-17
(2) interest payable by Morgan Stanley to Morgan Stanley Trust on the
junior subordinated debentures is not, or will not be within 90
days of the delivery of the opinion of counsel, deductible by
Morgan Stanley, in whole or in part, for United States federal
income tax purposes; or
(3) Morgan Stanley Trust is, or will be within 90 days of the delivery
of the opinion of counsel, subject to more than a de minimis
amount of taxes, duties or other governmental charges.
If a tax event has occurred and is continuing and Morgan Stanley
Trust is the holder of all the junior subordinated debentures, Morgan Stanley
will pay any additional sums required so that distributions on the capital
securities will not be reduced by any additional taxes, duties or other
governmental charges payable by Morgan Stanley Trust as a result of the tax
event. See "Description of Junior Subordinated Debentures--Additional Sums" on
page S-25.
"Investment company event" means the receipt by Morgan Stanley Trust
of an opinion of counsel to Morgan Stanley experienced in such matters, who is
not an officer or employee of Morgan Stanley or any of its affiliates, to the
effect that, as a result of the occurrence of a change in law or regulation or
a written change, including any announced prospective change, in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that Morgan Stanley Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of this prospectus
supplement.
Redemption Procedures
Morgan Stanley Trust may redeem capital securities only in an amount
equal to the funds it has on hand and legally available to pay the redemption
price.
The property trustee will mail written notice of the redemption of
the capital securities to the registered holders at least 30 but not more than
60 days before the date fixed for redemption. If Morgan Stanley Trust gives a
notice of redemption, then, by 12:00 noon, New York City time, on the date of
redemption, if the funds are available for payment, the property trustee will,
for capital securities held in book-entry form:
o irrevocably deposit with DTC funds sufficient to pay the
applicable redemption price; and
o give DTC irrevocable instructions and authority to pay the
redemption price to the holders of the capital securities.
With respect to the capital securities not held in book-entry form,
if funds are available for payment, the property trustee will:
o irrevocably deposit with the paying agent funds sufficient to pay
the applicable redemption price; and
o give the paying agent irrevocable instructions and authority to
pay the redemption price to the holders of capital securities upon
surrender of their certificates evidencing the capital securities.
Notwithstanding the above, distributions payable on or prior to the
date of redemption for any capital securities called for redemption will be
payable to the holders of the capital securities on the relevant record dates.
Once notice of redemption is given and funds are deposited, then all
rights of the holders of the capital securities called for redemption will
terminate, except the right to receive the redemption price, but without any
S-18
interest or other payment for any delay in receiving it. If notice of
redemption is given and funds deposited as required, the capital securities
then will cease to be outstanding.
If any date fixed for redemption is not a business day, then payment
of the redemption price will be made on the next day that is a business day,
without any interest or other payment for the delay.
If payment of the redemption price for the capital securities called
for redemption is improperly withheld or refused and not paid either by Morgan
Stanley Trust or by Morgan Stanley under the guarantee, then distributions on
those capital securities will continue to accumulate at the then applicable
rate, from the date of redemption to the date of actual payment. In this case,
the actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price.
Subject to the above and applicable law, including United States
federal securities laws, Morgan Stanley or its affiliates may at any time and
from time to time purchase outstanding capital securities by tender, in the
open market or by private agreement, and may resell capital securities.
If less than all the capital securities and common securities are
redeemed, then the aggregate liquidation amount of the capital securities and
the common securities to be redeemed normally will be allocated approximately
3% to the common securities and 97% to the capital securities. However, if an
event of default has occurred as a result of any failure by Morgan Stanley to
pay any amounts under the junior subordinated debentures when due, holders of
the capital securities will be paid in full before any payments are made to
holders of the common securities. See "Description of Capital
Securities--Subordination of Common Securities" on page 17 of the accompanying
prospectus for a more complete discussion. The property trustee will select
the particular capital securities to be redeemed on the pro rata basis
described above not more than 60 days prior to the date of redemption by any
method the property trustee deems fair and appropriate or, if the capital
securities are then held in book-entry form, in accordance with DTC's
customary procedures.
Liquidation Distribution Upon Dissolution
The amount payable on the capital securities in the event of any
liquidation of Morgan Stanley Trust is the liquidation amount of $25 per
capital security plus accumulated but unpaid distributions, subject to certain
exceptions, which may be paid in the form of a distribution of junior
subordinated debentures.
Morgan Stanley can at any time dissolve Morgan Stanley Trust. If
Morgan Stanley Trust dissolves and it has paid the liabilities owed to its
creditors, the junior subordinated debentures may be distributed to the
holders of the capital securities and common securities.
The trust agreement states that Morgan Stanley Trust will dissolve
automatically on July 31, 2051 or earlier upon:
(1) the bankruptcy, dissolution or liquidation of Morgan Stanley;
(2) the distribution of junior subordinated debentures having a
principal amount equal to the liquidation amount of the capital
securities and the common securities of the holders to whom the
junior subordinated debentures are distributed, if Morgan
Stanley has given written direction to the property trustee to
dissolve Morgan Stanley Trust, which direction, subject to the
foregoing restrictions, is optional and wholly within the
discretion of Morgan Stanley;
(3) the redemption of all the capital securities in connection with
the redemption of all the junior subordinated debentures or the
maturity of the junior subordinated debentures; and
S-19
(4) the entry of an order for the dissolution of Morgan Stanley
Trust by a court of competent jurisdiction.
If Morgan Stanley Trust dissolves as described in clauses (1), (2) or
(4) above, after Morgan Stanley Trust pays all amounts owed to creditors,
holders of the capital securities and the common securities will be entitled
to receive:
o junior subordinated debentures having a principal amount equal to
the liquidation amount of the capital securities and the common
securities of the holders; or, if this is not practical,
o a cash amount equal to, in the case of holders of capital
securities, the aggregate liquidation amount plus accumulated but
unpaid distributions to the date of payment.
If Morgan Stanley Trust cannot pay the full amount due on the capital
securities and the common securities because it has insufficient assets for
payment, then the amounts Morgan Stanley Trust owes on the capital securities
will be proportionately allocated. The holders of the common securities will
be entitled to receive distributions upon any liquidation on a pro rata basis
with the holders of the capital securities, except that if an event of default
under the junior subordinated debentures has occurred and is continuing as a
result of any failure by Morgan Stanley to pay any amounts in respect of the
junior subordinated debentures when due, Morgan Stanley Trust will pay the
total amounts due on the capital securities before making any distribution on
the common securities. See "Description of Capital Securities--Subordination
of Common Securities" on page 17 of the accompanying prospectus.
After the liquidation date is fixed for any distribution of junior
subordinated debentures, upon dissolution of Morgan Stanley Trust:
o the capital securities and the common securities will no longer be
deemed to be outstanding;
o DTC or its nominee, as the registered holder of capital
securities, will receive a registered global certificate or
certificates representing the junior subordinated debentures to be
delivered upon distribution with respect to capital securities
held by DTC or its nominee; and
o any certificates representing capital securities will be deemed to
represent the junior subordinated debentures having an aggregate
principal amount equal to the liquidation amount of the capital
securities, and bearing accrued but unpaid interest equal to
accumulated but unpaid distributions on the capital securities,
until the holder of those certificates presents them to the
security registrar for the capital securities for transfer or
reissuance.
The Capital Securities Will Initially be Issued in Book-Entry Form and Held
Through DTC
DTC will act as securities depository for the capital securities.
Morgan Stanley Trust will issue one or more fully registered global securities
certificates in the name of DTC's nominee, Cede & Co. These certificates will
represent the total aggregate number of capital securities. Morgan Stanley
Trust will deposit these certificates with DTC or a custodian appointed by
DTC. Morgan Stanley Trust will not issue certificates to you for the capital
securities that you purchase, unless DTC's services are discontinued as
described below. Accordingly, you must rely on the procedures of DTC and its
participants to exercise any rights under the capital securities.
DTC has provided Morgan Stanley Trust and Morgan Stanley with the
following information: DTC is a limited-purpose trust company organized under
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 under the provisions of Section 17A of the
Securities Exchange Act of 1934 (the "Exchange
S-20
Act"). DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Direct Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange LLC, and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Direct and
Indirect Participants are on file with the SEC.
When you purchase capital securities within the DTC system, the
purchase must be made by or through a Direct Participant. The Direct
Participant will receive a credit for the capital securities on DTC's records.
You, as the actual owner of the capital securities, are the "beneficial
owner." Your beneficial ownership interest will be recorded on the Direct and
Indirect Participants' records, but DTC will have no knowledge of your
individual ownership. DTC's records reflect only the identity of the Direct
Participants to whose accounts capital securities are credited.
You will not receive written confirmation from DTC of your purchase.
The Direct or Indirect Participants through whom you purchased the capital
securities should send you written confirmations providing details of your
transactions, as well as periodic statements of your holdings. The Direct and
Indirect Participants are responsible for keeping accurate account of the
holdings of their customers like you.
Transfers of ownership interests held through Direct and Indirect
Participants will be accomplished by entries on the books of Direct and
Indirect Participants acting on behalf of the beneficial owners.
The laws of some states may require that specified purchasers of
securities take physical delivery of the capital securities in definitive
form. These laws may impair the ability to transfer beneficial interests in
the global certificate representing the capital securities.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Morgan Stanley Trust and Morgan Stanley understand that, under DTC's
existing practices, in the event that Morgan Stanley Trust or Morgan Stanley
requests any action of holders, or an owner of a beneficial interest in a
global security such as you desires to take any action which a holder is
entitled to take under the trust agreement or the junior subordinated
debentures, DTC would authorize the Direct Participants holding the relevant
beneficial interests to take such action, and those Direct Participants and
any Indirect Participants would authorize beneficial owners owning through
those Direct and Indirect Participants to take such action or would otherwise
act upon the instructions of beneficial owners owning through them.
The property trustee, on behalf of Morgan Stanley Trust, will send
redemption notices to Cede & Co. If less than all of the capital securities
are being redeemed, DTC will reduce each Direct Participant's holdings of
capital securities in accordance with its procedures.
In those instances where a vote is required, neither DTC nor Cede &
Co. itself will consent or vote with respect to capital securities. Under its
usual procedures, DTC would mail an omnibus proxy to Morgan Stanley Trust as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
S-21
consenting or voting rights to those Direct Participants to whose accounts the
capital securities are credited on the record date, which are identified in a
listing attached to the omnibus proxy.
The property trustee, on behalf of Morgan Stanley Trust, will make
distributions on the capital securities directly to DTC. DTC's practice is to
credit participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on that payment date.
Payments by Direct and Indirect Participants to beneficial owners
such as you will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer
form or registered in "street name." These payments will be the responsibility
of the participant and not of DTC, Morgan Stanley, Morgan Stanley Trust, the
trustees, the paying agent or any other agent of Morgan Stanley or Morgan
Stanley Trust.
DTC may discontinue providing its services as securities depository
with respect to the capital securities at any time by giving reasonable notice
to Morgan Stanley Trust. Additionally, Morgan Stanley may decide to
discontinue the book-entry only system of transfers with respect to the
capital securities. In that event, Morgan Stanley Trust will print and deliver
certificates for the capital securities. If DTC notifies Morgan Stanley Trust
that it is unwilling to continue as securities depository, or if it is unable
to continue or ceases to be a clearing agency registered under the Exchange
Act and a successor depository is not appointed by Morgan Stanley Trust within
ninety days after receiving such notice or becoming aware that DTC is no
longer so registered, Morgan Stanley Trust will issue the capital securities
in definitive form, at its expense, upon registration of transfer of, or in
exchange for, such global security. If an event of default under the trust
agreement has occurred and is continuing, Morgan Stanley Trust is required to
print and deliver certificates for the capital securities.
According to DTC, the foregoing information with respect to DTC has
been provided to the financial community for informational purposes only and
is not intended to serve as a representation, warranty or contract
modification of any kind.
Morgan Stanley Trust and Morgan Stanley obtained the information in
this section concerning DTC and DTC's book-entry system from sources that
Morgan Stanley Trust and Morgan Stanley believe to be reliable, but take no
responsibility for the accuracy of the information.
S-22
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The following, together with the description applicable to junior
subordinated debt securities under "Description of Debt Securities" on page 8
in the accompanying prospectus, describes material terms of the junior
subordinated debentures. You should also read the junior subordinated debt
indenture, dated as of March 1, 1998, between Morgan Stanley and The Bank of
New York, as indenture trustee, and the Trust Indenture Act. The junior
subordinated debt indenture is on file at the SEC as an exhibit to the
registration statement pertaining to this prospectus supplement.
Under circumstances involving the dissolution of Morgan Stanley
Trust, Morgan Stanley Trust may distribute the junior subordinated debentures
to the holders of the capital securities and the common securities in
liquidation of Morgan Stanley Trust. See "Description of Capital
Securities--Liquidation Distribution Upon Dissolution" on page S-19. If the
junior subordinated debentures are distributed to the holders of capital
securities, Morgan Stanley will use its reasonable best efforts to have the
junior subordinated debentures listed on the New York Stock Exchange or with
another organization on which the capital securities are then listed.
General
The junior subordinated debentures are unsecured, subordinated
obligations of Morgan Stanley. The junior subordinated debentures will be
limited in aggregate principal amount to $773,195,900, or $889,175,275
aggregate principal amount if the underwriters purchase all the additional
capital securities they are entitled to purchase pursuant to their
over-allotment option. The amount will be limited to the sum of:
o the aggregate stated liquidation amount of the capital securities;
and
o the amount of capital contributed by Morgan Stanley in exchange
for the common securities.
The junior subordinated debentures will rank equal to the junior
subordinated debentures issued by Morgan Stanley and sold to MSDW Capital
Trust I and Morgan Stanley's guarantees of the capital securities issued by
MSDW Capital Trust I and to be issued by Morgan Stanley Capital Trust II. For
information on the subordination of the junior subordinated debentures, see
"Description of Debt Securities--Subordinated Debt--Junior Subordinated Debt"
on page 11 of the accompanying prospectus.
