PROSPECTUS SUPPLEMENT
(To Prospectus dated June 11, 2002)
$450,000,000
Morgan Stanley Capital Trust V
5 3/4% CAPITAL SECURITIES
guaranteed by
[Morgan Stanley Logo]
____________________
Morgan Stanley Capital Trust V is offering capital securities that 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 V will redeem the capital
securities on July 15, 2033, which date may be extended to a date not later
than July 15, 2052, and may redeem them earlier.
____________________
Morgan Stanley Capital Trust V will apply to have the capital securities
listed on the New York Stock Exchange under the trading symbol "MWO" for
trading within 30 days after they are first issued. No assurance can be given
that the New York Stock Exchange will approve the capital securities for
listing.
____________________
Investing in the capital securities involves risks. See "Risk Factors"
beginning on page S-9.
____________________
PRICE $25 PER CAPITAL SECURITY
____________________
Underwriting Proceeds to
Price to Discounts and Morgan Stanley
Public(1) Commissions(2) Capital Trust V(1)(2)
--------- -------------- ---------------------
Per Capital Security.................. $25 $.7875 $25
Total................................ $450,000,000 $14,175,000 $450,000,000
___________
(1) Plus accumulated distributions, if any, from July 16, 2003.
(2) Because Morgan Stanley Capital Trust V 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.
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 2,700,000 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 16, 2003.
____________________
MORGAN STANLEY
A.G. EDWARDS & SONS, INC.
CITIGROUP
MERRILL LYNCH & CO.
UBS INVESTMENT BANK
WACHOVIA SECURITIES
WELLS FARGO SECURITIES, LLC
July 9, 2003
______________________
TABLE OF CONTENTS
_____________________
Prospectus Supplement Prospectus
Page Page
---- ----
Prospectus Supplement Summary...................S-3 Where You Can Find More Information.....2
Risk Factors....................................S-9 Morgan Stanley..........................4
Morgan Stanley Capital Trust V.................S-14 The Morgan Stanley Capital Trusts.......4
Consolidated Ratios of Earnings to Fixed Charges and Use of Proceeds.........................5
Earnings to Fixed Charges and Preferred Stock Consolidated Ratios of Earnings to Fixed
Dividends..................................S-15 Charges and Earnings to Fixed Charges
Accounting Treatment...........................S-15 and Preferred Stock Dividends.......6
Description of Capital Securities..............S-16 Description of Capital Securities.......7
Description of Junior Subordinated Debentures..S-27 Description of Junior Subordinated
Description of Guarantee.......................S-35 Debentures.........................14
Relationship Among the Capital Securities, the Junior Description of Global Securities.......23
Subordinated Debentures and the Guarantee..S-35 Description of Guarantees..............24
United States Federal Income Tax Consequences..S-37 Plan of Distribution...................27
Certain ERISA Considerations...................S-42 Legal Matters..........................29
Underwriters...................................S-45 Experts................................29
Validity of Securities.........................S-50
Experts........................................S-50
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 V.
Except as otherwise noted, the discussion in this prospectus
supplement assumes that the underwriters will only purchase 18,000,000 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 come into
possession of this prospectus supplement and the 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.
For a description of certain restrictions on offers, sales and
deliveries of the capital securities and on the distribution of this
prospectus supplement and the accompanying prospectus and other offering
material relating to the capital securities, see the section of the prospectus
supplement called "Underwriters."
S-2
PROSPECTUS SUPPLEMENT SUMMARY
The following information concerning Morgan Stanley (formerly known as
Morgan Stanley Dean Witter & Co.), Morgan Stanley Trust, the 5 3/4% 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 5 3/4% junior
subordinated debentures due July 15, 2033 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
Morgan Stanley is a global financial services firm that maintains
leading market positions in each of its business segments--institutional
securities, individual investor group, investment management and credit
services.
Morgan Stanley's institutional securities business segment includes:
o Investment banking, including securities underwriting and
distribution and financial advisory services, including advice on
mergers and acquisitions, restructurings, real estate and project
finance.
o Sales, trading, financing and market-making activities in equity
securities and related products and fixed income securities and
related products, including foreign exchange and commodities.
o Other activities, such as principal investing and aircraft
financing.
Morgan Stanley's individual investor group business segment includes:
o Comprehensive financial planning and investment advisory services
designed to accommodate individual investment goals and risk
profiles.
Morgan Stanley's investment management business segment includes:
o Global asset management products and services for individual and
institutional investors, through three principal distribution
channels: a proprietary channel consisting of Morgan Stanley's
financial advisors and investment representatives; a
non-proprietary channel consisting of third-party broker-dealers,
banks, financial planners and other intermediaries; and Morgan
Stanley's institutional channel.
o Private equity activities.
Morgan Stanley's credit services business segment includes:
o Discover Financial Services, which offers Discover(R)-branded
cards and other consumer finance products and services.
o Discover Business Services, a network of merchant and cash access
locations primarily in the United States.
S-3
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 United States and its principal offices in London,
Tokyo, Hong Kong and other world financial centers. Morgan Stanley was
originally incorporated under the laws of the State of Delaware in 1981, and
its predecessor companies date back to 1924. In June 2002, Morgan Stanley
changed its name from "Morgan Stanley Dean Witter & Co." to "Morgan Stanley."
Morgan Stanley Capital Trust V
Morgan Stanley Trust is a Delaware statutory trust. Morgan Stanley
Trust exists solely to:
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 $1.4375 for each capital
security, which represents 5 3/4% of the liquidation amount of $25 for each
capital security. If Morgan Stanley Trust is dissolved and its assets
distributed, for each capital security you own, you are entitled to receive
the liquidation amount (which may be paid in the form of a distribution of a
like amount of junior subordinated debentures) of $25 plus accumulated but
unpaid distributions from the assets of Morgan Stanley Trust available for
distribution, after it has paid or made reasonable provision to pay, in
accordance with Section 3808(e) of the Delaware Statutory Trust Act,
liabilities owed to its creditors. See "Description of Capital
Securities--Liquidation Distribution upon Dissolution." Accordingly, you may
not receive the full liquidation amount and accumulated but unpaid
distributions if Morgan Stanley Trust does not have enough funds.
S-4
Distributions will accumulate from the date Morgan Stanley Trust
issues its capital securities. Morgan Stanley Trust will pay the distributions
quarterly on January 15, April 15, July 15 and October 15 of each year,
beginning October 15, 2003. 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.
A more detailed description of your voting rights is contained under
"Description of Capital Securities--Removal of Morgan Stanley Capital
Trustees; Appointment of Successors," "--Voting Rights; Amendment of Trust
Agreements" and "Description of Guarantees--Amendments and Assignment" on
pages 10, 11 and 26, respectively, 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 $463,917,550, 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 5 3/4%;
o pay interest quarterly, subject to the right of Morgan Stanley to
defer interest payments for up to 20 consecutive quarters as
described below; and
o mature on July 15, 2033, 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.
S-5
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 under the
junior subordinated debentures when due. For a more detailed explanation, see
"Description of Capital Securities--Subordination of Common Securities" on
page 8 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 will be effectively
subordinated to all indebtedness and other liabilities of its subsidiaries.
For a more detailed explanation, see "Description of Junior Subordinated
Debentures" on page 14 of the accompanying prospectus and "Description of
Guarantees--Status of the Guarantees" on page 26 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 5 3/4% 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 5 3/4%, 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
S-6
federal income tax purposes before you receive any cash distributions. Please
see "United States Federal Income Tax Consequences" on page S-37 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 15, 2033, 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.
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 16, 2008, in whole or in part, on one or more
occasions, at any time; and
o before July 16, 2008, in whole only and only if adverse changes in
tax or investment company law described on pages S-18 and S-19,
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-18 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 15, 2052, 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;
S-7
o Morgan Stanley Trust is not in arrears on payments of
distributions on the capital securities and no deferred
distributions on the capital securities have 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 use all of the proceeds from the sale of its
capital securities and its common securities to purchase the junior
subordinated debentures of Morgan Stanley. Morgan Stanley intends to use the
net proceeds from the sale of the junior subordinated debentures to redeem on
August 11, 2003 all of its $412,371,150 aggregate principal amount of 7.10%
junior subordinated deferrable interest debentures due February 28, 2038 held
by MSDW Capital Trust I, which will simultaneously redeem all of its
outstanding trust securities consisting of 16,000,000 capital securities and
494,846 common securities. Morgan Stanley will use any remaining net proceeds
for general corporate purposes.
Listing of the Capital Securities
Morgan Stanley will apply to list the capital securities on the New
York Stock Exchange for trading within 30 days after they are first issued. No
assurance can be given, however, that the New York Stock Exchange will approve
the capital securities for listing. 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 February 28, 2003, there was approximately $103.6 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 Junior
Subordinated Debentures" on page 14 of the accompanying prospectus and
"Description of Guarantees--Status of the Guarantees" on page 26 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 pay distributions on the
capital securities and the liquidation amount of $25 per capital security in a
timely manner 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.
S-9
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 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 directly only 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, 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-34.
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-17, "Description of Junior Subordinated Debentures--Option to Extend
Interest Payment Period" on page S-28, and "United States Federal Income Tax
Consequences--U.S. Holders--Interest Income and Original Issue Discount" and
"--Sales of Capital Securities" on pages S-38 and S-40, 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-18 and S-19, 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 16, 2008.
If the junior subordinated debentures are redeemed, the capital
securities will be redeemed at a redemption price equal to the $25 liquidation
amount per capital security plus accumulated but unpaid distributions to but
excluding 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-29 and "Description of Capital Securities-- Redemption" on page S-18
and "--Liquidation Distribution upon Dissolution" on page S-20 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 dissolves 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 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 Capital Securities--Liquidation
Distribution upon Dissolution" on page S-20 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 Junior Subordinated Debentures--Option to
Accelerate the Maturity Date" on page S-30, 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 receive 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 15, 2052, 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 have 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 Before the Record Date for a Distribution
Payment, 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, even though 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 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. 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--U.S.
Holders--Sales of Capital Securities" on page S-40 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 Capital Securities--Voting Rights; Amendment of Trust
Agreements" on page 11 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. Although application will be made to list the
capital securities on the New York Stock Exchange, no assurance can be given
that the capital securities will be approved for listing. If approved for
listing, listing 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.
If a Trading Market for the Capital Securities Does Develop, the Market Price
of the Capital Securities Will Be Influenced by Unpredictable Factors
If a trading market for the capital securities does develop, several
factors will influence the trading price of the capital securities, including:
o interest and yield rates in the market;
o the time remaining to the maturity, or the extended maturity, of
the capital securities; and
o Morgan Stanley's creditworthiness.
Some or all of these factors will influence the price that you will receive if
you sell your capital securities prior to the maturity date or the extended
maturity date.
S-13
MORGAN STANLEY CAPITAL TRUST V
Morgan Stanley Trust is a statutory 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-14
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.
(Unaudited)
Three Months
Ended Fiscal Year
----------------- --------------------------------------------------------
February 28,
2003 2002 2001 2000 1999 1998
----------------- ------- ---------- ----------- ---------- ---------
Ratio of earnings
to fixed charges... 1.5 1.4 1.3 1.5 1.6 1.4
Ratio of earnings to
fixed charges and
preferred stock
dividends.......... 1.5 1.4 1.3 1.5 1.6 1.4
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 income before income taxes; and
o fixed charges;
less:
o dividends on preferred securities subject to mandatory redemption.
Income before income taxes for fiscal 2001 does not include an
extraordinary item or cumulative effect of accounting change. Income before
income taxes for fiscal 1998 does not include a cumulative effect of
accounting change.
For purposes of calculating both ratios, fixed charges are the sum of:
o interest cost, including interest on deposits;
o dividends on preferred securities subject to mandatory redemption;
and
o that portion of rent expense estimated to be representative of the
interest factor.
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, Morgan Stanley Capital
Trust II and Morgan Stanley Capital Trust III 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-15
DESCRIPTION OF CAPITAL SECURITIES
The following, together with "Description of Capital Securities" on
page 7 of the accompanying prospectus, is a description of the material terms
of the capital securities. You should also read the trust agreement, the
Delaware Statutory Trust Act and the Trust Indenture Act. A form of the trust
agreement is on file at the Securities and Exchange Commission (the "SEC") as
an exhibit to the registration statement pertaining to this prospectus
supplement and the accompanying prospectus.
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
Statutory Trust Act and those made part of the trust agreement by the Trust
Indenture Act.
General
The capital securities will be limited to $450,000,000 aggregate
liquidation amount outstanding, or $517,500,000 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 8 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 V. 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 5 3/4% of the stated liquidation amount of $25 per capital security,
payable quarterly in arrears on January 15, April 15, July 15 and October 15
of each year, beginning October 15, 2003. If Morgan Stanley Trust is dissolved
and its assets distributed, for each capital security you own, you are
entitled to receive the liquidation amount (which may be paid in the form of a
distribution of a like amount of junior subordinated debentures) of $25 plus
accumulated but unpaid distributions from the assets of Morgan Stanley Trust
available for distribution, after it has paid or made reasonable provision to
pay, in accordance with Section 3808(e) of the Delaware Statutory Trust Act,
liabilities owed to its creditors. See "--Liquidation Distribution upon
Dissolution." Distributions to which holders of the capital securities are
entitled and that are past due will accumulate additional distributions at an
annual rate of 5 3/4% 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. Distributions on the capital securities will accumulate from and
including the most recent distribution payment date to which distributions
have been paid or duly provided for, or, if no distributions have been paid or
duly provided for, from and including July 16, 2003 until, but excluding the
date the liquidation
S-16
amount has been paid or duly made available for payment. 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 and including July 16, 2003, the date of
initial issuance of the capital securities; and
o will be payable quarterly in arrears on January 15, April 15, July
15 and October 15 of each year, beginning October 15, 2003 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 the property trustee, in
its capacity as securities registrar under the trust agreement, 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
5 3/4%, compounded quarterly, during the extension period.
S-17
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-28 and S-30, 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 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
but excluding 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 8 of the accompanying prospectus.
Morgan Stanley will have the right to redeem the junior subordinated
debentures:
o on or after July 16, 2008, in whole or in part, on one or more
occasions, at any time; and
o before July 16, 2008, 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-29.
"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:
S-18
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 thereof or taxing authority
therein 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;
(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-29.
"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.
S-19
With respect to 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
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 and including the date of redemption to but excluding 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 8 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 or made reasonable provision to
pay, in accordance with Section 3808(e) of the Delaware Statutory Trust Act,
the liabilities owed to its creditors, the junior subordinated debentures may
be distributed to the holders of the capital securities and common securities.
S-20
The trust agreement states that Morgan Stanley Trust will dissolve
automatically on July 15, 2053 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; or
(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 but excluding 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 8 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 not held by DTC
or its nominee will be deemed to represent 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 securities registrar for the capital
securities for transfer or reissuance.
S-21
The Capital Securities Will Initially Be Issued in Book-Entry Form and Held
Through DTC
DTC will act as securities depositary 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.
Investors may elect to hold interests in the capital securities
represented by the registered global securities held by DTC through
Clearstream Banking, societe anonyme ("Clearstream"), or Euroclear Bank
S.A./N.V., as operator of the Euroclear System (the "Euroclear operator"), if
they are participants in those systems, or indirectly through organizations
which are participants in those systems. Clearstream and the Euroclear
operator will hold interests on behalf of their participants through
customers' securities accounts in Clearstream's and the Euroclear operator's
names on the books of their respective depositaries, which in turn will hold
interests in the registered global securities in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A. will
act as depositary for Clearstream, and JPMorgan Chase Bank will act as
depositary for the Euroclear operator. We refer to each of Citibank, N.A. and
JPMorgan Chase Bank, acting in this depositary capacity, as the "U.S.
depositary" for the relevant clearing system.
Title to book-entry interests in the capital securities will pass by
book-entry registration of the transfer within the records of Clearstream, the
Euroclear operator or DTC, as the case may be, in accordance with their
respective procedures. Book-entry interests in the securities may be
transferred within Clearstream and within the Euroclear System and between
Clearstream and the Euroclear System in accordance with procedures established
for these purposes by Clearstream and the Euroclear operator. Book-entry
interests in the securities may be transferred within DTC in accordance with
procedures established for this purpose by DTC. Transfers of book-entry
interests in the securities among Clearstream and the Euroclear operator and
DTC may be effected in accordance with procedures established for this purpose
by Clearstream, the Euroclear operator and DTC.
Each person owning a beneficial interest in the capital securities
must rely on the procedures of DTC, Clearstream and the Euroclear operator, as
the case may be, and the participant through which such person owns its
interest to exercise its rights as a holder of 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, as amended (the "Exchange 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
S-22
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 certificates 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
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.
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DTC may discontinue providing its services as securities depositary
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 in fully registered form for the capital securities. If DTC
notifies Morgan Stanley Trust that it is unwilling to continue as securities
depositary, or if it is unable to continue or ceases to be a clearing agency
registered under the Exchange Act and a successor depositary 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.
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. DTC may change or
discontinue the foregoing procedures at any time.