The entire principal amount of the junior subordinated debentures
will become due and payable, with any accrued and unpaid interest thereon, on
July 31, 2031 or earlier, in the case of an acceleration of the maturity date,
or later, in the case of an extension of the maturity date, each as described
below.
The provisions of the junior subordinated debt indenture described in
the accompanying prospectus relating to discharge, defeasance and covenant
defeasance will not apply to the junior subordinated debentures. See
"Description of Debt Securities--Discharge, Defeasance and Covenant
Defeasance" on page 14 of the accompanying prospectus.
Interest
The junior subordinated debentures will bear interest at an annual
rate of 71/4%, from and including July 19, 2001 until the principal becomes
due and payable. Interest is payable quarterly in arrears on January 31, April
30, July 31 and October 31 of each year, beginning October 31, 2001. Interest
payments not paid when due will accrue, as permitted by applicable law,
additional interest, compounded quarterly, at the annual rate of 71/4%. Morgan
Stanley will pay interest on the junior subordinated debentures to holders as
they appear on the books and records of the property trustee on the relevant
record date. The record date will be 15 calendar days, whether or not a
business day, before the relevant payment dates.
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The amount of interest payable for any period less than a full
interest period will be computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in that period.
The amount of interest payable for any full interest period will be computed
by dividing the rate per annum by four.
If any date on which interest is payable on the junior subordinated
debentures is not a business day, then payment of the interest payable on that
date will be made on the next succeeding day that is a business day, without
any interest or other payment in respect of the delay, with the same force and
effect as if made on the date that payment was originally payable. Accrued
interest that is not paid on the applicable interest payment date will bear
additional interest at the rate per annum of 71/4%, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in a partial month in such period. The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. The term "interest" as used in this
prospectus supplement and the accompanying prospectus includes quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable interest payment date, compounded interest and additional sums, as
applicable.
The interest payment provisions for the junior subordinated
debentures correspond to the distribution provisions for the capital
securities. See "Description of Capital Securities--Payment of Distributions"
on page S-16.
Option to Extend Interest Payment Period
As long as Morgan Stanley is not in default on the payment of
interest on the junior subordinated debentures, Morgan Stanley has the right,
at any time and from time to time, to defer payments of interest for a period
(an "extension period"), of up to 20 consecutive quarters, but not beyond the
maturity date of the junior subordinated debentures. During an extension
period, interest will continue to accrue and holders of junior subordinated
debentures, or holders of capital securities while outstanding, will be
required to accrue interest income for United States federal income tax
purposes. See "United States Federal Income Tax Consequences--US
Holders--Interest Income and Original Issue Discount" on page S-34 for further
information on United States federal income tax consequences. On the interest
payment date following the last day of any extension period, Morgan Stanley
will pay all interest then accrued and unpaid, together with additional
interest on the accrued and unpaid interest as permitted by law ("compounded
interest"), compounded quarterly, at the annual rate of 71/4% plus any
additional sums, as described on page S-25 below.
During an extension period, Morgan Stanley is subject to
restrictions, as described below under "Restrictions on Certain Payments;
Certain Covenants of Morgan Stanley."
Before termination of any extension period, Morgan Stanley may
further extend the payments of interest. However, no extension period,
including all previous and further extensions, may exceed 20 consecutive
quarters or extend beyond the maturity of the junior subordinated debentures.
If the maturity of the junior subordinated debentures is advanced to a date
before the end of an extension period, the extension period will end on that
date or an earlier date determined by Morgan Stanley. If any junior
subordinated debentures are called for redemption before the end of an
extension period, the extension period will end on that redemption date or an
earlier date as determined by Morgan Stanley. After the termination of any
extension period and the payment of all amounts due, Morgan Stanley may begin
a new extension period, as described above. There is no limitation on the
number of times Morgan Stanley may elect to begin an extension period.
Interest will not be payable during an extension period, only at the end of
the extension period. Morgan Stanley may, however, prepay at any time all or
any portion of the interest accrued during an extension period.
If the property trustee is the sole holder of the junior subordinated
debentures, Morgan Stanley will give the property trustee and the Delaware
trustee written notice of its selection of an extension period at least 30
S-24
calendar days before the next succeeding date on which the distributions on
the capital securities are payable. The property trustee will give notice of
Morgan Stanley's selection of an extension period to the holders of the
capital securities.
If the property trustee is not the sole holder, or is not itself the
holder, of the junior subordinated debentures, Morgan Stanley will give the
holders of the junior subordinated debentures and the property trustee written
notice of its selection of an extension period at least 10 business days
before the earlier of:
o the next interest payment date; and
o the date Morgan Stanley is required to give notice to holders of
the junior subordinated debentures of the record or payment date
for the related interest payment.
Morgan Stanley has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
junior subordinated debentures.
Additional Sums
If, at any time while the property trustee is the holder of the
junior subordinated debentures, Morgan Stanley Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a tax
event, Morgan Stanley will pay as additional interest on the junior
subordinated debentures any additional amounts ("additional sums") that are
required so that the distributions paid by Morgan Stanley Trust will not be
reduced as a result of any of those taxes, duties or governmental charges.
Redemption
Morgan Stanley has the right to redeem the junior subordinated
debentures:
o on or after July 31, 2006, in whole or in part, on one or more
occasions, at any time; or
o before July 31, 2006, in whole, but not in part, at any time
within 90 days following the occurrence and continuation of a tax
event or an investment company event (the "90-day period"), as
described under "Description of Capital Securities--Redemption" on
page S-17.
In either case, the redemption price will equal 100% of the principal
amount to be redeemed, plus any accrued and unpaid interest, including any
compounded interest and any additional sums, if any, to the date of
redemption.
Morgan Stanley's right to redeem the junior subordinated debentures
due to a tax event or investment company event is subject to the condition
that, if Morgan Stanley or Morgan Stanley Trust has the opportunity to
eliminate, within the 90-day period, the tax event or investment company event
by taking some ministerial action that will have no adverse effect on Morgan
Stanley, Morgan Stanley Trust or the holders of the capital securities and the
common securities and will involve no material cost, Morgan Stanley will
pursue such measures in lieu of redemption. Morgan Stanley cannot redeem the
junior subordinated debentures while either it or Morgan Stanley Trust is
pursuing any ministerial action under the trust agreement as described above.
Option to Extend Maturity Date
Morgan Stanley can extend the maturity of the junior subordinated
debentures to a date no later than July 31, 2050, so long as at the time such
election is made and at the time such extension commences:
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o No event of default under the junior subordinated debentures has
occurred and is continuing,
o Morgan Stanley Trust is not in arrears on payments of
distributions on the capital securities and no deferred
distributions on the capital securities are accumulated, and
o the junior subordinated debentures are and after such extension
will be rated at least BBB- by Standard & Poor's Ratings Services,
at least Baa3 by Moody's Investors Service, Inc. or at least the
equivalent by any other nationally recognized statistical rating
organization.
In the event that Morgan Stanley elects to extend the maturity date
of the junior subordinated debentures, it shall give notice to the indenture
trustee, and the indenture trustee shall give notice of such extension to the
holders of the junior subordinated debentures no more than 90 and no less than
30 days prior to the effectiveness thereof.
Option to Accelerate the Maturity Date
If a tax event occurs, Morgan Stanley will have the right, before a
dissolution of Morgan Stanley Trust, to accelerate the maturity date of the
junior subordinated debentures to the minimum extent required so that interest
on the junior subordinated debentures will be tax deductible for Morgan
Stanley for United States federal income tax purposes. In no event, however,
may the resulting maturity of the junior subordinated debentures be less than
15 years from the date of original issuance.
Morgan Stanley may accelerate the maturity only if it has received an
opinion of counsel to Morgan Stanley experienced in such matters to the effect
that:
o after the acceleration, interest paid on the junior subordinated
debentures will be deductible for United States federal income tax
purposes; and
o the acceleration will not cause a taxable event to holders of the
capital securities.
If there is an acceleration, Morgan Stanley will give notice to the
indenture trustee of the acceleration. The indenture trustee will then give
notice of the acceleration to the holders of the junior subordinated
debentures between 30 and 60 days before the effectiveness of the
acceleration.
Restrictions on Certain Payments; Certain Covenants of Morgan Stanley
Morgan Stanley will not:
o declare or pay any dividends or distributions, or redeem,
purchase, acquire, or make a liquidation payment on any of its
capital stock; or
o make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem debt securities of Morgan
Stanley that rank equal or junior to the junior subordinated
debentures,
if at such time:
o there has occurred any event (a) of which Morgan Stanley has
actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute a default under the junior
subordinated debentures and (b) that Morgan Stanley has not taken
reasonable steps to cure;
S-26
o the junior subordinated debentures are held by Morgan Stanley
Trust and Morgan Stanley is in default with respect to its payment
of any obligations under the guarantee; or
o Morgan Stanley has given notice of its election of an extension
period and has not rescinded this notice, or the extension period,
or any extension thereof, is continuing.
The restrictions listed above do not apply to:
o repurchases, redemptions or other acquisitions of shares of
capital stock of Morgan Stanley in connection with (1) any
employment contract, benefit plan or other similar arrangement
with or for the benefit of any one or more employees, officers,
directors or consultants, (2) a dividend reinvestment or
stockholder stock purchase plan, or (3) the issuance of capital
stock of Morgan Stanley, or securities convertible into or
exercisable for such capital stock, as consideration in an
acquisition transaction entered into prior to the extension
period;
o an exchange, redemption or conversion of any class or series of
Morgan Stanley's capital stock, or any capital stock of a
subsidiary of Morgan Stanley, for any class or series of Morgan
Stanley's capital stock, or of any class or series of Morgan
Stanley's indebtedness for any class or series of Morgan Stanley's
capital stock;
o the purchase of fractional interests in shares of Morgan Stanley's
capital stock under the conversion or exchange provisions of the
capital stock or the security being converted or exchanged;
o any declaration of a dividend in connection with any stockholder's
rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant to the plan;
o payments by Morgan Stanley under the guarantee of the capital
securities; or
o any dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks equal
or junior to that stock.
In addition, as long as Morgan Stanley Trust holds any of the junior
subordinated debentures, Morgan Stanley agrees:
o to continue to hold, directly or indirectly, 100% of the common
securities, provided that certain successors that are permitted
under the junior subordinated debt indenture may succeed to Morgan
Stanley's ownership of the common securities;
o as holder of the common securities, not to voluntarily dissolve,
windup or liquidate Morgan Stanley Trust, other than (a) as part
of the distribution of the junior subordinated debentures to the
holders of the capital securities in accordance with the terms of
the capital securities or (b) as part of a merger, consolidation
or amalgamation which is permitted under the trust agreement; and
o to use its reasonable efforts, consistent with the terms and
provisions of the trust agreement, to cause Morgan Stanley Trust
to continue not to be taxable as a corporation for United States
federal income tax purposes.
S-27
Registration, Denomination and Transfer
Morgan Stanley will register the junior subordinated debentures in
the name of Morgan Stanley Trust. The property trustee will hold the junior
subordinated debentures in trust for the benefit of the holders of the capital
securities and the common securities. The junior subordinated debentures will
be issued in denominations of $25 and integral multiples thereof.
If the junior subordinated debentures are distributed to holders of
capital securities, it is anticipated that DTC will act as securities
depository for the junior subordinated debentures. For a description of DTC
and the specific terms of the depository arrangements, see "Description of
Capital Securities--The Capital Securities Will Initially be Issued in
Book-Entry Form and Held Through DTC" on page S-20.
As of the date of this prospectus supplement, the description of
DTC's book-entry system and DTC's practices as they relate to purchases of,
transfers of, notices concerning and payments on the capital securities apply
in all material respects to any debt obligations represented by one or more
global securities held by DTC.
A global security will be exchangeable for junior subordinated
debentures registered in the names of persons other than DTC or its nominee
only if:
o DTC notifies Morgan Stanley that it is unwilling or unable to
continue as a depository for the global security and no successor
depository has been appointed;
o DTC ceases to be a clearing agency registered under the Exchange
Act at a time DTC is required to be so registered to act as
depository, and no successor depository has been appointed; or
o Morgan Stanley, in its sole discretion, determines that the global
security shall be exchangeable for definitive certificates.
Any global security that is exchangeable as described above will be
exchangeable for junior subordinated debentures registered in the names DTC
directs. Morgan Stanley expects that the instructions will be based upon
directions received by DTC from its Direct Participants with respect to
ownership of beneficial interests in the global security.
If the junior subordinated debentures are issued in certificated
form, payments of principal and interest will be payable, the transfer of the
junior subordinated debentures will be registrable, and junior subordinated
debentures will be exchangeable for junior subordinated debentures of other
authorized denominations of a like aggregate principal amount. However,
payment of interest may be made at the option of Morgan Stanley by check
mailed to the address of the holder entitled to the payment. Upon written
request to the paying agent not less than 15 calendar days prior to the date
on which interest is payable, a holder of $1,000,000 or more in aggregate
principal amount of junior subordinated debentures may receive payment of
interest, other than payments of interest payable at maturity or on any date
of redemption or repayment, by wire transfer of immediately available funds.
Junior subordinated debentures may be presented for registration of
transfer, exchange, redemption or payment with an endorsed form of transfer,
or a duly executed and satisfactory written instrument of transfer, at the
securities registrar's office in New York, New York or the office of any
transfer agent selected by Morgan Stanley without service charge and upon
payment of any taxes and other governmental charges as described in the junior
subordinated debt indenture. Morgan Stanley will appoint the indenture trustee
as securities registrar under the junior subordinated debt indenture. Morgan
Stanley may at any time designate additional transfer and paying agents with
respect to the junior subordinated debentures.
S-28
In the event of any redemption, Morgan Stanley and the indenture
trustee will not be required to:
o register the transfer of or exchange junior subordinated
debentures during a period beginning 15 calendar days before the
first mailing of the notice of redemption; or
o register the transfer of or exchange any junior subordinated
debentures selected for redemption, except, in the case of any
junior subordinated debentures being redeemed in part, any portion
not to be redeemed.