Global Clearance and Settlement Procedures. Initial settlement for the
capital securities will be made in immediately available funds. Secondary
market trading between DTC's participants will occur in the ordinary way in
accordance with DTC's rules and will be settled in immediately available funds
using DTC's Same-Day Funds Settlement System. Secondary market trading between
Clearstream customers and/or Euroclear participants will occur in the ordinary
way in accordance with the applicable rules and operating procedures of
Clearstream and the Euroclear System and will be settled using the procedures
applicable to conventional Eurobonds in immediately available funds.
Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected through
DTC in accordance with DTC's rules on behalf of the relevant European
international clearing system by its U.S. depositary; however, these
cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in the
clearing system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its U.S. depositary to take action to effect final
settlement on its behalf by delivering interests in the securities to or
receiving interests in the securities from DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Clearstream customers and Euroclear participants may not
deliver instructions directly to their respective U.S. depositaries.
Because of time-zone differences, credits of interests in the
securities received in Clearstream or the Euroclear System as a result of a
transaction with a DTC participant will be made during subsequent securities
settlement processing and dated the business day following the DTC settlement
date. Credits of interests or any transactions involving interests in the
securities received in Clearstream or the Euroclear System as a result of a
transaction with a DTC participant and settled during subsequent securities
settlement processing will be reported to the relevant Clearstream customers
or Euroclear participants on the business day following the DTC settlement
date. Cash received in Clearstream or the Euroclear System as a result of
sales of interests in the securities by or through a Clearstream customer or a
Euroclear participant to a DTC participant will be received with value on the
DTC settlement date but will be available in the relevant Clearstream or
Euroclear cash account only as of the business day following settlement in
DTC.
S-24
Although DTC, Clearstream and the Euroclear operator have agreed to
the foregoing procedures in order to facilitate transfers of interests in the
securities among participants of DTC, Clearstream and Euroclear, they are
under no obligation to perform or continue to perform the foregoing procedures
and these procedures may be changed or discontinued at any time.
Clearstream. Clearstream advises that it is incorporated under the
laws of Luxembourg as a bank. Clearstream holds securities for its customers,
"Clearstream customers," and facilitates the clearance and settlement of
securities transactions between Clearstream customers through electronic
book-entry transfers between their accounts, thereby eliminating the need for
physical movement of securities. Clearstream provides to Clearstream
customers, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream interfaces with domestic securities markets
in over 30 countries through established depositary and custodial
relationships. As a bank, Clearstream is subject to regulation by the
Luxembourg Commission for the Supervision of the Financial Sector (Commission
de Surveillance du Secteur Financier). Clearstream customers are world-wide
financial institutions, including underwriters, securities brokers and
dealers, banks, trust companies and clearing corporations. Clearstream's U.S.
customers are limited to securities brokers and dealers and banks. Indirect
access to Clearstream is also available to other institutions such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream customer. Clearstream has
established an electronic bridge with the Euroclear operator to facilitate
settlement of trades between Clearstream and the Euroclear operator.
Distributions with respect to the securities held through Clearstream
will be credited to cash accounts of Clearstream customers in accordance with
its rules and procedures, to the extent received by the U.S. depositary for
Clearstream.
Euroclear. The Euroclear operator advises that the Euroclear System
was created in 1968 to hold securities for its participants, "Euroclear
participants," and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates
and any risk from lack of simultaneous transfers of securities and cash. The
Euroclear System is owned by Euroclear Clearance System Public Limited Company
and operated through a license agreement by the Euroclear operator, a bank
incorporated under the laws of the Kingdom of Belgium. The Euroclear operator
is regulated and examined by the Belgian Banking and Finance Commission and
the National Bank of Belgium.
The Euroclear operator holds securities and book-entry interests in
securities for participating organizations and facilitates the clearance and
settlement of securities transactions between Euroclear participants and
between Euroclear participants and participants of certain other securities
intermediaries through electronic book-entry changes in accounts of such
participants or other securities intermediaries.
The Euroclear operator provides Euroclear participants with, among
other things, safekeeping, administration, clearance and settlement,
securities lending and borrowing and related services.
Non-participants of Euroclear may acquire, hold and transfer
book-entry interests in securities through accounts with a direct participant
of Euroclear or any other securities intermediary that holds a book-entry
interest in the securities through one or more securities intermediaries
standing between such other securities intermediary and the Euroclear
operator.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System, and applicable
Belgian law, collectively, the "terms and conditions." The terms and
conditions govern transfers of
S-25
securities and cash within the Euroclear System, withdrawals of securities and
cash from the Euroclear System, and receipts of payments with respect to
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear operator acts under the
terms and conditions only on behalf of Euroclear participants and has no
record of or relationship with persons holding through Euroclear participants.
Distributions with respect to the securities held beneficially through
the Euroclear System will be credited to the cash accounts of Euroclear
participants in accordance with the terms and conditions, to the extent
received by the U.S. depositary for the Euroclear operator.
Although the Euroclear operator has agreed to the procedures provided
below in order to facilitate transfers of securities among Euroclear
participants and between Euroclear participants and participants of other
intermediaries, it is under no obligation to perform or continue to perform in
accordance with such procedures, and such procedures may be modified or
discontinued at any time.
Investors electing to acquire securities through an account with the
Euroclear operator or some other securities intermediary must follow the
settlement procedures of such an intermediary with respect to the settlement
of new issues of securities. Investors electing to acquire, hold or transfer
securities through an account with the Euroclear operator or some other
securities intermediary must follow the settlement procedures of such an
intermediary with respect to the settlement of secondary market transactions
of such securities.
Investors who are Euroclear participants may acquire, hold or transfer
interests in securities by book-entry to accounts with the Euroclear operator.
Investors who are not Euroclear participants may acquire, hold or transfer
interests in securities by book-entry to accounts with a securities
intermediary who holds a book-entry interest in these securities through
accounts with Euroclear.
The Euroclear operator further advises that investors that acquire,
hold and transfer interests in securities by book-entry through accounts with
the Euroclear operator or any other securities intermediary are subject to the
laws and contractual provisions governing their relationship with their
intermediary, as well as the laws and contractual provisions governing the
relationship between their intermediary and each other intermediary, if any,
standing between themselves and the securities.
The Euroclear operator further advises that, under Belgian law,
investors that are credited with securities on the records of the Euroclear
operator have a co-property right in the fungible pool of interests in
securities on deposit with the Euroclear operator in an amount equal to the
amount of interests in securities credited to their accounts. In the event of
the insolvency of the Euroclear operator, Euroclear participants would have a
right under Belgian law to the return of the amount and type of interests in
securities credited to their accounts with the Euroclear operator. If the
Euroclear operator does not have a sufficient amount of interests in
securities on deposit of a particular type to cover the claims of all
participants credited with interests in securities of that type on the
Euroclear operator's records, all participants having an amount of interests
in securities of that type credited to their accounts with the Euroclear
operator will have the right under Belgian law to the return of their pro rata
share of the amount of interests in securities actually on deposit.
Under Belgian law, the Euroclear operator is required to pass on the
benefits of ownership in any interests in securities on deposit with it (such
as dividends, voting rights and other entitlements) to any person credited
with those interests in securities on its records.
S-26
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The following, together with the description applicable to junior
subordinated debt securities under "Description of Junior Subordinated
Debentures" on page 14 of 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 and the
accompanying prospectus.
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-20. 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 to be
acquired by Morgan Stanley Trust will be limited in aggregate principal amount
to $463,917,550 or $533,505,200 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
issued by Morgan Stanley Trust; and
o the amount of capital contributed by Morgan Stanley to Morgan
Stanley Trust 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, Morgan Stanley Capital Trust II, Morgan Stanley Capital Trust III and
Morgan Stanley Capital Trust IV and Morgan Stanley's guarantees of the capital
securities issued by MSDW Capital Trust I, Morgan Stanley Capital Trust II,
Morgan Stanley Capital Trust III and Morgan Stanley Capital Trust IV and to be
issued by Morgan Stanley Capital Trust V. For information on the subordination
of the junior subordinated debentures, see "Description of Junior Subordinated
Debentures" on page 14 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
15, 2033 or earlier, in the case of an acceleration of the maturity date, or
later, in the case of an extension of the maturity date, 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 Junior Subordinated Debentures--Discharge, Defeasance and
Covenant Defeasance" on page 20 of the accompanying prospectus.
Interest
The junior subordinated debentures will bear interest at an annual
rate of 5 3/4%. Interest on the junior subordinated debentures will accrue
from and including the most recent interest payment date to which interest
S-27
has been paid or duly provided for, or, if no interest has been paid or duly
provided for, from and including July 16, 2003 until, but excluding the date
the principal has been paid or duly made available for payment. Interest is
payable quarterly in arrears on January 15, April 15, July 15 and October 15
of each year, beginning October 15, 2003. Interest payments not paid when due
will accrue, as permitted by applicable law, additional interest, compounded
quarterly, at the annual rate of 5 3/4%. 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 date.
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 5 3/4%, 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-17.
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--U.S.
Holders--Interest Income and Original Issue Discount" on page S-38 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 5 3/4% plus any
additional sums, as described on page S-29 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
S-28
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
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 16, 2008, in whole or in part, on one or more
occasions, at any time; or
o before July 16, 2008, 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-18.
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
S-29
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 15, 2052, 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 have 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 then 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 on, or redeem,
purchase, acquire or make a liquidation payment on, any of its
capital stock; or
S-30
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 (1) 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 (2) that Morgan Stanley has not taken
reasonable steps to cure;
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 stockholders'
rights plan, or the issuance of rights, stock or other property
under any stockholders' 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 of Morgan Stanley Trust, provided that certain
successors that are permitted under the junior subordinated debt
indenture may succeed to Morgan Stanley's ownership of the common
securities;
S-31
o as holder of the common securities, not to voluntarily dissolve,
windup or liquidate Morgan Stanley Trust, other than (1) 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 (2) 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.
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
depositary for the junior subordinated debentures. For a description of DTC
and the specific terms of the depositary arrangements, see "Description of
Capital Securities--The Capital Securities Will Initially Be Issued in
Book-Entry Form and Held Through DTC" on page S-22.
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 depositary for the global security and no successor
depositary 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
depositary, and no successor depositary 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 million or more in aggregate
principal amount of junior subordinated debentures may receive payment of
interest, other than
S-32
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.
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 Junior Subordinated Debentures--Modification of Indenture" on
page 22 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);
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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.
Events of Default and the Rights of Capital Securities Holders to Take Action
Against Morgan Stanley
See "Description of Junior Subordinated Debentures--Events of Default"
on page 18 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.
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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 9 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 16, 2003,
between Morgan Stanley and The Bank of New York, as guarantee trustee, and the
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 per capital security
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:
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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
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 Junior Subordinated Debentures" on page 14 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 and selling the capital securities and common securities;
o investing the proceeds from the sale of the capital securities and
common 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 or made reasonable provision to pay, in
accordance with Section 3808(e) of the Delaware Statutory Trust Act, the
liabilities owed to its creditors as required by applicable law. See
"Description of Capital Securities--Liquidation Distribution upon Dissolution"
on page S-20.
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
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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.
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
supplement, 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 ("IRS") 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 capital
securities held as capital assets 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 U.S. Holder (as defined below). This summary does
not address all the tax consequences that may be relevant to a U.S. Holder,
nor does it address the tax consequences, except as stated below, to holders
that are not U.S. Holders ("Non-U.S. 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 "U.S. Holder" is a holder of the capital securities who or which for
United States federal income tax purposes is
o a citizen or resident of the United States,
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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 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 U.S. Holders.
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.
U.S. 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
U.S. 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 indebtedness 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 Sections 1273 and 1275 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 generally would
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prevent Morgan Stanley from declaring dividends on its capital stock and
generally would prevent Morgan Stanley from making any payments on debt
securities that rank equal 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
U.S. Holder as ordinary income when paid or accrued in accordance with that
holder's regular method of accounting for United States federal 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 (generally an amount of OID which is less than .0025
multiplied by the product of the stated redemption price at maturity and the
number of complete years to maturity)) on the junior subordinated debentures
would thereafter be treated as OID, which would accrue, and be includible in a
U.S. Holder's taxable income, on an economic accrual basis (regardless of the
U.S. Holder's regular method of accounting for United States federal 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 separately 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, U.S. Holders will
include OID in gross income in advance of the receipt of cash, and a U.S.
Holder that 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 U.S. 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, (i)
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 and (ii) noncorporate individual holders will not be entitled to
any preferential tax rate for any income received 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 bond 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 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 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 U.S. Holder would have an
aggregate adjusted basis for United States federal income tax purposes in the
junior subordinated debentures received equal to the U.S. Holder's aggregate
adjusted basis in the capital securities exchanged. For United States federal
income tax purposes, a
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U.S. 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 that results in Morgan Stanley Trust being treated as an
association taxable as a corporation, the distribution would likely constitute
a taxable event to U.S. Holders of the capital securities for United States
federal income tax purposes.
Redemption for Cash. 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 U.S. 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 U.S. 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 U.S. Holder's adjusted basis in the capital
securities generally will be its initial purchase price, increased by any 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 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
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 U.S. Holder who disposes of its capital securities before the record
date for a payment 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 U.S. Holder should not be required to recognize
taxable gain or loss as a result of such extension or acceleration.
Non-U.S. Holders
The following discussion applies to Non-U.S. Holders.
Payments to a holder of a capital security that is a Non-U.S. 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, (d) the beneficial owner's income and gain in
respect of a capital security is not effectively connected with the conduct of
a United States trade or business, and (e) Morgan Stanley Trust or its agent
has received from the beneficial owner of the capital security a properly
executed IRS Form W-8BEN or substantially similar form in the year in which
the payment occurs, or in a preceding calendar year to the extent provided for
in the instructions to the IRS Form W-8BEN.
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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-U.S. 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-U.S.
Holder, rather than as interest, which, as discussed above, is generally
exempt from income tax in the hands of a Non-U.S. Holder.
A Non-U.S. 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-U.S.
Holders who are nonresident alien individuals, the non-U.S. Holder is present
in the United States for 183 or more days in the taxable year of disposition
and certain other requirements are met.
Notwithstanding the foregoing, in general, a Non-U.S. Holder will be
subject to regular United States federal income tax in the same manner as a
U.S. Holder with respect to its investment in the capital securities, if that
investment is effectively connected with the Non-U.S. Holder's conduct of a
trade or business in the United States. In addition, a corporate Non-U.S.
Holder that receives income that is or is deemed effectively connected with a
trade or business in the United States may also be subject to the branch
profits tax under Section 884 of the Code at the rate of 30% (or lower treaty
rate). This tax is payable in addition to regular United States federal
corporate income tax. To obtain an exemption from withholding on capital
securities effectively connected with the conduct of a trade or business in
the United States, the Non-U.S. Holder must generally supply to the
withholding agent an IRS Form W-8ECI.
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 U.S. 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-U.S. 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 U.S. 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 at the applicable
statutory rate of United States federal income tax 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.
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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.
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 judgment 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
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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.
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
S-43
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.
S-44
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., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, UBS Securities LLC, Wachovia Securities, Inc. and Wells Fargo
Securities, 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................................... 2,500,000
A.G. Edwards & Sons, Inc............................................ 2,498,000
Citigroup Global Markets Inc........................................ 2,498,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. 2,498,000
UBS Securities LLC.................................................. 2,498,000
Wachovia Securities, Inc............................................ 2,498,000
Wells Fargo Securities, LLC......................................... 360,000
ABN AMRO Incorporated............................................... 100,000
Banc of America Securities LLC...................................... 100,000
Bear, Stearns & Co. Inc............................................. 100,000
BB&T Capital Markets, Inc........................................... 100,000
Dain Rauscher Incorporated.......................................... 100,000
Deutsche Bank Securities Inc. ...................................... 100,000
H&R Block Financial Advisors, Inc. ................................. 100,000
HSBC Securities (USA) Inc........................................... 100,000
J.P. Morgan Securities Inc. ........................................ 100,000
Legg Mason Wood Walker, Incorporated................................ 100,000
Quick and Reilly, Inc............................................... 100,000
Charles Schwab & Co., Inc........................................... 100,000
TD Waterhouse Investor Services, Inc................................ 100,000
U.S. Bancorp Piper Jaffray Inc. .................................... 100,000
Advest, Inc. ....................................................... 50,000
Robert W. Baird & Co. Incorporated.................................. 50,000
Banc One Capital Markets, Inc....................................... 50,000
William Blair & Co.................................................. 50,000
Blaylock & Partners, L.P. .......................................... 50,000
Davenport & Company LLC............................................. 50,000
D.A. Davidson & Co. ................................................ 50,000
Doley Securities, Inc. ............................................. 50,000
Fahnestock & Co. Inc................................................ 50,000
Fifth Third Securities, Inc. ....................................... 50,000
Guzman & Company.................................................... 50,000
J.J.B. Hilliard, W.L. Lyons, Inc.................................... 50,000
Janney Montgomery Scott LLC......................................... 50,000
C.L. King & Associates, Inc......................................... 50,000
McDonald Investments Inc., A KeyCorp Company........................ 50,000
McGinn, Smith & Co. Inc............................................. 50,000
Mesirow Financial, Inc.............................................. 50,000
Morgan Keegan & Company, Inc........................................ 50,000
S-45
Parker/Hunter Incorporated.......................................... 50,000
Pershing LLC........................................................ 50,000
Raymond James & Associates, Inc. ................................... 50,000
Ryan, Beck & Co. LLC................................................ 50,000
Southwest Securities, Inc. ......................................... 50,000
Stifel, Nicolaus & Company Incorporated............................. 50,000
SunTrust Capital Markets, Inc....................................... 50,000
----------
Total........................................................... 18,000,000
==========
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 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 $.50 per capital security. Any underwriter may
allow, and dealers may reallow, a concession not in excess of $.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 $.7875 per capital security or
$14,175,000 in the aggregate, or $16,301,250 in the aggregate if the
underwriters purchase all the additional securities to which they are entitled
under their over-allotment option. Morgan Stanley's offering expenses, not
including underwriting discounts and commissions, are estimated to be
$120,000.