At the request of Morgan Stanley, funds deposited with the indenture
trustee or any paying agent held for Morgan Stanley for the payment of
principal, interest, and premium, if any, on any junior subordinated debenture
which remain unclaimed for two years after the principal, interest, and
premium, if any, has become payable will be repaid to Morgan Stanley and the
holder of the junior subordinated debenture will, as a general unsecured
creditor, look only to Morgan Stanley for payment thereof.
Modification of Indenture
For a description of the provisions for modifying the junior
subordinated debt indenture and the junior subordinated debentures, see
"Description of Debt Securities--Modification of the Indentures" on page 15 of
the accompanying prospectus. In addition, if any of the capital securities are
outstanding:
o no modification may be made to the junior subordinated debt
indenture that materially adversely affects the holders of the
capital securities;
o no termination of the junior subordinated debt indenture may
occur; and
o no waiver of any event of default under the junior subordinated
debentures or compliance with any covenant under the junior
subordinated debt indenture may be effective,
without the prior consent of the holders of at least a majority of the
aggregate liquidation amount of the outstanding capital securities unless and
until the principal of and premium, if any, on the junior subordinated
debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
In addition, if any of the capital securities are outstanding, all
holders of the capital securities must consent if Morgan Stanley wants to
amend the junior subordinated debt indenture to:
o remove the rights of holders of capital securities to institute a
direct action (as defined below);
o remove any obligation to obtain the consent of holders of capital
securities; or
o change the percentage of holders of the capital securities
required to amend or waive any provision of the junior
subordinated debt indenture.
So long as Morgan Stanley complies with the terms of the junior
subordinated debentures and the junior subordinated debt indenture, Morgan
Stanley may advance or extend the maturity date of and defer interest payable
on the junior subordinated debentures, as described in this prospectus
supplement, without the consent of Morgan Stanley Trust or the holders of the
capital securities.
S-29
Events of Default and the Rights of Capital Securities Holders to Take Action
Against Morgan Stanley
See "Description of Debt Securities - Events of Default" on page 12
of the accompanying prospectus for a description of:
o the events of default for the junior subordinated debentures; and
o the actions that may be taken by the indenture trustee and the
holders of junior subordinated debentures, including Morgan
Stanley Trust, following an event of default.
So long as Morgan Stanley Trust holds the junior subordinated
debentures, the property trustee and the holders of the capital securities
will have the following rights under the junior subordinated debt indenture
upon the occurrence of an event of default:
o the property trustee and the holders of not less than 25% in
aggregate liquidation amount of the capital securities may declare
the principal and interest accrued thereon of the junior
subordinated debentures due and payable immediately;
o if all defaults have been cured, the consent of the holders of
more than 50% in aggregate liquidation amount of the capital
securities is required to annul a declaration by the indenture
trustee, Morgan Stanley Trust or the holders of the capital
securities that the principal of the junior subordinated
debentures is due and payable immediately;
o unless the default is cured, the consent of each holder of capital
securities is required to waive a default in the payment of
principal, premium or interest with respect to the junior
subordinated debentures or a default in respect of a covenant or
provision that cannot be modified or amended without the consent
of the holder of each outstanding junior subordinated debenture;
and
o unless the default is cured, the consent of the holders of more
than 50% in aggregate liquidation amount of the capital securities
is required to waive any other default.
If the event of default under the junior subordinated debentures is
the failure of Morgan Stanley to pay any amounts payable on the junior
subordinated debentures when due, then a registered holder of capital
securities may bring a legal action against Morgan Stanley directly for
enforcement of payment to you of amounts owed on the junior subordinated
debentures with a principal amount equal to the aggregate liquidation amount
of your capital securities (a "direct action"). Morgan Stanley may not amend
the junior subordinated debentures to remove this right to bring a direct
action without the prior written consent of the registered holders of all the
capital securities. Morgan Stanley can set-off against payments then due under
the junior subordinated debenture any corresponding payments made to holders
of capital securities by Morgan Stanley in connection with a direct action.
The holders of the capital securities will not be able to exercise
directly any remedies available to the holders of the junior subordinated
debentures except under the circumstance described in the preceding paragraph.
See "Description of Capital Securities--Capital Securities Events of Default;
Notice" on page 18 of the accompanying prospectus.
DESCRIPTION OF GUARANTEE
The following, together with the "Description of Guarantees" on page
24 of the accompanying prospectus, is a description of the material terms of
the guarantee. You should read the guarantee, to be dated as of July 19, 2001,
between Morgan Stanley and The Bank of New York, as guarantee trustee, and the
S-30
Trust Indenture Act. A form of guarantee is on file at the SEC as an exhibit
to the registration statement pertaining to this prospectus supplement and the
accompanying prospectus.
The following payments on the capital securities (the "guarantee
payments"), if not fully paid by Morgan Stanley Trust, will be paid by Morgan
Stanley under the guarantee, without duplication:
o any accumulated and unpaid distributions required to be paid on
the capital securities, to the extent Morgan Stanley Trust has
funds available to make the payment;
o the redemption price for any capital securities called for
redemption, if Morgan Stanley Trust has funds available to make
the payment; and
o upon a voluntary or involuntary dissolution, winding-up or
liquidation of Morgan Stanley Trust, other than in connection with
a distribution of the junior subordinated debentures to the
holders of capital securities, the lesser of:
(1) the aggregate of the $25 liquidation amount and all
accumulated and unpaid distributions on the capital
securities to the date of payment, if Morgan Stanley Trust
has funds available to make the payment; and
(2) the amount of assets of Morgan Stanley Trust remaining
available for distribution to holders of the capital
securities upon liquidation of Morgan Stanley Trust.
Morgan Stanley's obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by Morgan Stanley to the
holders of the capital securities or by causing Morgan Stanley Trust to pay
the amounts to the holders.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Morgan Stanley will guarantee payments of distributions and
redemption and liquidation payments due on the capital securities to the
extent Morgan Stanley Trust has funds available for such payment, as described
under "Description of Guarantee" above. No single document executed by Morgan
Stanley will provide for the full, irrevocable and unconditional guarantee of
the capital securities. It is only the combined operation of the guarantee,
the trust agreement and the junior subordinated debt indenture that has the
effect of providing a full, irrevocable and unconditional guarantee of Morgan
Stanley Trust's obligations under the capital securities.
As long as Morgan Stanley pays interest and other payments when due
on the junior subordinated debentures, those payments will be sufficient to
cover distributions and redemption and liquidation payments due on the capital
securities, primarily because:
o the aggregate principal amount of the junior subordinated
debentures will be equal to the sum of the aggregate liquidation
amount of the capital securities and the common securities;
o the interest rate and interest and other payment dates on the
junior subordinated debentures will match the distribution rate
and distribution and other payment dates for the capital
securities;
o Morgan Stanley will pay for any and all costs, expenses and
liabilities of Morgan Stanley Trust, except withholding taxes and
Morgan Stanley Trust's obligations to holders of the capital
securities and the common securities; and
S-31
o the trust agreement provides that Morgan Stanley Trust will not
engage in any activity that is not consistent with the limited
purposes of Morgan Stanley Trust.
A default or event of default under any senior indebtedness of Morgan
Stanley would not necessarily constitute a default or event of default under
the capital securities. However, in the event of payment defaults under, or
acceleration of, senior indebtedness of Morgan Stanley, the junior
subordinated debt indenture provides that no payments may be made on the
junior subordinated debentures until the senior indebtedness has been paid in
full or any payment default under the senior indebtedness has been cured or
waived. See "Description of Debt Securities--Subordinated Debt--Junior
Subordinated Debt" on page 11 of the accompanying prospectus.
Limited Purpose of Morgan Stanley Trust
The capital securities represent preferred undivided beneficial
interests in the assets of Morgan Stanley Trust. Morgan Stanley Trust exists
for the sole purpose of:
o issuing the capital securities and common securities;
o investing the proceeds from the sale of the capital securities in
the junior subordinated debentures; and
o engaging in only those other activities necessary, convenient or
incidental to these purposes.
A principal difference between the rights of a holder of a capital
security and a holder of a junior subordinated debenture is that a holder of a
junior subordinated debenture is entitled to receive from Morgan Stanley
payments on junior subordinated debentures held by the holder, while a holder
of capital securities is entitled to receive distributions or other amounts
payable with respect to the capital securities from Morgan Stanley Trust or
from Morgan Stanley under the guarantee only if and to the extent Morgan
Stanley Trust has funds available for the payment of those distributions.
Rights Upon Dissolution
The holders of the capital securities are entitled to receive, out of
assets held by Morgan Stanley Trust, a distribution in cash upon any voluntary
or involuntary dissolution, winding-up or liquidation of Morgan Stanley Trust
that does not involve the distribution of the junior subordinated debentures,
after Morgan Stanley Trust has paid the liabilities owed to its creditors as
required by applicable law. See "Description of Capital
Securities--Liquidation Distribution Upon Dissolution" on page S-19.
In the event of any voluntary or involuntary liquidation or
bankruptcy of Morgan Stanley, Morgan Stanley Trust, as registered holder of
the junior subordinated debentures, would be a subordinated creditor of Morgan
Stanley, subordinated and junior in right of payment to all Morgan Stanley's
senior indebtedness, but entitled to receive payment in full of all amounts
payable with respect to the junior subordinated debentures before any
stockholders of Morgan Stanley receive payments or distributions. Since Morgan
Stanley is the guarantor under the guarantee and has agreed to pay for all
costs, expenses and liabilities of Morgan Stanley Trust (other than
withholding taxes and Morgan Stanley Trust's obligations to the holders of the
capital securities and common securities), the positions of a holder of the
capital securities and a holder of the junior subordinated debentures relative
to other creditors and to stockholders of Morgan Stanley in the event of
liquidation or bankruptcy of Morgan Stanley are expected to be substantially
the same.
S-32
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Sidley Austin Brown & Wood LLP, tax counsel to
Morgan Stanley and Morgan Stanley Trust, the following discussion summarizes
the material United States federal income tax consequences of the purchase,
ownership and disposition of the capital securities.
This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations under the Code, and administrative
and judicial interpretations thereof, each as of the date of this prospectus,
all of which are subject to change, possibly on a retroactive basis. The
authorities on which this summary is based are subject to various
interpretations, and this summary is not binding on the Internal Revenue
Service or the courts, either of which could take a contrary position.
Moreover, no rulings have been or will be sought from the IRS with respect to
the transactions described in this prospectus supplement. Accordingly, there
can be no assurance that the IRS will not challenge the opinions expressed in
this tax section or that a court would not sustain such a challenge.
Except as otherwise stated, this summary deals only with the capital
securities held as a capital asset by a holder who or which (i) purchased the
capital securities upon original issuance (an "Initial Holder") at the price
to the public and (ii) is a US Holder (as defined below). This summary does
not address all the tax consequences that may be relevant to a US Holder, nor
does it address the tax consequences, except as stated below, to holders that
are not US Holders ("Non-US Holders") or to holders that may be subject to
special tax treatment (such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies,
brokers and dealers in securities or currencies, other financial institutions,
tax-exempt organizations, persons holding the capital securities as a position
in a "straddle," as part of a "synthetic security," "hedging," "conversion" or
other integrated investment, persons having a functional currency other than
the U.S. Dollar and certain United States expatriates). Further, this summary
does not address
(a) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the capital securities,
(b) the United States federal alternative minimum tax consequences
of the purchase, ownership or disposition of the capital
securities, or
(c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of capital securities.
A "US Holder" is a holder of the capital securities who or which for
U.S. federal income tax purposes is
o a citizen or resident of the United States,
o a corporation or partnership (including an entity treated as a
corporation or partnership for United States federal income tax
purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (other than
a partnership that is not treated as a United States person under
any applicable Treasury regulations),
o an estate whose income is subject to United States federal income
tax regardless of its source, or
o a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust
and (b) one or more United States persons have the authority to
control all substantial decisions of the trust. Notwithstanding
the above, to the extent provided in Treasury
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regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to
continue to be treated as United States persons will also be a US
Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
US Holders
Characterization of Morgan Stanley Trust. Under current law and based
on the representations, facts and assumptions set forth in this prospectus
supplement, and assuming full compliance with the terms of the Trust Agreement
(and other relevant documents), Morgan Stanley Trust will be characterized for
United States federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of the capital
securities generally will be considered the owner of an undivided portion of
the junior subordinated debentures owned by Morgan Stanley Trust, and each US
Holder will be required to include all income or gain recognized for United
States federal income tax purposes with respect to its allocable share of the
junior subordinated debentures on its own income tax return.
Characterization of the Junior Subordinated Debentures. Morgan
Stanley and Morgan Stanley Trust will agree to treat the junior subordinated
debentures as indebtedness for all United States federal income tax purposes.
Under current law and based on the representations, facts and assumptions set
forth in this prospectus supplement, and assuming full compliance with the
terms of the junior subordinated debt indenture (and other relevant
documents), the junior subordinated debentures will be characterized for
United States federal income tax purposes as debt of Morgan Stanley
Interest Income and Original Issue Discount. Under the terms of the
junior subordinated debentures, Morgan Stanley has the ability to defer
payments of interest from time to time by extending the interest payment
period for a period not exceeding 20 consecutive quarterly periods, but not
beyond the maturity of the junior subordinated debentures. Treasury
regulations under Section 1273 of the Code provide that debt instruments like
the junior subordinated debentures will not be considered issued with original
issue discount ("OID") by reason of Morgan Stanley's ability to defer payments
of interest if the likelihood of such deferral is "remote."