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 2,700,000 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 substantially similar to
the capital securities or securities convertible into or
exercisable or exchangeable for such securities; or
S-46
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 are 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. Morgan Stanley Trust will apply to list the capital
securities on the New York Stock Exchange. In order to meet one of the
requirements for listing the capital securities on the New York Stock
Exchange, the underwriters intend to sell capital securities to a minimum of
400 beneficial holders in lots of 100 capital securities or more. If the
listing is approved, 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.
No action has been or will be taken by Morgan Stanley or any
underwriter that would permit a public offering of the capital securities or
possession or distribution of this prospectus supplement or the accompanying
prospectus or any other offering material relating to the capital securities
in any jurisdiction, other than the United States, where action for that
purpose is required. No offers, sales or deliveries of the capital securities,
or distribution of this prospectus supplement or the accompanying prospectus
or any other offering material relating to the capital securities, may be made
in or from any jurisdiction except in circumstances which will result in
compliance with any applicable laws and regulations and will not impose any
obligations on Morgan Stanley or any underwriter.
Each underwriter has represented and agreed that it (i) will comply
with all applicable laws and regulations in force in any jurisdiction in which
it purchases, offers, sells or delivers the capital securities or possesses or
distributes this prospectus supplement and the accompanying prospectus and
(ii) will obtain any consent, approval or permission required by it for the
purchase, offer or sale by it of the capital securities under the laws and
regulations in force in any jurisdiction to which it is subject or in which it
makes purchases, offers or sales. Morgan Stanley shall not have responsibility
for any underwriter's compliance with the applicable laws and regulations or
obtaining any required consent, approval or permission.
Each underwriter and any dealer participating in the distribution of
the capital securities has represented and agreed that:
(1) it has not offered or sold and, prior to the expiry of six
months from the issue date of the capital securities, will not
offer or sell any capital securities to persons in the United
Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances that have not constituted or resulted in
and will not constitute or result in an offer to the public in the
United Kingdom, within the meaning of the Public Offers of
Securities Regulations 1995 (as amended);
S-47
(2) it has only communicated or caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of the Financial Services and Markets Act 2000 (the
"FSMA") received by it in connection with the issue or sale of any
capital securities in circumstances in which section 21(1) of the
FSMA does not apply to us or Morgan Stanley; and
(3) it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to the
capital securities in, from or otherwise involving the United
Kingdom.
Each underwriter has represented and agreed that it will not offer,
transfer or sell capital securities, directly or indirectly, to any individual
or legal entity in The Netherlands, other than to individuals or legal
entities who or which trade in or invest in securities in the conduct of a
profession or trade, including banks, brokers, dealers, insurance companies,
pension funds, other institutional investors and commercial enterprises which
regularly, as an ancillary activity, invest in securities.
The capital securities have not been, and will not be, registered
under the Securities and Exchange Law of Japan. Accordingly, the capital
securities may not be offered or sold, directly or indirectly, in Japan or to,
or for the benefit of, any resident of Japan (which term as used herein means
any person resident in Japan including any corporation or other entity
organized under the laws of Japan or any branch office located in Japan of
foreign corporations) or to others for the reoffering or resale, directly or
indirectly, in Japan or to a resident of Japan except pursuant to exemptions
from the registration requirements of, and otherwise in compliance with, the
Securities and Exchange Law of Japan and other relevant laws and regulations
of Japan.
This prospectus supplement and the accompanying prospectus have not
been registered as a prospectus with the Monetary Authority of Singapore under
the Securities and Futures Act 2001. Accordingly, neither this prospectus
supplement nor the accompanying prospectus nor any other document or material
in connection with the offer or sale, or invitation for subscription or
purchase, of the capital securities may be circulated or distributed, nor may
the capital securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or indirectly, to
persons in Singapore other than under circumstances in which such offer, sale
or invitation does not constitute an offer or sale, or invitation for
subscription or purchase, of the capital securities to the public in
Singapore.
This prospectus supplement and the accompanying prospectus have not
been, and will not be, delivered for registration to the Registrar of
Companies in Hong Kong nor have the prospectus supplement and the accompanying
prospectus been, nor will the same be, exempted by the Securities and Futures
Commission in Hong Kong from registration with the Registrar of Companies in
Hong Kong. Accordingly neither this prospectus supplement nor the accompanying
prospectus may be circulated or distributed in Hong Kong other than circulated
among or distributed to persons whose ordinary business it is to buy or sell
shares or debentures (whether as principal or agent). Each underwriter and any
dealer participating in the distribution of the capital securities has
represented and agreed that:
(1) it has not offered or sold and will not offer or sell in Hong
Kong, by means of any document, any capital securities other than
(i) to persons whose ordinary business it is to buy or sell shares
or debentures (whether as principal or agent) or (ii) in
circumstances which do not constitute an offer to the public within
the meaning of the Companies Ordinance (Cap. 32 of the laws of Hong
Kong); and
(2) unless it is a person permitted to do so under the securities
laws of Hong Kong, it has not issued, or had in its possession and
will not issue, or have in its possession for the purposes of
issue, any advertisement, invitation or document relating to the
capital securities other than with respect to
S-48
capital securities intended to be disposed of to persons outside
Hong Kong or to be disposed of in Hong Kong only to persons whose
business it is to buy or sell shares or debentures (whether as
principal or agent) or only to persons who are dealers or investment
advisers registered or exempted under the Securities Ordinance
(Cap. 333 of the laws of Hong Kong).
Each underwriter represents and agrees that the capital securities
have not been and will not be registered under the Securities and Exchange Law
of Korea and that it has not offered or sold and may not offer or sell, and it
will not offer or sell, directly or indirectly, in Korea or to any resident of
Korea or to any persons for reoffering or resale, directly or indirectly, in
Korea or to any resident of Korea except pursuant to an exemption from the
registration requirements of the Securities and Exchange Law available
thereunder and in compliance with the Foreign Exchange Transaction Law and
other relevant laws of Korea.
Each underwriter has represented, warranted and agreed that the
capital securities may not be offered, sold or delivered in the Republic of
China, as part of the distribution of the capital securities.
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. Incorporated or its affiliates.
The participation of Morgan Stanley & Co. Incorporated 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.
S-49
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.
EXPERTS
The consolidated financial statements and financial statement
schedules of Morgan Stanley and its subsidiaries at November 30, 2002 and 2001
and for each of the three fiscal years in the period ending November 30, 2002,
which are incorporated in this prospectus supplement and the accompanying
prospectus by reference to Morgan Stanley's Annual Report on Form 10-K for the
fiscal year ended November 30, 2002, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference and have been so incorporated by reference in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
With respect to unaudited interim financial information for the
periods ended February 28, 2003 and 2002, which is incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in Morgan Stanley's Quarterly Report on Form
10-Q for the quarter ended February 28, 2003 and incorporated by reference
herein, they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. Deloitte & Touche LLP are not subject to the
liability provisions of Section 11 of the Securities Act for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Securities Act.
S-50
PROSPECTUS
$25,000,000,000
Morgan Stanley Capital Trust III
Morgan Stanley Capital Trust IV
Morgan Stanley Capital Trust V
Morgan Stanley Capital Trust VI
Morgan Stanley Capital Trust VII
CAPITAL SECURITIES
guaranteed by
Morgan Stanley Dean Witter & Co.