Morgan Stanley has concluded, and this discussion assumes, that, as
of the date of this prospectus supplement, the likelihood of deferring
payments of interest under the terms of the junior subordinated debentures is
"remote" within the meaning of the Treasury regulations referred to above, in
part because exercising that option would prevent Morgan Stanley from
declaring dividends on its stock and would prevent Morgan Stanley from making
any payments on debt securities that rank pari passu with or junior to the
junior subordinated debentures. Therefore, the junior subordinated debentures
should not be treated as issued with OID by reason of Morgan Stanley's
deferral option. Rather, stated interest on the junior subordinated debentures
will generally be taxable to a US Holder as ordinary income when paid or
accrued in accordance with that holder's method of accounting for income tax
purposes. It should be noted, however, that these Treasury regulations have
not yet been interpreted in any rulings or any other published authorities of
the IRS. Accordingly, it is possible that the IRS could take a position
contrary to the interpretation described above.
In the event Morgan Stanley exercises its option to defer payments of
interest, the junior subordinated debentures would be treated as redeemed and
reissued for OID purposes and the sum of the remaining interest payments (and
any de minimis OID) on the junior subordinated debentures would thereafter be
treated as OID, which would accrue, and be includible in a US Holder's taxable
income, on an economic accrual basis (regardless
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of the US Holder's method of accounting for income tax purposes) over the
remaining term of the junior subordinated debentures (including any period of
interest deferral), without regard to the timing of payments under the junior
subordinated debentures. Subsequent distributions of interest on the junior
subordinated debentures generally would not, by themselves, be taxable. The
amount of OID that would accrue in any period would generally equal the amount
of interest that accrued on the junior subordinated debentures in that period
at the stated interest rate. Consequently, during any period of interest
deferral, US Holders will include OID in gross income in advance of the
receipt of cash, and a US Holder which disposes of a capital security prior to
the record date for payment of distributions on the junior subordinated
debentures following that period will be subject to income tax on OID accrued
through the date of disposition (and not previously included in income), but
will not receive cash from Morgan Stanley Trust with respect to the OID.
If the possibility of Morgan Stanley's exercising its option to defer
payments of interest is not treated as remote, the junior subordinated
debentures would be treated as initially issued with OID in an amount equal to
the aggregate stated interest (plus any de minimis OID). That OID would
generally be includible in a US Holder's taxable income, over the term of the
junior subordinated debentures, on an economic accrual basis as described
above.
Characterization of Income. Because the income underlying the capital
securities will not be characterized as dividends for income tax purposes,
corporate holders of the capital securities will not be entitled to a
dividends-received deduction for any income received or accrued on the capital
securities.
Market Discount and Bond Premium. Holders of the capital securities
other than Initial Holders may be considered to have acquired the capital
securities with market discount or acquisition premium. Prospective investors
in the capital securities should consult their own tax advisors regarding the
application of the market discount and bond premium rules to the purchase,
holding and disposition of the capital securities.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Morgan Stanley Trust. Under certain circumstances described herein, Morgan
Stanley Trust may distribute the junior subordinated debentures to holders in
exchange for their capital securities and in liquidation of Morgan Stanley
Trust. See "Description of the Capital Securities--Liquidation Distribution
Upon Dissolution" in this prospectus supplement. Except as discussed below, a
distribution of the junior subordinated debentures would not be a taxable
event for United States federal income tax purposes, and each US Holder would
have an aggregate adjusted basis for United States federal income tax purposes
in the junior subordinated debentures received equal to the US Holder's
aggregate adjusted basis in the capital securities exchanged. For United
States federal income tax purposes, a US Holder's holding period in the junior
subordinated debentures received in a liquidation of Morgan Stanley Trust
would include the period during which the capital securities were held by the
holder. If, however, the relevant event is a tax event which results in Morgan
Stanley Trust being treated as an association taxable as a corporation, the
distribution would likely constitute a taxable event to US Holders of the
capital securities for United States federal income tax purposes.
Under certain circumstances described in this prospectus supplement,
the junior subordinated debentures may be redeemed for cash with the proceeds
distributed to holders in redemption of their capital securities. See
"Description of Capital Securities" in this prospectus supplement. A
redemption of the capital securities would be taxable for United States
federal income tax purposes, and a US Holder would recognize gain or loss as
if it had sold the capital securities for cash. See "Sales of Capital
Securities" below.
Sales of Capital Securities. A US Holder that sells capital
securities will recognize gain or loss equal to the difference between its
adjusted basis in the capital securities and the amount realized on the sale
of the capital securities. A US Holder's adjusted basis in the capital
securities generally will be its initial purchase price, increased by OID
previously included (or currently includible) in the holder's gross income to
the date of disposition, and decreased by payments received on the capital
securities (other than any interest received with
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respect to the periods prior to the effective date of Morgan Stanley's first
exercise of its option to defer payments of interest). Any gain or loss on the
sale of the capital securities generally will be capital gain or loss, and
generally will be a long-term capital gain or loss if the capital securities
have been held for more than one year prior to the date of disposition.
A holder who disposes of its capital securities between record dates
for payments of distributions will be required to include accrued but unpaid
interest (or OID) on the junior subordinated debentures through the date of
disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment from
the purchaser with respect to accrued interest), and to deduct that amount
from the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the capital securities (or as to OID only, to
add such amount to the holder's adjusted tax basis in its capital securities).
To the extent the selling price is less than the holder's adjusted tax basis
(which will include accrued but unpaid OID, if any), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes.
Extension or Acceleration of the Maturity Date.
If Morgan Stanley exercises its option to extend or accelerate the
maturity date of the junior subordinated debentures, a US Holder should not be
required to recognize taxable gain or loss as a result of such extension or
acceleration.
Non-US Holders
The following discussion applies to a Non-US Holder.
Payments to a holder of a capital security that is a Non-US Holder
will generally not be subject to withholding of income tax, provided that (a)
the beneficial owner of the capital security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of Morgan Stanley entitled to vote, (b) the beneficial
owner of the capital security is not a controlled foreign corporation that is
related to Morgan Stanley through stock ownership, (c) the beneficial owner of
the capital security is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (d) either (i) the beneficial owner of the
capital securities certifies to the Morgan Stanley Trust or its agent, under
penalties of perjury, that it is a Non-US Holder and provides its name and
address, or (ii) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the capital security
in such capacity, certifies to the Morgan Stanley Trust or its agent, under
penalties of perjury, that a statement substantially similar to that in clause
(i) above has been received from the beneficial owner by it or by another
Financial Institution between it and the beneficial owner in the chain of
ownership, and furnishes the Morgan Stanley Trust or its agent with a copy of
the statement.
Changes in legislation affecting the income tax consequences of the
junior subordinated debentures are possible, and could adversely affect the
ability of Morgan Stanley to deduct the interest payable on the junior
subordinated debentures. Moreover, any changes in legislation could adversely
affect Non-US Holders by characterizing income derived from the junior
subordinated debentures as dividends, generally subject to a 30% withholding
tax (or a lower rate under an applicable treaty) when paid to a Non-US Holder,
rather than as interest which, as discussed above, is generally exempt from
income tax in the hands of a Non-US Holder.
A Non-US Holder of a capital security will generally not be subject
to withholding of income tax on any gain realized upon the sale or other
disposition of a capital security unless, in the case of certain Non-US
Holders who are nonresident alien individuals, the non-US Holder is present in
the United States for 183 or more days in the taxable year of disposition and
certain other requirements are met.
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A Non-US Holder which holds the capital securities in connection with
the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to its
proportionate share of the junior subordinated debentures.
Information Reporting
In general, information reporting requirements will apply to payments
made on, and proceeds from the sale of, the capital securities held by a
noncorporate US Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the capital securities to
or through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-US Holder status
or otherwise establishes an exemption from information reporting and backup
withholding. See "--Backup Withholding" below. Taxable income on the capital
securities for a calendar year should be reported to US Holders on the
appropriate form by the following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the capital
securities may be subject to a "backup" withholding tax of 31% (which rate is
scheduled to be reduced periodically through 2006) unless the holder complies
with certain identification or exemption requirements. Any amounts so withheld
will be allowed as a credit against the holder's income tax liability, or
refunded, provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CAPITAL SECURITIES. POTENTIAL HOLDERS OF THE CAPITAL SECURITIES ARE
URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit
plan to which Title I of the Employee Retirement Income Security Act of 1974
("ERISA") applies (a "Plan"), should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the capital securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibit Plans, as well as individual retirement accounts and Keogh plans to
which Section 4975 of the Internal Revenue Code applies (also "Plans"), from
engaging in specified transactions involving "plan assets" with persons who
are "parties in interest" under ERISA or "disqualified persons" under the
Internal Revenue Code ("Parties in Interest") with respect to such Plan. A
violation of those "prohibited transaction" rules may result in an excise tax
or other liabilities under ERISA and/or Section 4975 of the Internal Revenue
Code for such persons, unless exemptive relief is available under an
applicable statutory or administrative exemption.
Employee benefit plans that are governmental plans, as defined in
Section 3(32) of ERISA, certain church plans, as defined in Section 3(33) of
ERISA, and foreign plans, as described in Section 4(b)(4) of ERISA, are not
subject to the requirements of ERISA, or Section 4975 of the Internal Revenue
Code but governmental and foreign plans may be subject to other legal
restrictions.
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Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor, the assets of Morgan Stanley Trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Internal
Revenue Code if a Plan makes an "equity" investment in Morgan Stanley Trust
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument that is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
If the assets of Morgan Stanley Trust were deemed to be "plan
assets," the persons providing services to the assets of Morgan Stanley Trust
may become Parties in Interest with respect to an investing Plan and may be
governed by the fiduciary responsibility provisions of Title I of ERISA and
the prohibited transaction provisions of ERISA and Section 4975 of the
Internal Revenue Code with respect to transactions involving those assets.
In this regard, if the person or persons with discretionary
responsibilities over the junior subordinated debentures or the guarantee were
affiliated with Morgan Stanley, any such discretionary actions taken regarding
those assets could be deemed to constitute a prohibited transaction under
ERISA or the Internal Revenue Code (e.g., the use of such fiduciary authority
or responsibility in circumstances under which those persons have interests
that may conflict with the interests of the investing Plans and affect the
exercise of their best judgement as fiduciaries).
Under an exception contained in the Plan Assets Regulation, the
assets of Morgan Stanley Trust would not be deemed to be "plan assets" of
investing Plans if the capital securities are "publicly-offered securities" -
that is, they are:
o widely held, i.e., owned by more than 100 investors independent of
Morgan Stanley Trust and of each other;
o freely transferable; and
o sold to a Plan as part of an offering pursuant to an effective
registration statement under the Securities Act of 1933 (the
"Securities Act"), and then timely registered under Section 12(b)
or 12(g) of the Exchange Act.
Morgan Stanley expects that the capital securities will meet the
criteria of "publicly-offered securities" above, although no assurance can be
given in this regard. The underwriters expect that the capital securities will
be held by at least 100 independent investors at the conclusion of the
offering and that the capital securities will be freely transferable. The
capital securities will be sold as part of an offering under an effective
registration statement under the Securities Act, and then will be timely
registered under the Exchange Act.
All of the common securities will be purchased and held by Morgan
Stanley Even if the assets of Morgan Stanley Trust are not deemed to be "plan
assets" of Plans investing in Morgan Stanley Trust, specified transactions
involving Morgan Stanley Trust could be deemed to constitute direct or
indirect prohibited transactions under ERISA and Section 4975 of the Internal
Revenue Code regarding an investing Plan.
For example, if Morgan Stanley were a Party in Interest with respect
to an investing Plan, either directly or by reason of the activities of one or
more of its affiliates, extensions of credit between Morgan Stanley and Morgan
Stanley Trust, as represented by the junior subordinated debentures and the
guarantee, would likely be prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Internal Revenue Code, unless exemptive relief
were available under an applicable administrative exemption.
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The U.S. Department of Labor has issued five prohibited transaction
class exemptions ("PTCEs") that may provide exemptive relief for direct or
indirect prohibited transactions resulting from the purchase or holding of the
capital securities. Those class exemptions are:
o PTCE 96-23, for specified transactions determined by in-house
asset managers;
o PTCE 95-60, for specified transactions involving insurance company
general accounts;
o PTCE 91-38, for specified transactions involving bank collective
investment funds;
o PTCE 90-1, for specified transactions involving insurance company
separate accounts; and
o PTCE 84-14, for specified transactions determined by independent
qualified professional asset managers.
The capital securities may not be purchased or held by any Plan, any
entity whose underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset Entity") or any person investing "plan
assets" of any Plan, unless the purchaser or holder is eligible for the
exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
Any purchaser or holder of the capital securities or any interest in
the capital securities will be deemed to have represented by its purchase and
holding that it either:
o is not a Plan or a Plan Asset Entity and is not purchasing such
securities on behalf of or with "plan assets" of any Plan; or
o is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 with respect to such purchase or
holding.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the capital securities on behalf of or with "plan assets" of any
Plan consult with their counsel regarding the potential consequences if the
assets of Morgan Stanley Trust were deemed to be "plan assets" and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or
84-14.
Purchasers of the capital securities have the exclusive
responsibility for ensuring that their purchase and holding of the capital
securities does not violate the prohibited transaction rules of ERISA or the
Code.
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UNDERWRITERS
Under the terms and subject to the conditions of an underwriting
agreement dated as of the date of this prospectus supplement, the underwriters
named below, for whom Morgan Stanley & Co. Incorporated, A.G. Edwards & Sons,
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Prudential
Securities Incorporated, Salomon Smith Barney Inc. and UBS Warburg LLC are
acting as representatives, have severally agreed to purchase, and Morgan
Stanley Trust has agreed to sell to them, severally, the respective number of
capital securities set forth opposite their names below.
Number of
Name Capital Securities
---- ------------------
Morgan Stanley & Co. Incorporated.......................................... 4,270,000
A.G. Edwards & Sons, Inc................................................... 4,266,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................... 4,266,000
Prudential Securities Incorporated......................................... 4,266,000
Salomon Smith Barney Inc. ................................................. 4,266,000
UBS Warburg LLC............................................................ 4,266,000
ABN Amro Incorporated...................................................... 160,000
Bear, Stearns & Co. Inc.................................................... 160,000
CIBC World Markets Corp.................................................... 160,000
Dain Rauscher Wessels...................................................... 160,000
Deutsche Banc Alex. Brown Inc.............................................. 160,000
First Union Securities, Inc................................................ 160,000
Goldman, Sachs & Co. ...................................................... 160,000
H&R Block Financial Advisors, Inc.......................................... 160,000
Legg Mason Wood Walker, Inc. .............................................. 160,000
Quick and Reilly .......................................................... 160,000
Charles Schwab & Co., Inc. ................................................ 160,000
US Bancorp Piper Jaffray Inc. ............................................. 160,000
Wachovia Securities, Inc. ................................................. 160,000
Advest Inc. ............................................................... 80,000
Robert W. Baird & Co. Incorporated ........................................ 80,000
Banc of America Securities LLC ............................................ 80,000
Bank One Capital Markets, Inc. ............................................ 80,000
BB&T Capital Markets, a Division of Scott & Stringfellow .................. 80,000
William Blair & Co. ....................................................... 80,000
Crowell, Weedon & Co. ..................................................... 80,000
Davenport & Company LLC ................................................... 80,000
D.A. Davidson & Co. ....................................................... 80,000
Fahnestock & Co. Inc. ..................................................... 80,000
Fifth Third Securities, Inc. .............................................. 80,000
Gibraltar Securities Co. .................................................. 80,000
Gruntal & Co., L.L.C. ..................................................... 80,000
J.J.B. Hilliard, W.L. Lyons, Inc. ......................................... 80,000
HSBC Securities (USA) Inc. ................................................ 80,000
Janney Montgomery Scott LLC ............................................... 80,000
Josephthal & Co. Inc. ..................................................... 80,000
C.L. King & Associates, Inc. .............................................. 80,000
McDonald Investments Inc., a KeyCorp Company .............................. 80,000
McGinn, Smith & Co., Inc. ................................................. 80,000
Mesirow Financial, Inc. ................................................... 80,000
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Parker/Hunter Incorporated ................................................ 80,000
Pershing/ a Division of Donaldson, Lufkin & Jenrette ...................... 80,000
Raymond James & Associates, Inc. .......................................... 80,000
Southwest Securities, Inc. ................................................ 80,000
Stifel, Nicolaus & Company Incorporated ................................... 80,000
Tucker Anthony Incorporated ............................................... 80,000
TD Waterhouse Investor Services, Inc. ..................................... 80,000
Wells Fargo Van Kasper, LLC ............................................... 80,000
-----------
Total.................................................................. 30,000,000
==========
The underwriters are offering the capital securities subject to their
acceptance of the securities from Morgan Stanley Trust and subject to prior
sale. The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the capital securities are
conditioned upon the delivery of legal opinions by their counsel. The
underwriters are obligated to purchase all the capital securities, other than
those covered by the underwriters' over-allotment option, if any capital
securities are purchased.
The underwriters initially propose to offer part of the capital
securities directly to the public at the public offering price set forth on
the cover page of this prospectus supplement. The underwriters may also offer
the capital securities to securities dealers at a price that represents a
concession not in excess of $0.50 per capital security. Any underwriter may
allow, and dealers may reallow, a concession not in excess of $0.45 per
capital security to certain other dealers. After the initial offering of the
capital securities, the offering price and other selling terms may from time
to time be changed by the underwriters.
Because the proceeds from the sale of the capital securities will be
used to purchase the junior subordinated debentures issued by Morgan Stanley,
the underwriting agreement provides that Morgan Stanley will pay to the
underwriters as compensation for their services $0.7875 per capital security
or $23,625,000 in the aggregate, or $27,168,750 in the aggregate if the
underwriters purchase all the additional securities to which they are entitled
under their over-allotment option. For sales of 10,000 or more capital
securities to a single purchaser, the underwriting commission will be $0.50
per capital security. Morgan Stanley's offering expenses, not including
underwriting discounts and commissions, are estimated to be $875,000.
Morgan Stanley Trust has granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus supplement, to
purchase up to an additional 4,500,000 capital securities at the public
offering price on the cover page of this prospectus supplement. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. Morgan Stanley will pay to the
underwriters compensation in the amount per capital security stated above for
any additional capital securities. If the option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of additional capital securities as the
number set forth next to the underwriter's name in the preceding table bears
to the total number of capital securities offered by the underwriters.
Morgan Stanley and Morgan Stanley Trust have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the
underwriters, they will not, during the period beginning on the date of the
underwriting agreement and continuing to and including the closing under the
underwriting agreement:
o offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer
or dispose of, directly or indirectly, any securities of Morgan
Stanley or Morgan Stanley Trust that are
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substantially similar to the capital securities or securities
convertible into or exercisable or exchangeable for such
securities; or
o enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of such securities,
whether any transactions described above is to be settled by securities, in
cash or otherwise, except in the offering.
Prior to this offering, there has been no public market for the
capital securities. The capital securities have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance, and
trading of the capital securities on the New York Stock Exchange is expected
to commence within 30 days after they are first issued. The underwriters have
advised Morgan Stanley Trust that they presently intend to make a market in
the capital securities prior to the commencement of trading on the New York
Stock Exchange. The underwriters are not obligated to make a market in the
capital securities, however, and may discontinue market making activities at
any time without notice. No assurance can be given as to the liquidity of any
trading market for the capital securities.
Morgan Stanley and Morgan Stanley Trust have agreed to indemnify the
underwriters and certain other persons against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments the
underwriters may be required to make under the Securities Act.
In order to facilitate the offering of the capital securities, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the capital securities. Specifically, the underwriters may
over-allot in connection with the offering, creating a short position in the
capital securities for their own account. A short sale is covered if the short
position is no greater than the number of capital securities available for
purchase by the underwriters under the over-allotment option. The underwriters
can close out a covered short sale by exercising the over-allotment option or
purchasing capital securities in the open market. In determining the source of
capital securities to close out a covered short sale, the underwriters will
consider, among other things, the open market price of the capital securities
compared to the price available under the over-allotment option. The
underwriters may also sell capital securities in excess of the over-allotment
option, creating a naked short position. The underwriters must close out any
naked short position by purchasing capital securities in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the capital
securities in the open market after pricing that could adversely affect
investors who purchase capital securities in the offering. As an additional
means of facilitating the offering of capital securities, the underwriters may
bid for and purchase, these capital securities in the open market to stabilize
the price of these capital securities. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the capital securities in the offering, if the syndicate
repurchases previously distributed capital securities in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the capital
securities above independent market levels or prevent or retard a decline in
the market price of the capital securities. The underwriters are not required
to engage in these activities, and may end any of these activities at any
time.
This prospectus supplement and the accompanying prospectus may be
used by Morgan Stanley & Co. Incorporated and Morgan Stanley affiliates in
connection with offers and sales of the capital securities in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale or otherwise. Morgan Stanley & Co. Incorporated and Morgan
Stanley affiliates may act as principal or agent in such transactions.
Morgan Stanley & Co. Incorporated is a wholly-owned subsidiary of
Morgan Stanley. The Administrators appointed by Morgan Stanley Trust are
employees or officers of Morgan Stanley & Co.
S-42
Incorporated or its affiliates. Morgan Stanley & Co. Incorporated's
participation in the offering of the capital securities will be conducted in
compliance with Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc.
The underwriters and any dealers utilized in the sale of capital
securities do not intend to confirm sales to accounts over which they exercise
discretionary authority.
It is expected that delivery of the capital securities will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of this prospectus supplement, which will be the fifth
business day following the date of the pricing of the capital securities.
Under Rule 15c6-1 of the Exchange Act, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade capital securities on the date of pricing or the next succeeding
business day will be required, by virtue of the fact that the capital
securities initially will settle in T+5, to specify alternative settlement
arrangements to prevent a failed settlement.
VALIDITY OF SECURITIES
The validity of the capital securities will be passed on for Morgan
Stanley Trust by Richards, Layton & Finger, P.A. The validity of the junior
subordinated debentures and the guarantees will be passed upon for Morgan
Stanley by Sidley Austin Brown & Wood LLP. 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 Morgan Stanley and
continues to represent Morgan Stanley on a regular basis and in a variety of
matters, including in connection with its merchant banking and leveraged
capital activities.
S-43
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PROSPECTUS
$1,500,000,000
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
DEBT SECURITIES
MSDW CAPITAL TRUST I
MSDW CAPITAL TRUST II
MSDW CAPITAL TRUST III
MSDW CAPITAL TRUST IV
MSDW CAPITAL TRUST V
CAPITAL SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
Morgan Stanley, Dean Witter, Discover & Co. (the "Company") may offer and
issue from time to time its debt securities ("Debt Securities") in one or more
series with such terms as are described herein and in the applicable
Prospectus Supplement.
MSDW Capital Trust I, MSDW Capital Trust II, MSDW Capital Trust III, MSDW
Capital Trust IV and MSDW Capital Trust V, each a trust created under the laws
of the State of Delaware (each, an "Issuer Trust," and collectively, the
"Issuer Trusts"), may severally offer and issue from time to time equity
securities (the "Capital Securities") representing preferred beneficial
ownership interests in such Issuer Trust with such terms as are described
herein and in the applicable Prospectus Supplement. The Company will be the
owner, directly or indirectly, of the common securities (the "Common
Securities" and, together with the Capital Securities, the "Trust Securities")
representing common beneficial ownership interests in each Issuer Trust.
Payment to holders of Capital Securities of cash distributions thereon
("Distributions"), and amounts payable upon redemption thereof, liquidation of
the applicable Issuer Trust or otherwise, will be guaranteed by the Company to
the extent described herein and in the applicable Prospectus Supplement (each,
a "Guarantee"). The only assets of an Issuer Trust will be Debt Securities
purchased from the Company with the proceeds from the issuance of its Trust
Securities. Each Guarantee will rank pari passu with the Debt Securities
purchased with the proceeds of the Capital Securities covered by such
Guarantee. If specified in the applicable Prospectus Supplement, such Debt
Securities may be distributed pro rata to holders of Trust Securities at such
times as may be described herein or in such Prospectus Supplement.
The Debt Securities, the Capital Securities and the Guarantees are
sometimes herein referred to individually as a "Security" and collectively as
the "Securities." This Prospectus may not be used to consummate sales of
Securities unless accompanied by a Prospectus Supplement.
(continued on next page)
--------------------------
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, 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 any Securities
listed on a stock exchange or quoted on an automatic quotation system, to
obtaining any necessary approval of the applicable stock exchange or quotation
system for any such offers and sales). Such affiliates may act as a principal
or agent in such transactions. This Prospectus and the accompanying Prospectus
Supplement may be used by such 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 DEAN WITTER
February 25, 1998
(continued from the previous page)
The aggregate initial public offering price of all Debt Securities (other
than Debt Securities purchased by Issuer Trusts) and Capital Securities issued
pursuant to the Registration Statement of which this Prospectus forms a part
shall not exceed $1,500,000,000 or the equivalent thereof in any foreign
currency or composite currency. Unless specified in the applicable Prospectus
Supplement, the Debt Securities and the Capital Securities will be issued in
registered form without coupons.
Certain specific terms of the Securities in respect of which this
Prospectus is being delivered will be described in the accompanying Prospectus
Supplement, including without limitation and where applicable, (a) in the case
of the Debt Securities, series designation, ranking, aggregate principal
amount, denominations, maturity date (including any provisions for the
shortening or extension thereof), interest payment dates, interest rate (which
may be fixed or variable) or method of calculating interest, if any, interest
deferral terms, if any, place or places where and currency or currency units
in which principal, premium, if any, and interest, if any, will be payable,
any terms of redemption, any sinking fund provisions, terms for any conversion
or exchange into other securities, initial offering or purchase price, methods
of distribution and any other special terms, and (b) in the case of Capital
Securities, the identity of the Issuer Trust, title, aggregate stated
liquidation amount, number of securities, Distribution rate or method of
calculating such rate, Distribution payment dates, applicable Distribution
deferral terms, if any, place or places where and currency or currency units
in which Distributions and other amounts will be payable, any terms of
redemption, exchange, initial offering or purchase price, methods of
distribution and any other special terms.
The applicable Prospectus Supplement also will contain information, as
applicable, about certain United States federal income tax consequences
relating to the Securities and will 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/or Dean Witter Reynolds
Inc. ("DWR") 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.
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, THE ISSUER TRUSTS 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.
2
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities 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 (and, prior to the merger, by Morgan Stanley) 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 $0.01 per share (the "Common Stock"), is
listed on the New York Stock Exchange, Inc. (the "NYSE") 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 and the Pacific Stock Exchange, Inc., 301 Pine Street,
San Francisco, California 94104 or 233 South Beaudry Avenue, Los Angeles,
California 90012.
This Prospectus constitutes a part of a Registration Statement filed by
the Company and the Issuer Trusts 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 to the related exhibits for further information
with respect to the Company, the Issuer Trusts 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.
No separate financial statements of any Issuer Trust have been included
herein. The Company and the Issuer Trusts do not consider that such financial
statements would be material to holders of the Capital Securities because each
Issuer Trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose
to engage in any activity other than holding Debt Securities as trust assets
and issuing the Trust Securities. See "The Issuer Trusts," "Description of
Capital Securities," "Description of Debt Securities" and "Description of
Guarantees." In addition, the Company does not expect that any of the Issuer
Trusts will be filing reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange Act
by the Company are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended November 30,
1997; and
(b) Current Reports on Form 8-K December 8, 1997, January 7, 1998 and
February 12, 1998.
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
3
offering of the Securities and (ii) the date on which MS & Co., MSIL, DWR 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 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: Investor Relations (telephone number (212) 762-8131).