____________________
The Morgan Stanley Capital Trusts may offer from time to time capital
securities guaranteed by Morgan Stanley Dean Witter & Co. This prospectus
describes the general terms of these securities and the general manner in
which we will offer the securities. The specific terms of any securities we
offer will be included in a supplement to this prospectus. The prospectus
supplement will also describe the specific manner in which we will offer the
securities. This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement.
As used in this prospectus, except as otherwise specified, the terms
"Morgan Stanley," "we," "us" and "our" refer to Morgan Stanley Dean Witter &
Co.
____________________
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________________
MORGAN STANLEY
June 11, 2002
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, proxy statements and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. In addition, the SEC maintains a website that contains
reports, proxy statements and other information that we electronically file.
The address of the SEC's website is http://www.sec.gov.
This prospectus is part of a registration statement we filed with the
SEC. This prospectus omits some information contained in the registration
statement in accordance with SEC rules and regulations. You should review the
information and exhibits in the registration statement for further information
on us and our consolidated subsidiaries and the securities we are offering.
Statements in this prospectus concerning any document we filed as an exhibit
to the registration statement or that we otherwise filed with the SEC are not
intended to be comprehensive and are qualified by reference to these filings.
You should review the complete document to evaluate these statements.
Our common stock, par value $0.01 per share, is listed on the New York
Stock Exchange, Inc. and the Pacific Exchange, Inc. under the symbol "MWD."
You may inspect reports, proxy statements and other information concerning us
and our consolidated subsidiaries at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, and the Pacific
Exchange, Inc., 115 Sansome Street, San Francisco, California 94104.
The SEC allows us to incorporate by reference much of the information
we file with them, which means that we can disclose important information to
you by referring you to those publicly available documents. The information
that we incorporate by reference in this prospectus is considered to be part
of this prospectus. Because we are incorporating by reference future filings
with the SEC, this prospectus is continually updated and those future filings
may modify or supersede some of the information included or incorporated by
reference in this prospectus. This means that you must look at all of the SEC
filings that we incorporate by reference to determine if any of the statements
in this prospectus or in any document previously incorporated by reference
have been modified or superseded. This prospectus incorporates by reference
the documents listed below and any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we complete our offering of the securities to be issued under the registration
statement or, if later, the date on which any of our affiliates cease offering
and selling these securities:
(a) Annual Report on Form 10-K for the fiscal year ended November
30, 2001;
(b) Quarterly Report on Form 10-Q for the quarter ended February
28, 2002; and
(c) Current Reports on Form 8-K dated December 19, 2001, March 26,
2002 and March 27, 2002.
You can request a copy of these documents, excluding exhibits, at no
cost, by writing or telephoning us at the following address:
Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, New York 10036
Attention: Investor Relations
(212) 762-8131
2
There are no separate financial statements of the Morgan Stanley
Capital Trusts in this prospectus. We do not believe these financial
statements would be helpful because:
o the Morgan Stanley Capital Trusts are wholly-owned subsidiaries
of Morgan Stanley, which files consolidated financial
information under the Securities Exchange Act of 1934;
o the Morgan Stanley Capital Trusts will not have any independent
operations other than issuing capital securities and common
securities, which are together referred to as "trust
securities," holding junior subordinated debentures of Morgan
Stanley as trust assets and other necessary or incidental
activities as described in this prospectus; and
o Morgan Stanley guarantees the payments on the capital
securities of the Morgan Stanley Capital Trusts.
We do not expect any of the Morgan Stanley Capital Trusts will be
subject to the reporting requirements of the Securities Exchange Act of 1934.
3
MORGAN STANLEY
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, and fixed
income securities and related products, including foreign
exchange and commodities;
o principal investing, including private equity activities;
o securities services to meet 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; and
o other businesses, including aircraft financing activities.
Morgan Stanley's Investment Management business segment includes
global asset management products and services for individual and institutional
investors through three principal distribution channels: Morgan Stanley's
financial advisors and investment representatives; a non-proprietary channel
consisting of third-party broker-dealers, banks, financial planners and other
intermediaries; and Morgan Stanley's institutional channel.
Morgan Stanley's Credit Services business segment includes Discover
Financial Services, which offers the Discover(R) Classic Card, the Discover
Gold Card, the Discover Platinum Card, the Morgan Stanley CardSM and other
proprietary general purpose credit cards as well as related consumer finance
products and services; 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 United States and its principal offices in London,
Tokyo, Hong Kong and other world financial centers.
Morgan Stanley's principal executive offices are at 1585 Broadway, New
York, New York 10036, and its telephone number is (212) 761-4000. Under this
heading, "Use of Proceeds" and "Consolidated Ratios of Earnings to Fixed
Charges and Earnings to Fixed Charges and Preferred Stock Dividends," the term
"Morgan Stanley" includes Morgan Stanley Dean Witter & Co. and its
consolidated subsidiaries.
THE MORGAN STANLEY CAPITAL TRUSTS
We created the Morgan Stanley Capital Trusts, each of which is a
Delaware business trust, pursuant to trust agreements and the filing of
certificates of trust with the Delaware Secretary of State. We will execute
amended and restated trust agreements for the Morgan Stanley Capital Trusts,
referred to in this prospectus as the "trust agreements," which will state the
terms and conditions for the Morgan Stanley Capital Trusts to issue and sell
their trust securities. We have filed a form of trust agreement as an exhibit
to the registration statement of which this prospectus forms a part. We, as
holder of the common securities,
4
intend to select two of our employees, officers or affiliates to serve as
administrators of the Morgan Stanley Capital Trusts.
Each Morgan Stanley Capital Trust exists solely to
o issue and sell its trust securities;
o use the proceeds from the sale of its trust securities to
purchase Morgan Stanley's junior subordinated debentures; and
o engage in other activities that are necessary, convenient or
incidental to the above purposes (such as registering the
transfer of trust securities).
Accordingly, our junior subordinated debentures will be the sole
assets of each Morgan Stanley Capital Trust, and payments under the junior
subordinated debentures owned by each Morgan Stanley Capital Trust will be its
sole source of revenues.
We will hold directly or indirectly all of the common securities of
each of the Morgan Stanley Capital Trusts. Unless otherwise specified in the
applicable prospectus supplement, the common securities will represent an
aggregate liquidation amount equal to at least 3% of each Morgan Stanley
Capital Trust's total capitalization. The capital securities will represent
the remaining percentage of each Morgan Stanley Capital Trust's total
capitalization. The common securities will have terms substantially identical
to, and will rank equal in priority of payment with, the capital securities.
However, if Morgan Stanley defaults in payments due under the junior
subordinated debentures owned by a Morgan Stanley Capital Trust, then
distributions, redemption payments and liquidation payments must be paid to
the holders of the capital securities of that trust before any payments are
paid to the holders of the common securities of that trust. Unless otherwise
specified in the applicable prospectus supplement, each Morgan Stanley Capital
Trust will have a term of approximately 40 years from the initial issue date
of 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 Morgan
Stanley Capital Trust will be The Bank of New York (Delaware), White Clay
Center, Route 273, Newark, Delaware 19711, and the name and address of the
property trustee, the guarantee trustee and the indenture trustee for each
Morgan Stanley Capital Trust will be The Bank of New York, 101 Barclay Street,
Floor 21 West, New York, New York 10286.
The capital securities will be guaranteed by us as described in this
prospectus and the applicable prospectus supplement.
Only we, as direct or indirect owner of the common securities, can
remove or replace the administrators. In addition, we can increase or decrease
the number of administrators. Also, we, as direct or indirect holder of the
common securities, will generally have the sole right to remove or replace the
property trustee and Delaware trustee. However, if Morgan Stanley defaults on
the junior subordinated debentures owned by a Morgan Stanley Capital Trust or
an event of default under the trust agreement occurs, then, so long as that
default is continuing, the holders of a majority in liquidation amount of the
outstanding capital securities of that trust may remove and replace the
property trustee and Delaware trustee for that trust.
We will pay all fees and expenses related to the organization of the
Morgan Stanley Capital Trusts and the offering of the capital securities. We
will also pay all ongoing costs and expenses of the Morgan Stanley Capital
Trusts, except each trust's obligations under the trust securities.
USE OF PROCEEDS
The Morgan Stanley Capital Trusts will use all proceeds from the sale
of trust securities to purchase junior subordinated debentures from us. Unless
otherwise set forth in the applicable prospectus
5
supplement, we intend to use the net proceeds from the sale of our junior
subordinated debentures for general corporate purposes, which may include,
among other things:
o additions to working capital;
o the redemption of outstanding preferred stock;
o the repurchase of outstanding common stock; and
o the repayment of indebtedness.
We anticipate that we will raise additional funds from time to time
through equity or debt financing, including borrowings under revolving credit
agreements, to finance our businesses worldwide.