4
THE COMPANY
Morgan Stanley, Dean Witter, Discover & Co. (the "Company") is a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset
management and credit services. The Company is a combination of Dean Witter,
Discover & Co. ("Dean Witter Discover") and Morgan Stanley Group Inc. ("Morgan
Stanley") and was formed pursuant to a merger of equals that was effected on
May 31, 1997 in which Morgan Stanley was merged with and into Dean Witter
Discover (the "Merger"). The Company combines three well recognized brands in
the financial services industry: Morgan Stanley, Dean Witter and
Discover(Registered Trademark) Card. The Company combines global strength in
investment banking (including in the origination of quality underwritten
public offerings and in mergers and acquisitions advice) and institutional
sales and trading, with strength in providing investment and global asset
management products and services and, primarily through its Discover Card
brand, quality consumer credit products.
At November 30, 1997, the Company had the third largest account executive
sales organization in the United States, with 9,946 professional account
executives and 399 branches, and one of the largest global asset management
operations of any full-service securities firm, with total assets under
management and administration of approximately $338 billion. In addition,
based on its approximately 40 million general purpose credit card accounts as
of November 30, 1997, the Company was the nation's largest credit card issuer
as measured by number of accounts and cardmembers.
The Company conducts its business from its headquarters in New York City,
its regional offices and branches throughout the United States, and its
principal offices in London, Tokyo, Hong Kong and throughout the world. Dean
Witter Discover was incorporated under the laws of the State of Delaware in
1981, and its predecessor companies date back to 1924. Morgan Stanley was
incorporated under the laws of the State of Delaware in 1975, and its
predecessor companies date back to 1935. At November 30, 1997, the Company had
47,277 employees.
The Company, through its subsidiaries, provides a wide range of financial
and securities services on a global basis and provides credit and transaction
services nationally. Its securities businesses ("Securities Services") include
securities underwriting, distribution and trading; merger, acquisition,
restructuring, real estate, project finance and other corporate finance
advisory activities; full-service brokerage; research services; the trading of
foreign exchange and commodities as well as derivatives on a broad range of
asset categories, rates and indices; and securities lending. The Company's
asset management businesses ("Asset Management") include providing global
asset management advice and services to individual and institutional investors
through well-recognized brand names, including Dean Witter InterCapital, Van
Kampen American Capital, Morgan Stanley Asset Management and Miller Anderson &
Sherrerd; global custody and securities clearance; and principal investment
activities. The Company's credit and transaction services businesses include
the operation of the NOVUS(Registered Trademark) Network, a proprietary
network of merchant and cash access locations, and the issuance of the
Discover Card and other proprietary general purpose credit cards. The
Company's services are provided to a large and diversified group of clients
and customers including corporations, governments, financial institutions and
individuals.
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, Dean Witter,
Discover & Co. and its consolidated subsidiaries.
5
THE ISSUER TRUSTS
Each Issuer Trust is a statutory business trust created under Delaware
law pursuant to the filing of a certificate of trust with the Delaware
Secretary of State on February 12, 1998. Each Issuer Trust will be governed by
an amended and restated trust agreement (each, a "Trust Agreement") among the
Company, as Depositor, The Bank of New York (Delaware), as Delaware Trustee,
The Bank of New York, as Property Trustee (together with the Delaware Trustee,
the "Issuer Trustees") and two individuals selected by the holders of the
Common Securities to act as administrators with respect to such Issuer Trust
(the "Administrators") and the holders, from time to time, of the Trust
Securities. The Company, as the holder of the Common Securities, intends to
select two individuals who are employees or officers of or affiliated with the
Company to serve as the Administrators. Each Issuer Trust exists for the
exclusive purposes of (i) issuing and selling its Trust Securities, (ii) using
the proceeds from the sale of such Trust Securities to invest in a series of
Debt Securities and (iii) engaging in only those other activities necessary,
convenient or incidental thereto (such as registering the transfer of Trust
Securities). Accordingly, Debt Securities will be the sole assets of each
Issuer Trust, and payments under the Debt Securities owned by an Issuer Trust
will be the sole revenue of such Issuer Trust.
All of the Common Securities of each Issuer Trust will be owned directly
or indirectly by the Company. The Common Securities of an Issuer Trust will
rank pari passu, and payments will be made thereon pro rata, with the Capital
Securities of such Issuer Trust, except that upon the occurrence and
continuance of a Debenture Event of Default (as defined herein) arising as a
result of any failure by the Company to pay any amounts in respect of the Debt
Securities owned by such Issuer Trust when due, the rights of the Company as
holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Capital Securities of such Issuer Trust. See
"Description of Capital Securities--Subordination of Common Securities."
Unless otherwise specified in the applicable Prospectus Supplement, the
Company will acquire, directly or indirectly, Common Securities in an
aggregate liquidation amount equal to at least 3% of the total capital of each
Issuer Trust. Unless otherwise specified in the applicable Prospectus
Supplement, each Issuer Trust will have a term of approximately 40 years from
the date on which it initially issues its Capital Securities, but may dissolve
earlier as provided in the applicable Trust Agreement and described in the
applicable Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, the name and address of the Delaware Trustee for each
Issuer Trust will be The Bank of New York (Delaware), White Clay Center,
Newark, Delaware 19711, and the name and address of the Property Trustee, the
Guarantee Trustee and the Debt Securities Trustee for each Issuer Trust will
be The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York
10286.
It is anticipated that no Issuer Trust will be subject to the reporting
requirements under the Exchange Act.
6
USE OF PROCEEDS
The Issuer Trusts will use all proceeds from the sale of Trust Securities
to purchase Debt Securities from the Company. Unless otherwise set forth in
the applicable Prospectus Supplement, the Company intends to use the net
proceeds from the sale of its Debt Securities (including Debt Securities
issued to the Issuer Trusts) for general corporate purposes, which may include
additions to working capital, the redemption of outstanding preferred stock,
the repurchase of outstanding common stock and the repayment of indebtedness
or for such other purposes as are set forth in the applicable Prospectus
Supplement. The Company anticipates that it will raise additional funds from
time to time through equity or debt financing, 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 consolidated ratios of earnings to
fixed charges and earnings to fixed charges and preferred stock dividends for
the Company for the periods indicated. The fiscal year information for 1996,
1995, 1994 and 1993 combines the historical financial information of Dean
Witter Discover for the years ended December 31, 1996, 1995, 1994 and 1993
with the historical financial information of Morgan Stanley for the fiscal
years ended November 30, 1996, 1995, 1994 and 1993. Subsequent to the Merger,
the Company adopted a fiscal year end of November 30. The fiscal year
information for 1997 reflects the change in fiscal year end.
Fiscal Year
1997 1996 1995 1994 1993
Ratio of earnings to
fixed charges . . . . 1.4 1.3 1.3 1.3 1.4
Ratio of earnings to fixed
charges and preferred
stock dividends . . . 1.4 1.3 1.3 1.3 1.4
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
rent expense estimated to be representative of the 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.
7
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, each
between Morgan Stanley (as predecessor to the Company) and The Chase Manhattan
Bank (formerly known as Chemical Bank), as Trustee, and by a Third
Supplemental Senior Indenture dated as of June 1, 1997, between the Company
and The Chase Manhattan Bank, as Trustee (as so supplemented and as further
supplemented from time to time, the "Senior Debt Indenture"), and, in the case
of Debt Securities that will be subordinated debt, under either (i) 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 each between
Morgan Stanley (as predecessor to the Company) and The First National Bank of
Chicago, as Trustee, and by a Third Supplemental Subordinated Indenture dated
as of June 1, 1997, between the Company and The First National Bank of
Chicago, as Trustee (as so supplemented and as further supplemented from time
to time, the "Senior Subordinated Debt Indenture") or (ii) a Junior
Subordinated Indenture to be entered into between the Company and The Bank of
New York, as Trustee (the "Junior Subordinated Debt Indenture"). The Senior
Debt Indenture, the Senior Subordinated Debt Indenture and Junior Subordinated
Debt Indenture are sometimes hereinafter referred to individually as an
"Indenture" and collectively as the "Indentures." The Chase Manhattan Bank,
The First National Bank of Chicago and The Bank of New York are hereinafter
referred to individually as a "Debt Securities Trustee" and collectively as
the "Debt Securities Trustees."
The following summaries of certain provisions of the Indentures and the
Debt Securities do not purport to be complete and are subject to the detailed
provisions of the applicable Indenture and Debt Securities 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" below. As used under this caption and the captions "Description of
Capital Securities," "Global Securities" and "Description of Guarantees," the
term Company means Morgan Stanley, Dean Witter, Discover & Co.
GENERAL
None 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 subsidiaries to the Company are
restricted by legal requirements, including (in the case of MS & Co. and DWR)
net capital requirements under the Exchange Act and under rules of certain
exchanges and other regulatory bodies and (in the case of Greenwood Trust
Company, a Delaware chartered bank and an indirect wholly owned subsidiary of
the Company, and other bank subsidiaries) by banking regulations.
8
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, including the euro, 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 will be described in the applicable Prospectus Supplement.
Reference is made to the applicable Prospectus Supplement for the
following terms of and information relating to the Debt Securities offered
hereby and thereby (to the extent such terms are applicable to such Debt
Securities): (i) classification as senior, senior subordinated or junior
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, including any provisions for the shortening or
extension thereof; (iv) interest rate or rates (or the method by which such
rate or rates will be determined), if any; (v) the date or dates on which any
such interest will be payable; (vi) any provisions relating to the deferral of
interest payments at the option of the Company or otherwise; (vii) the place
or places where the principal of, premium, if any, and interest, if any, on
such Debt Securities will be payable; (viii) any repayment, redemption,
prepayment or sinking fund provisions; (ix) whether such 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; (x) 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;
(xi) if applicable, any securities exchange or quotation system on which such
Debt Securities may be listed or quoted, as the case may be; (xii) any
applicable United States federal income tax consequences, including whether
and under what circumstances the Company will pay additional amounts on such
Debt Securities held by a person who is not a U.S. person (as defined in the
applicable 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 (xiii) any other specific terms of such 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
applicable 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
and Debt Securities. 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
applicable 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
9
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
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
Debt Securities and Coupons that will constitute part of the subordinated
debt of the Company will be issued under the Senior Subordinated Debt
Indenture or the Junior Subordinated Debt Indenture (hereinafter referred to
individually as a "Subordinated Debt Indenture" and collectively as
"Subordinated Debt Indentures").
Senior Subordinated Debt
Debt Securities and Coupons issued under the Senior Subordinated
Debenture will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Senior Subordinated Debt Indenture, to all
"Senior Indebtedness," as defined therein, of the Company. The Senior
Subordinated Debt Indenture defines "Senior Indebtedness" as obligations
(other than nonrecourse obligations, the Debt Securities issued under the
Senior Subordinated Debt Indenture and any other obligations specifically
designated as being subordinate in right of payment to such 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. (Senior 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 (as defined in the Senior Subordinated Debt
Indenture) 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 in the Senior Subordinated Debt Indenture 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 Debt Securities issued under the Senior
Subordinated Debt Indenture shall have been declared due and payable upon an
Event of Default pursuant to Section 5.1 of the Senior Subordinated Debt
Indenture and such declaration shall not have been rescinded and annulled as
provided therein, then the holders of all Senior Indebtedness (as defined in
the Senior Subordinated Debt Indenture) 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 Debt
Securities or Coupons issued under the Senior Subordinated Debt Indenture are
entitled to receive a payment on account of the
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principal of (and premium, if any) or any interest on the indebtedness
evidenced by such Debt Securities or such Coupons. (Senior Subordinated Debt
Indenture, Section 13.1) If this Prospectus is being delivered in connection
with a series of Debt Securities issued under the Senior Subordinated Debt
Indenture, the accompanying Prospectus Supplement or the information
incorporated herein by reference will set forth the approximate amount of
Senior Indebtedness (as defined in the Senior Subordinated Debt Indenture)
outstanding as of the end of the most recent fiscal quarter.
Junior Subordinated Debt
Debt Securities and Coupons issued pursuant to the Junior Subordinated
Debt Indenture will be subordinate and junior in right of payment, to the
extent and in the manner set forth in the Junior Subordinate Debt Indenture,
to all "Senior Indebtedness," as defined therein, of the Company. The Junior
Subordinated Debt Indenture defines "Senior Indebtedness" as any Debt
Securities or Coupons issued under the Senior Debt Indenture or the Senior
Subordinated Debt Indenture and any other obligations (other than nonrecourse
obligations, Debt Securities issued under the Junior Subordinated Debt
Indenture or any other obligations specifically designated as being
subordinate in right of payment to such 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. (Junior Subordinated Debt Indenture, Section 1.1)
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceeding 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 (as defined in the Junior Subordinated Debt
Indenture) 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 in the Junior Subordinated Debt Indenture 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 Debt Securities issued under the Junior
Subordinated Debt Indenture shall have been declared due and payable upon an
Event of Default pursuant to Section 5.1 of the Junior Subordinated Debt
Indenture and such declaration shall not have been rescinded and annulled as
provided therein, then the holders of all Senior Indebtedness (as defined in
the Junior Subordinated Debt Indenture) 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 Debt
Securities or Coupons issued under the Junior Subordinated Debt Indenture 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 Debt Securities or
such Coupons. (Junior Subordinated Debt Indenture, Section 13.1) If this
Prospectus is being delivered in connection with a series of Debt Securities
issued under the Junior Subordinated Debt Indenture, the accompanying
Prospectus Supplement or the information incorporated herein by reference will
set forth the approximate amount of Senior Indebtedness (as defined in the
Junior Subordinated Debt Indenture) 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 below) to, create, assume, incur or
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guarantee any indebtedness for borrowed money secured by a pledge, lien or
other encumbrance (except for certain liens specifically permitted by such
Indenture) on (i) the Voting Securities (as defined below) of MS & Co., MSIL,
DWR, Greenwood Trust Company, or any Subsidiary succeeding to any substantial
part of the business now conducted by any of such corporations (collectively,
the "Principal Subsidiaries") or (ii) Voting Securities of a Subsidiary that
owns, directly or indirectly, Voting Securities of any of the Principal
Subsidiaries (other than directors' qualifying shares) without making
effective provisions whereby the Debt Securities issued under such Indenture
will be secured equally and ratably with such secured indebtedness.
"Subsidiary" means any corporation, partnership or other entity of which at
the time of determination the Company owns or controls directly or indirectly
more than 50% of the shares of the voting stock or equivalent interest.
"Voting Securities" means stock of any class or classes having general voting
power under ordinary circumstances to elect a majority of the board of
directors, managers or trustees of the Subsidiary in question, provided that,
for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered voting
stock whether or not such event shall have happened. (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 person 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 the 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.
If the Company issues Debt Securities to an Issuer Trust, the Company
will agree to pay certain obligations, expenses and taxes of the Issuer Trust.
See also "Description of Capital Securities--Expenses and Taxes."
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
provided, however, that a valid extension of an interest payment period by the
Company in accordance with the terms of the Debt Securities of any such series
shall not constitute a default in the payment of interest for this purpose;
(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
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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 Debt Securities 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 Debt Securities
Trustee, or to the Company and the Debt Securities 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 5.01) Any additions to or modification
of the definition of "Event of Default" with respect to a series of Debt
Securities will be described in the applicable Prospectus Supplement.
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 Debt Securities 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 Debt Securities 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 5.01 and 5.10)
Each Indenture contains a provision entitling the Debt Securities
Trustee, subject to the duty of the Debt Securities 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 6.02) Subject to such provisions in each
Indenture for the indemnification of the Debt Securities 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 Debt Securities Trustee, or exercising any trust or
power conferred on the Debt Securities Trustee. (Indentures, Section 5.09)
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 Debt Securities Trustee written
notice of default and continuance thereof and unless the holders of not less
than 25% in principal amount
13
of the Debt Securities of each affected series (treated as one class) issued
under such Indenture and then outstanding shall have requested the Debt
Securities Trustee to institute such action and shall have offered the Debt
Securities Trustee reasonable indemnity, the Debt Securities Trustee shall not
have instituted such action within 60 days of such request and the Debt
Securities 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 5.06 and 5.09)
Each Indenture contains a covenant that the Company will file annually
with the Debt Securities 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 10.01)
Under terms satisfactory to the Debt Securities 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 Debt
Securities 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 Debt
Securities 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, defaced,
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 Debt Securities 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 3.06 (in
the case of the Senior Debt Indenture) and 9.01 (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 Debt Securities 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 Debt Securities 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 a
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 Debt Securities issued pursuant to a Subordinated
Debt Indenture at the date of the irrevocable deposit referred to above
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or at any time during the period ending on the 91st day after such deposit
date and (b) the Company delivers to the Debt Securities Trustee for such
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 (as defined for purposes of such Indenture) 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 Debt Securities Trustee
and the holders of such 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 Debt Securities 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 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
Debt Securities 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, except as described
herein or the applicable Prospectus Supplement, the Company and the Debt
Securities 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 provided
that, if such Debt Securities are owned by an Issuer Trust, none of the
modifications described in clauses (a) and (b) above may be made without the
prior written consent of all the holders of Capital Securities of such Issuer
Trust. (Indentures, Section 8.02)
No Subordinated Debt Indenture may be amended to alter the subordination
of any outstanding Debt Securities issued thereunder without the written
consent of each holder of Senior Indebtedness (as defined therein) then
outstanding that would be adversely affected thereby. (Subordinated Debt
Indentures, Section 8.06)
CONCERNING THE DEBT SECURITIES TRUSTEES
The Chase Manhattan Bank, The First National Bank of Chicago and The Bank
of New York are three 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.
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GOVERNING LAW
The Debt Securities and the Indentures will be governed by and construed
in accordance with the laws of the State of New York.
DESCRIPTION OF CAPITAL SECURITIES
Each Issuer Trust will issue only one series of Capital Securities and
one series of Common Securities. The Trust Agreement for each Issuer Trust
will be qualified as an indenture under the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Capital Securities will have such terms and will
be subject to such conditions as shall be set forth in the Trust Agreement or
made a part thereof by the Trust Indenture Act. This summary of certain
provisions of the Capital Securities and each Trust Agreement does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, all the provisions of each Trust Agreement, including the definitions
therein of certain terms. Wherever particular defined terms of a Trust
Agreement are referred to herein, such defined terms are incorporated herein
by reference. A copy of the form of the Trust Agreement is available upon
request from the Issuer Trustees.
GENERAL
The Capital Securities will represent preferred undivided beneficial
interests in the assets of the applicable Issuer Trust. The only assets of an
Issuer Trust, and its only source of its revenues, will be the Debt Securities
purchased by such Issuer Trust with the proceeds from the issuance of its
Trust Securities. Accordingly, Distributions and other payment dates for such
Trust Securities will correspond with the interest and other payment dates for
such Debt Securities. See "Description of Debt Securities" in this Prospectus
and in the applicable Prospectus Supplement for a description of such Debt
Securities. If the Company does not make payments on such Debt Securities in
accordance with their terms, such Issuer Trust will not have funds available
to pay Distributions or other amounts payable on the Trust Securities issued
by such Issuer Trust in accordance with their terms. The Capital Securities
issued by an Issuer Trust will rank pari passu, and payments thereon will be
made thereon pro rata, with the Common Securities issued by such Issuer Trust
except as described below under "--Subordination of Common Securities" and in
the applicable Prospectus Supplement. Capital Securities will be fully and
unconditionally guaranteed by the Company, to the extent described herein
under "Description of Guarantees" and in the applicable Prospectus Supplement.
Reference is made to the applicable Prospectus Supplement for the
following terms of and information relating to the Capital Securities offered
hereby and thereby (to the extent such terms are applicable to such Capital
Securities): (i) the specific designation, stated amount per Capital Security
(the "Liquidation Amount"), number to be issued by the applicable Issuer Trust
and purchase price; (ii) the currency or units based on or relating to
currencies in which Distributions and other payments thereon will or may be
payable; (iii) the Distribution rate or rates (or the method by which such
rate or rates will be determined), if any; (iv) the date or dates on which any
such Distributions will be payable; (v) any provisions relating to deferral of
Distribution payments; (vi) the place or places where Distributions and other
amounts payable on such Capital Securities will be payable; (vii) any
repayment, redemption, prepayment or sinking fund provisions; (viii) the
voting rights, if any, of holders of such Capital Securities; (ix) the terms
and conditions, if any, upon which the assets of such Issuer Trust may be
distributed to holders of such Capital Securities; (x) any applicable United
States federal income tax consequences; and (xi) any other specific terms of
such Capital Securities.
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DISTRIBUTIONS
Distributions on the Capital Securities will be cumulative. Distributions
will accumulate from the date of original issuance and will be payable on such
dates as specified in the applicable Prospectus Supplement. The amount of
Distributions payable for any period less than a full Distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, unless otherwise
specified in the applicable Prospectus Supplement. Distributions payable for
each full Distribution period will be computed by dividing the rate per annum
by four, unless otherwise specified in the applicable Prospectus Supplement.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and other amounts payable under the Capital
Securities and Common Securities issued by an Issuer Trust shall be made pro
rata based on the liquidation amount of such Capital Securities and Common
Securities. However, unless otherwise provided in the applicable Prospectus
Supplement, if on any date on which Distributions or other amounts are payable
with respect to such Capital Securities and Common Securities, an "Event of
Default" with respect to the Debt Securities owned by such Issuer Trust (a
"Debenture Event of Default") has occurred and is continuing as a result of
any failure by the Company to pay any amounts in respect of such Debt
Securities when due, no payment of any Distribution on or other amounts
payable under such Common Securities shall be made unless payment in full in
cash of all accumulated amounts then due and payable with respect to all of
such Issuer Trust's outstanding Capital Securities shall have been made or
provided for, and all funds immediately available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
and all other amounts with respect to, Capital Securities then due and
payable.
In the case of any Capital Securities Event of Default (as defined below)
resulting from a Debenture Event of Default, the holders of the applicable
Issuer Trust's Common Securities will be deemed to have waived any right to
act with respect to any such Capital Securities Event of Default under the
applicable Trust Agreement until the effects of such Debenture Event of
Default with respect to such Capital Securities have been cured, waived or
otherwise eliminated. See "--Capital Securities Events of Default; Notice" and
"Description of Debt Securities--Events of Default." Until all such Capital
Securities Events of Default have been so cured, waived or otherwise
eliminated, the Property Trustee will act solely on behalf of the holders of
the Capital Securities and not on behalf of the holders of the Common
Securities, and only the holders of the Capital Securities will have the right
to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on Capital Securities in the event of any liquidation
of a Issuer Trust will be the stated amount per Capital Security or such other
amount as specified in the applicable Prospectus Supplement plus accumulated
and unpaid Distributions, which, if specified in the applicable Prospectus
Supplement, may be in the form of a distribution of the Debt Securities owned
by such Issuer Trust.
The holders of all the outstanding Common Securities of an Issuer Trust
will have the right at any time to dissolve such Issuer Trust and, after
satisfaction of liabilities to creditors of such Issuer Trust as provided by
applicable law, cause the Debt Securities owned by such Issuer Trust to be
distributed to the holders of the Capital Securities and Common Securities in
liquidation of such Issuer Trust as described in the applicable Prospectus
Supplement. Other terms for the dissolution of an Issuer Trust and the
distribution or liquidation of its assets to holders of Trust Securities will
be set forth in the applicable Prospectus Supplement.
17
CAPITAL SECURITIES EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under a
Trust Agreement (a "Capital Securities Event of Default") with respect to the
Capital Securities issued pursuant thereto (whatever the reason for such
Capital Securities Event of Default and whether it is voluntary or involuntary
or effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of an Event of Default with respect to the Debt
Securities in which the proceeds of the Capital Securities have been invested
(see "Description of Debt Securities-- Events of Default" and the applicable
Prospectus Supplement); or
(ii) default by the applicable Issuer Trust or the Property Trustee in
the payment of any Distribution on such Capital Securities when it becomes due
and payable, and continuation of such default for a period of 30 days; or
(iii) default by an Issuer Trust or the Property Trustee in the payment
of any redemption price of any Trust Security issued pursuant to such Trust
Agreement when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the applicable Issuer Trustees (other than a
covenant or warranty, a default in the performance of which or the breach of
which is dealt with in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to such Issuer Trustees and the Company by the
holders of at least 25% in aggregate Liquidation Amount of such Capital
Securities outstanding, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the applicable Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its property if
a successor Property Trustee has not been appointed within 90 days thereof.
Within ten Business Days after the occurrence of any Capital Securities
Event of Default actually known to the Property Trustee, the Property Trustee
will transmit notice of such Event of Default to the holders of the applicable
Trust Securities and the Administrators, unless such Capital Securities Event
of Default has been cured or waived. The Company, as Depositor, and the
Administrators are required to file annually with the Property Trustee a
certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a
result of any failure by the Company to pay any amounts in respect of the Debt
Securities owned by an Issuer Trust when due, the Capital Securities issued by
such Issuer Trust will have a preference over the Common Securities issued by
such Issuer Trust with respect to payments of any amounts in respect of such
Capital Securities as described above. See "--Subordination of Common
Securities."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Capital Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Capital Securities. If an Issuer Trustee resigns,
such Issuer Trustee will appoint its successor. If an
18
Issuer Trustee fails to appoint a successor, the holders of at least 25% in
Liquidation Amount of the outstanding Capital Securities may appoint a
successor. If a successor has not been appointed by the holders, any holder of
Capital Securities or Common Securities or another Issuer Trustee may petition
a court of competent jurisdiction to appoint a successor. Any Delaware Trustee
must meet the applicable requirements of Delaware law. Any Property Trustee
must be a national- or state-chartered bank, and at the time of appointment
have capital and surplus of at least $50,000,000. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance
with the provisions of the applicable Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which an Issuer Trustee may be merged or converted or
with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Issuer Trustee is a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Issuer Trustee, will be the successor of such Issuer Trustee under each
Trust Agreement, provided such entity is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUSTS
An Issuer Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the applicable Trust Agreement. An Issuer Trust may, at
the request of the holders of the Common Securities and with the consent of
the holders of at least a majority in aggregate Liquidation Amount of its
outstanding Capital Securities, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State, so long as (i) such successor entity either (a) expressly assumes
all the obligations of the Issuer Trust with respect to the Issuer Trust's
Capital Securities or (b) substitutes for the Issuer Trust's Capital
Securities other securities having substantially the same terms as the Issuer
Trust's Capital Securities (the "Successor Securities") so long as the
Successor Securities have the same priority as the Issuer Trust's Capital
Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) a trustee of such successor entity, possessing
the same powers and duties as the Property Trustee, is appointed to hold the
corresponding Debt Securities, (iii) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Issuer Trust's
Capital Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Issuer Trust's Capital Securities (including any Successor Securities) in
any material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Issuer Trust has received an opinion from independent counsel experienced in
such matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Issuer Trust's
Capital Securities (including any Successor Securities) in any material
respect and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Issuer Trust nor such
successor entity will be required to register as an investment company under
the Investment Company Act, and (vii) the Company or any permitted successor
or assignee owns, directly or indirectly, all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the related
Guarantee. Notwithstanding the foregoing, an Issuer Trust may not, except with
the consent of holders of 100% in aggregate Liquidation Amount of the Issuer
Trust's Capital Securities, consolidate,
19
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENTS
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantees--Amendments and
Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Capital Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by the holders of a
majority in aggregate Liquidation Amount of the Common Securities and the
Property Trustee, without the consent of the holders of the Capital
Securities, (i) to cure any ambiguity, correct or supplement any provisions in
such Trust Agreement that may be inconsistent with any other provision, or to
make any other provisions with respect to matters or questions arising under
such Trust Agreement, provided that any such amendment does not adversely
affect in any material respect the interests of any holder of Trust
Securities, or (ii) to modify, eliminate or add to any provisions of such
Trust Agreement to such extent as may be necessary to ensure that the Issuer
Trust will not be taxable as a corporation for United States federal income
tax purposes at any time that any Trust Securities are outstanding or to
ensure that the Issuer Trust will not be required to register as an
"investment company" under the Investment Company Act, and any such amendments
of such Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. Each Trust Agreement may be amended
by the holders of a majority in aggregate Liquidation Amount of the Common
Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not cause the Issuer Trust to be taxable as a corporation for United States
federal income tax purposes or affect the Issuer Trust's exemption from status
as an "investment company" under the Investment Company Act, except that,
without the consent of each holder of Trust Securities affected thereby, a
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Debt Securities are held by an Issuer Trust, the Property
Trustee will not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debt Securities Trustee, or execute
any trust or power conferred on the Property Trustee with respect to the Debt
Securities, (ii) waive any past default that may be waived under Section 5.10
of such applicable Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal amount of such Debt Securities shall be due and
payable or (iv) consent to any amendment, modification or termination of the
such Indenture or Debt Securities, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of at least
a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, except that, if a consent under such Indenture would require the
consent of each holder of such Debt Securities affected thereby, no such
consent will be given by the Property Trustee without the prior consent of
each holder of the such Capital Securities. The Property Trustee may not
revoke any action previously authorized or approved by a vote of the holders
of such Capital Securities except by subsequent vote of the holders of Capital
Securities issued by such Issuer Trust. The Property Trustee will notify each
holder of such Capital Securities of any notice of default with respect to
such Debt Securities. In addition to obtaining the foregoing approvals of the
holders of such Capital Securities,
20
before taking any of the foregoing actions, the Property Trustee will obtain
an opinion of counsel experienced in such matters to the effect that the
Issuer Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each registered holder of Capital Securities in the manner set forth
in each Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
to redeem and cancel Capital Securities in accordance with the applicable
Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Debt Securities owned by an Issuer Trust, the Company, as
borrower, will agree to pay all debts and other obligations (other than with
respect to the Capital Securities issued by such Issuer Trust) and all costs
and expenses of such Issuer Trust (including costs and expenses relating to
the organization of such Issuer Trust, the fees and expenses of the Issuer
Trustees for such Issuer Trust and the costs and expenses relating to the
operation of such Issuer Trust) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which such Issuer Trust might become subject. The foregoing obligations of the
Company under the Debt Securities owned by an Issuer Trust are for the benefit
of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Company directly against the Company, and the Company will
irrevocably waive any right or remedy to require that any such Creditor take
any action against such Issuer Trust or any other person before proceeding
against the Company. The Company will also agree in the Debt Securities owned
by an Issuer Trust to execute such additional agreements as may be necessary
or desirable to give full effect to the foregoing.