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.
(Unaudited)
Three Months Ended Fiscal Year
--------------------------- ------------------------------------------
February 28, February 28,
2002 2001 2001 2000 1999 1998 1997
------------- ------------- ------- -------- -------- ----- -----
Ratio of earnings to
fixed charges.... 1.4 1.3 1.3 1.5 1.6 1.4 1.4
Ratio of earnings to
fixed charges and
preferred stock
dividends........ 1.4 1.3 1.3 1.5 1.6 1.4 1.4
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;
o fixed charges; and
o amortization of capitalized interest;
less:
o capitalized interest; and
o dividends on preferred securities issued by subsidiaries.
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;
o our estimate of the interest component of rental expenses; and
6
o dividends on preferred securities issued by subsidiaries.
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.
DESCRIPTION OF CAPITAL SECURITIES
Each Morgan Stanley Capital Trust will issue only one series of
capital securities and one series of common securities. The trust agreement
for each Morgan Stanley Capital Trust will be qualified as an indenture under
the Trust Indenture Act of 1939. The capital securities will have terms and
will be subject to conditions as set forth in the trust agreement or made a
part of the trust agreement 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 of certain terms, and those provisions made part of each trust
agreement by the Trust Indenture Act. A form of the trust agreement to be used
in connection with the issuance of the capital securities and a form of the
capital securities are filed as exhibits to the registration statement that
includes this prospectus. Wherever particular defined terms of a trust
agreement are referred to in this prospectus, those defined terms are
incorporated in this prospectus by reference. A copy of the form of the trust
agreement is available upon request from the property trustee of the relevant
trust.
General
The capital securities will represent preferred undivided beneficial
interests in the assets of the applicable Morgan Stanley Capital Trust. The
only assets of a Morgan Stanley Capital Trust, and its only source of
revenues, will be the junior subordinated debentures purchased by the Morgan
Stanley Capital Trust with the proceeds from the sale of its trust securities.
Accordingly, distribution and other payment dates for the trust securities
will correspond with the interest and other payment dates for the junior
subordinated debentures. If we do not make payments on the junior subordinated
debentures in accordance with their terms, the Morgan Stanley Capital Trust
will not have funds available to pay distributions or other amounts payable on
the trust securities issued by that Morgan Stanley Capital Trust in accordance
with their terms. The capital securities issued by a Morgan Stanley Capital
Trust will rank equally, and payments will be made proportionately, with the
common securities issued by that Morgan Stanley Capital Trust except as
described below under "--Subordination of Common Securities" and in the
applicable prospectus supplement. Payments on the capital securities will be
fully and unconditionally guaranteed by us to the extent described under
"Description of Guarantees" and in the applicable prospectus supplement.
Each Morgan Stanley Capital Trust will describe the specific terms of
the capital securities it is offering in the applicable prospectus supplement,
including:
o the specific designation, liquidation amount, number to be issued
by the Morgan Stanley Capital Trust and purchase price;
o the currency or units based on or relating to currencies in which
distributions and other payments will or may be payable;
o the distribution rates (or the method by which the rates will be
determined), if any;
o the dates on which any distributions will be payable;
o any provisions relating to deferral of distribution payments;
o the places where distributions and other amounts payable on the
capital securities will be payable;
o any repayment, redemption, prepayment or sinking fund provisions;
7
o any conversion or exchange provisions;
o the voting rights, if any, of holders of the capital securities;
o the terms and conditions, if any, upon which the assets of the
Morgan Stanley Capital Trust may be distributed to holders of the
capital securities;
o any applicable United States federal income tax consequences; and
o any other specific terms of the capital securities.
If indicated in the applicable prospectus supplement, the terms of the
trust agreement for, and capital securities offered by, a Morgan Stanley
Capital Trust may differ from the terms summarized in this prospectus.
Distributions
Distributions on the capital securities will be cumulative.
Distributions will accumulate from the date of original issuance and will be
payable on the dates 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 that period, unless
otherwise specified in the applicable prospectus supplement. Distributions
payable for each full distribution period will be computed by dividing the
annual rate 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 the common securities issued by a Morgan Stanley
Capital Trust will be made proportionately based on the liquidation amount of
the capital securities and the common securities. However, unless otherwise
provided in the applicable prospectus supplement, if on any distribution date
or other payment date, an event of default with respect to the junior
subordinated debentures, which we refer to as a "debenture event of default,"
owned by the Morgan Stanley Capital Trust has occurred and is continuing as a
result of any failure by us to pay any amounts in respect of the junior
subordinated debentures when due, no payment of any distribution on, or other
amounts payable under, the common securities will be made unless cash payment
in full of all accumulated amounts then due and payable with respect to all of
the Morgan Stanley Capital Trust's outstanding capital securities has been
made or provided for, and all funds immediately available to the property
trustee will first be applied to the cash payment in full of all distributions
on, and all other amounts with respect to, capital securities then due and
payable.
In the case of any event of default under the applicable trust
agreement occurring as a result of a debenture event of default, the holders
of the applicable Morgan Stanley Capital Trust's common securities will have
no right to act with respect to the event of default under the applicable
trust agreement until the effects with respect to the capital securities of
all events of default resulting from a debenture event of default have been
cured, waived or otherwise eliminated. Until all of the events of default
resulting from a debenture event of default have been 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 Morgan Stanley Capital Trust will be the stated liquidation
amount per capital security or other amount as specified in the applicable
prospectus supplement plus accumulated and unpaid distributions, which, if
specified in the
8
applicable prospectus supplement, may be in the form of a distribution of the
junior subordinated debentures owned by the Morgan Stanley Capital Trust.
The holders of all the outstanding common securities of a Morgan
Stanley Capital Trust will have the right at any time to dissolve the Morgan
Stanley Capital Trust and, after satisfaction of liabilities to creditors of
the Morgan Stanley Capital Trust as provided by applicable law, cause the
junior subordinated debentures owned by the Morgan Stanley Capital Trust to be
distributed to the holders of the capital securities and common securities in
liquidation of the Morgan Stanley Capital Trust as described in the applicable
prospectus supplement. Other terms for the dissolution of a Morgan Stanley
Capital Trust and the distribution or liquidation of its assets to holders of
trust securities will be set forth in the applicable prospectus supplement.
Capital Securities Events of Default; Notice
Any one of the following events constitutes an event of default under
a trust agreement, which we refer to as a "capital securities event of
default," regardless of the reason for the 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:
o the occurrence of an event of default with respect to the junior
subordinated debentures in which the proceeds from the sale of the
trust securities have been invested;
o default by the applicable Morgan Stanley Capital Trust or the
property trustee in the payment of any distribution on the capital
securities when it becomes due and payable, and continuation of
the default for a period of 30 days;
o default by the applicable Morgan Stanley Capital Trust or the
property trustee in the payment of any redemption price of any
trust security issued pursuant to its trust agreement when it
becomes due and payable;
o default in the performance, or breach, in any material respect, of
any covenant or warranty of the applicable property trustee and
Delaware trustee (other than a covenant or warranty described
above dealing with default in the payment of any distribution or
redemption price) and continuation of such default or breach for a
period of 60 days after written notice has been given, by
registered or certified mail, to the applicable property trustee
and Delaware trustee and us by the holders of at least 25% in
aggregate liquidation amount of the capital securities
outstanding, which notice must specify the default or breach,
demand it be remedied and state that it is a "Notice of Default"
under the applicable trust agreement; or
o 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 of the event.
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 the event of default to the holders
of the applicable trust securities and the administrators, unless the capital
securities event of default has been cured or waived. In addition, the
property trustee will notify each holder of the capital securities of any
notice of default received by it with respect to the junior subordinated
debentures. We, as depositor, and the administrators are required to file
annually with the property trustee a certificate as to whether or not the
applicable Morgan Stanley Capital Trust is in compliance with all the
conditions and covenants under its trust agreement.
If a debenture event of default has occurred and is continuing as a
result of any failure by us to pay any amounts in respect of the junior
subordinated debentures owned by a Morgan Stanley Capital Trust
9
when due, the capital securities issued by that Morgan Stanley Capital Trust
will have a preference over the common securities issued by the Morgan Stanley
Capital Trust with respect to payments of any amounts in respect of the capital
securities as described above under "--Subordination of Common Securities."