PAYMENT AND PAYING AGENCY
The applicable Prospectus Supplement will specify the manner in which
payments in respect of the Capital Securities will be made. The paying agent
(the "Paying Agent") for Capital Securities will initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable
to the Administrators. The Paying Agent will be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee and the
Administrators. If the Property Trustee is no longer the Paying Agent, the
Property Trustee will appoint a successor (which must be a bank or trust
company reasonably acceptable to the Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Capital
Securities.
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Registration of transfers of Capital Securities will be effected without
charge by or on behalf of each Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trusts will not be required to register or cause to be
registered the transfer of their Capital Securities after such Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
a Capital Securities Event of Default, undertakes to perform only such duties
as are specifically set forth in each Trust Agreement and, after such Capital
Securities Event of Default, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the applicable Trust
Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between The Bank of New
York, the Property Trustee, and the Company, see "Description of Debt
Securities--Information Concerning the Debt Securities Trustees."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed
to conduct the affairs of and to operate the Issuer Trusts in such a way that
the Issuer Trusts will not be deemed to be an "investment company" required to
be registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Debt Securities
owned by the Issuer Trusts will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of each
Issuer Trust or each Trust Agreement, that the Property Trustee and the
holders of Common Securities determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the related Capital
Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trusts may not borrow money or issue debt or mortgage or
pledge any of their assets.
GOVERNING LAW
Each Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
GLOBAL SECURITIES
The registered Debt Securities and Capital Securities 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 depository (a
"Depository") or with a nominee for a Depository identified in the Prospectus
Supplement relating to such series and registered in the name of such
Depository 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
22
Securities in definitive registered form, a Registered Global Security may not
be transferred except as a whole by the Depository for such Registered Global
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
The specific terms of the depository 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 depository arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depository for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depository 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 Depository 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 Depository for a Registered Global Security, or its
nominee, is the registered owner of such Registered Global Security, such
Depository 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 or Trust 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 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 or Trust Agreement. Accordingly, each person owning a beneficial
interest in a Registered Global Security must rely on the procedures of the
Depository 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 or Trust 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 or Trust Agreement, the Depository 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 Capital Securities, represented by a
Registered Global Security registered in the name of a Depository or its
nominee will be made to such Depository or its nominee, as the case may be, as
the registered owner of such Registered Global Security. None of the Company,
the Debt Securities Trustees, the Issuer Trustees or any other agent of the
Company, agent of the applicable Issuer Trust or agent of any such Trustees,
as the case may be, 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
23
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company and the Issuer Trusts expect that the Depository for any
Securities represented by a Registered Global Security, upon receipt of any
payment of principal, premium, interest or other distribution of underlying
securities 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 Depository. The Company and the Issuer Trusts also expect
that payments by participants to owners of beneficial interests in such
Registered Global Security held through such participants will be governed by
standing customer 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 Depository for any Securities represented by a Registered Global
Security is at any time unwilling or unable to continue as Depository or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depository registered as a clearing agency under the Exchange Act is
not appointed by the Company or the applicable Issuer Trust, as the case may
be, within 90 days, the Company or the applicable Issuer Trust, as the case
may be, will issue such Securities in definitive form in exchange for such
Registered Global Security. In addition, the Company or the applicable Issuer
Trust, as the case may be, 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 Depository shall instruct the relevant
Trustee or other relevant agent of the Company, the applicable Issuer Trust or
such Trustee. It is expected that such instructions will be based upon
directions received by the Depository from participants with respect to
ownership of beneficial interests in such Registered Global Security.
The Debt 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 depository 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,
soci t anonyme or its successor ("Cedel Bank") or with a nominee for such
depository identified in the Prospectus Supplement relating to such series.
The specific terms and procedures, including the specific terms of the
depository 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.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Company concurrently
with the issuance by each Issuer Trust of its Capital Securities for the
benefit of the holders from time to time of such Capital Securities. This
summary of certain provisions of the Guarantees does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of each Guarantee, including the definitions therein of certain
terms. A copy of the form of the Guarantee is available upon request from the
Guarantee Trustee. The Guarantee Trustee will hold each Guarantee for the
benefit of the holders of the related Issuer Trust's Capital Securities.
GENERAL
Pursuant to a Guarantee, the Company will irrevocably and unconditionally
agree to pay in full, to the extent set forth therein, the Guarantee Payments
(as defined below) to the holders of the Capital
24
Securities covered by such Guarantee, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust that issued
such Capital Securities may have or assert other than the defense of payment.
The following payments with respect to Capital Securities, to the extent not
paid by or on behalf of the Issuer Trust that issued such Capital Securities
(the "Guarantee Payments"), will be subject to the Guarantee thereon: (i) any
accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that such Issuer Trust has funds on hand available
therefor at such time, if any, (ii) the redemption price with respect to any
Capital Securities called for redemption, including all accumulated and unpaid
Distributions thereon (the "Redemption Price"), to the extent that such Issuer
Trust has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of such Issuer
Trust (unless the Debt Securities owned by such Issuer Trust are distributed
to holders of such Capital Securities in accordance with the terms thereof),
the lesser of (a) the aggregate of the Liquidation Amount and all accumulated
and unpaid Distributions to the date of payment, and (b) the amount of assets
of such Issuer Trust remaining available for distribution to holders of
Capital Securities on liquidation of such Issuer Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of the Capital Securities
or by causing the applicable Issuer Trust to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee of the related Issuer
Trust's obligations under the Capital Securities covered thereby, but will
apply only to the extent that such Issuer Trust has funds sufficient to make
such payments, and is not a guarantee of collection.
If the Company does not make payments on the Debt Securities owned by an
Issuer Trust, such Issuer Trust will not be able to pay any amounts payable in
respect of its Capital Securities and will not have funds legally available
therefor and, in such event, holders of the Capital Securities would not be
able to rely upon the Guarantee for payment of such amounts. Each Guarantee
will have the same ranking as the Debt Securities owned by the Issuer Trust
that issues the Capital Securities covered thereby. See "-- Status of the
Guarantees." No Guarantee will limit the incurrence or issuance of other
secured or unsecured debt of the Company.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank pari passu in right of payment with the Debt Securities owned by the
Issuer Trust that issues the Capital Securities covered thereby.
Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against any other person or entity). Each
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the related Capital Securities. Each Guarantee will not be discharged
except by payment of the Guarantee Payments in full to the extent not paid by
the Issuer Trust or, if applicable, distribution to the holders of the Capital
Securities of the Debt Securities owned by such Issuer Trust.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Capital Securities issued by an Issuer
Trust (in which case no vote will be required), the Guarantee that covers such
Capital Securities may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
such Capital Securities outstanding. The manner of obtaining any such approval
will be as set forth under "Description of the Capital Securities--
25
Voting Rights; Amendment of Trust Agreements" and in the applicable Prospectus
Supplement. All guarantees and agreements contained in each Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the covered Capital
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of
the Company to perform any of its payment obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of such Guarantee or to direct
the exercise of any trust or power conferred upon the Guarantee Trustee under
such Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee thereon without first instituting a legal proceeding against the
Issuer Trust, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantees.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of any Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by any Guarantee at the request of any holder of the
Capital Securities covered thereby unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
For information concerning the relationship between The Bank of New York,
the Guarantee Trustee, and the Company, see "Description of Debt
Securities--Information Concerning the Debt Securities Trustees."
TERMINATION OF THE GUARANTEE
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities covered
thereby, upon full payment of the amounts payable with respect to such Capital
Securities upon liquidation of the related Issuer Trust or upon distribution
of the Debt Securities owned by such Issuer Trust to the holders of such
Capital Securities. Each Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of such Capital
Securities must repay any sums with respect to such Capital Securities or such
Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
26
PLAN OF DISTRIBUTION
The Company may sell Debt Securities and an Issuer Trust may sell the
Capital 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/or DWR 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 and/or an Issuer Trust, as the case may be, 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 will be 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.
If any underwriters are utilized in the sale of the Securities in respect
of which this Prospectus is delivered, the Company and/or an Issuer Trust, as
the case may be, 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.
If a dealer is utilized in the sale of the Securities in respect of which
the Prospectus is delivered, the Company and/or an Issuer Trust, as the case
may be, 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.
In order to facilitate the offering of the Securities, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Securities or any other securities the prices of which may be
used to determine payments on such Securities. Specifically, the underwriters
may overallot in connection with the offering, creating a short position in
the Securities for their own accounts. In addition, to cover overallotments or
to stabilize the price of the Securities or of any such other securities, the
underwriters may bid for, and purchase, the Securities or any such other
securities in the open market. Finally, in any offering of the Securities
through a syndicate of underwriters, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Securities in the offering if the syndicate repurchases previously distributed
Securities in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Securities above independent market
levels. The underwriters are not required to engage in these activities, and
may end any of these activities at any time.
Securities may also be offered and sold, if so indicated in the
applicable Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with their terms, by one or more firms, including MS &
Co., MSIL and DWR ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company and/or an Issuer Trust, as the case may
be. Any remarketing firm will be identified and the terms of its agreement, if
any, with the Company and/or an Issuer Trust, as the case may be, and its
compensation will be described in the applicable Prospectus Supplement.
Remarketing firms, agents, underwriters and dealers may be entitled under
agreements which may be entered into with the Company and/or an Issuer Trust,
as the case may be, to indemnification by
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the Company and/or an Issuer Trust, as the case may be, 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
and/or an Issuer Trust, as the case may be, in the ordinary course of
business.
If so indicated in the Prospectus Supplement, the Company and/or an
Issuer Trust, as the case may be, will authorize agents, underwriters or
dealers to solicit offers by certain purchasers to purchase Securities 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 underwriter, agent or dealer utilized in the initial offering of
Securities will not confirm sales to accounts over which it exercises
discretionary authority without the prior specific written approval of its
customer.
MS & Co., MSIL and DWR are wholly owned subsidiaries of the Company. Each
initial offering of 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, DWR 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 any securities listed on a stock exchange or quoted on an automated
quotation system, to obtaining any necessary approval of the applicable stock
exchange or quotation system for any such offers and sales). MS & Co., MSIL,
DWR and such other affiliates may act as principals or agents in such
transactions. This Prospectus may be used by MS & Co., MSIL, DWR 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. None of MS & Co., MSIL, DWR or any such other affiliate
is obligated to make a market in any Securities and may discontinue any
market-making activities at any time without notice.
VALIDITY OF SECURITIES
The validity of the Capital Securities will be passed on for the Issuer
Trusts by Richards, Layton & Finger, P.A. The validity of the Debt Securities
and the Guarantees will be passed upon for the Company by Brown & Wood LLP.
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 Morgan Stanley 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 schedules
of the Company and its subsidiaries as of fiscal year end 1997 and 1996 and
for each of the three years in the period ended fiscal year end 1997 included
or incorporated by reference in the Company's Annual Report on Form 10-K dated
November 30, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their reports thereon and incorporated herein by
reference. The financial statements and financial statement schedule of Morgan
Stanley as of November 30, 1996 and for each of the two years in the period
ended November 30, 1996 have been audited by Ernst & Young LLP, independent
auditors, as stated in their report and relied upon by Deloitte & Touche LLP
in their reports incorporated herein by reference. Such consolidated financial
statements have been incorporated herein by reference in reliance upon the
respective reports given upon the authority of such firms as experts in
accounting and auditing.
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