Removal of Morgan Stanley Capital Trustees; Appointment of Successors
The holders of at least a majority in aggregate liquidation amount of
the outstanding capital securities may remove the property trustee or the
Delaware trustee for cause or, if a debenture event of default has occurred
and is continuing, with or without cause. If a property trustee or Delaware
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 the outstanding capital securities. If a property trustee or
Delaware trustee resigns, the resigning property trustee or Delaware trustee
will appoint its successor. If a resigning property trustee or Delaware
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 the property trustee or the
Delaware 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 a property trustee or Delaware
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 Morgan Stanley Capital Trustees
Any entity into which a property trustee or Delaware trustee is merged
or converted or with which it is consolidated, or any entity resulting from
any merger, conversion or consolidation to which the property trustee or the
Delaware trustee is a party, or any entity succeeding to all or substantially
all the corporate trust business of the property trustee or the Delaware
trustee, will be the successor of that property trustee or Delaware trustee
under each trust agreement, provided it is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Morgan Stanley
Capital Trusts
A Morgan Stanley Capital Trust may not merge with or into, consolidate
or amalgamate with, 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. A
Morgan Stanley Capital Trust may, at the request of the holders of its 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 or amalgamate with, 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 of the United States, so long as
o the successor entity either:
o expressly assumes all the obligations of the Morgan
Stanley Capital Trust with respect to the capital
securities of that Morgan Stanley Capital Trust, or
o substitutes for the capital securities of that Morgan
Stanley Capital Trust other securities having
substantially the same terms as those capital
securities so long as the successor securities have
the same priority as the capital securities with
respect to distributions and payments upon
liquidation, redemption and otherwise;
o the successor entity has a trustee possessing the same powers and
duties as the property trustee;
10
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the capital securities of that
Morgan Stanley Capital Trust (including any successor securities)
to be downgraded by any nationally recognized statistical rating
organization;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the capital
securities (including any successor securities) in any material
respect;
o the successor entity has a purpose substantially identical to that
of the Morgan Stanley Capital Trust;
o prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the property trustee and Delaware
trustee have received an opinion from independent counsel
experienced in these matters to the effect that:
o the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the
holders of the capital securities (including any
successor securities) of that Morgan Stanley Capital
Trust in any material respect, and
o following the merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither
the Morgan Stanley Capital Trust nor the successor
entity will be required to register as an "investment
company" under the Investment Company Act of 1940;
and
o Morgan Stanley or any permitted transferee to whom Morgan Stanley
has transferred the common securities owns, directly or
indirectly, all of the common securities of the successor entity
and guarantees the obligations of the successor entity with
respect to the successor securities at least to the extent
provided by the related guarantee with respect to the capital
securities.
Notwithstanding the foregoing, a Morgan Stanley Capital Trust may not, except
with the consent of holders of 100% in aggregate liquidation amount of the
capital securities of that Morgan Stanley Capital Trust, merge with or into,
consolidate or amalgamate with, 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 merge with or into, consolidate or
amalgamate with, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Morgan Stanley
Capital 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 Morgan Stanley
Capital 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 at least a majority in aggregate liquidation amount of the common
securities and the property trustee, without the consent of the holders of the
capital securities, to:
o cure any ambiguity, correct or supplement any provisions in the
trust agreement that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or
questions arising under the trust agreement, provided that the
amendment will not adversely affect in any material respect the
interests of any holder of trust securities; or
11
o modify, eliminate or add to any provisions of the trust agreement
to the extent necessary to ensure that the Morgan Stanley Capital
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 Morgan Stanley Capital Trust
will not be required to register as an "investment company" under
the Investment Company Act of 1940.
Any amendment of the trust agreement without the consent of the
holders of the capital securities will become effective when notice of the
amendment is given to the holders of trust securities.
Each trust agreement may be amended by the holders of at least a
majority in aggregate liquidation amount of the common securities and the
property trustee with:
o the consent of holders representing at least a majority in
aggregate liquidation amount of the outstanding capital
securities; and
o receipt by the Delaware trustee and the property trustee of an
opinion of counsel to the effect that the amendment or the
exercise of any power granted to the Delaware trustee and the
property trustee in accordance with the amendment will not cause
the Morgan Stanley Capital Trust to be taxable as a corporation
for United States federal income tax purposes or affect the Morgan
Stanley Capital Trust's exemption from status as an "investment
company" under the Investment Company Act of 1940;
except that, without the consent of each holder of trust securities affected,
a trust agreement may not be amended to:
o 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
o restrict the right of a holder of trust securities to institute
suit for the enforcement of payment of any distribution on the
trust securities on or after such date.
So long as any junior subordinated debentures are held by a Morgan
Stanley Capital Trust, the property trustee will not:
o direct the time, method and place of conducting any proceeding for
any remedy available to the indenture trustee, or execute any
trust or power conferred on the property trustee with respect to
the junior subordinated debentures,
o waive any past default that may be waived under the indenture,
o exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal amount of the junior
subordinated debentures, or
o consent to any amendment, modification or termination of the
indenture or junior subordinated debentures, where the consent is
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 the indenture would require the
consent of each holder of the junior subordinated debentures affected, no
consent will be given by the property trustee without the prior consent of
each holder of the capital securities.
In addition to obtaining the foregoing approvals of the holders of the
capital securities, before taking any of the foregoing actions, the property
trustee will obtain an opinion of counsel experienced in these matters to the
effect that the Morgan Stanley Capital Trust will not be taxable as a
corporation for
12
United States federal income tax purposes on account of the action. The
property trustee may not revoke any action previously authorized or approved
by a vote of the holders of the capital securities issued by the Morgan
Stanley Capital Trust except by subsequent vote of the holders of the
capital securities.
Any required approval of holders of capital securities may be given at
a meeting of holders of capital securities convened for that 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 the 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 the capital securities in accordance with the
applicable trust agreement.
Any capital securities that are owned by us, the Delaware trustee, the
property trustee, the administrators or any of our affiliates or affiliates of
any Delaware trustee or property trustee, will, for purposes of a vote or
consent under any of the circumstances described above, be treated as if they
were not outstanding.
Expenses and Taxes
In the junior subordinated debentures owned by a Morgan Stanley
Capital Trust, we, as borrower, will agree to pay all debts and other
obligations (other than with respect to the capital securities issued by the
Morgan Stanley Capital Trust) and all costs and expenses of the Morgan Stanley
Capital Trust (including costs and expenses relating to the organization of
the Morgan Stanley Capital Trust, the fees and expenses of the Delaware
trustee and property trustee on behalf of the Morgan Stanley Capital Trust and
the costs and expenses relating to the operation of the Morgan Stanley Capital
Trust) and to pay any and all taxes and all costs and expenses with respect to
those taxes (other than United States withholding taxes) to which the Morgan
Stanley Capital Trust might become subject. The foregoing obligations under
the junior subordinated debentures owned by a Morgan Stanley Capital Trust are
for the benefit of, and shall be enforceable by, any person to whom any of
those debts, obligations, costs, expenses and taxes payable by the Morgan
Stanley Capital Trust are owed, whether or not that person has received notice
of the debts, obligations, costs, expenses or taxes. Any such person may
enforce these obligations directly against us, and we will irrevocably waive
any right or remedy to require that person to take any action against a Morgan
Stanley Capital Trust or any other person before proceeding against us. We
will also agree in the junior subordinated debentures owned by a Morgan
Stanley Capital Trust to execute additional agreements 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
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.
Registration of transfers and exchanges of capital securities will be
effected without charge by or on behalf of each Morgan Stanley Capital Trust,
but the property trustee may require payment to cover any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The
13
Morgan Stanley Capital Trusts will not be required to register or cause to be
registered the transfer of, or exchange or to cause to be exchanged, any
capital securities that 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 those
duties specifically set forth in each trust agreement or provided by the Trust
Indenture Act and, after a capital securities event of default has occurred
that has not been cured or waived, must exercise the rights and powers vested
in it by the applicable trust agreement for the benefit of the holders of
trust securities using the same degree of care and skill as a prudent person
would exercise 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
rights or powers vested in it by the applicable trust agreement, other than
those vested in it upon the occurrence of a capital securities event of
default, at the request of any holder of trust securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred in complying with the request or direction.
For information concerning the relationships between The Bank of New
York, which will initially be the property trustee, and us, see "Description
of Junior Subordinated Debentures--Information Concerning the Indenture
Trustee."
Miscellaneous
The administrators and the property trustee of each Morgan Stanley
Capital Trust are authorized and directed to conduct the affairs of, and to
operate, the applicable Morgan Stanley Capital Trust in such a way that the
Morgan Stanley Capital Trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act or taxed as a
corporation for United States federal income tax purposes and so that the
junior subordinated debentures owned by the Morgan Stanley Capital Trust will
be treated as indebtedness of Morgan Stanley for United States federal income
tax purposes. In this regard, the property trustee and the holders of common
securities are authorized to take any action, not inconsistent with applicable
law or the certificate of trust or the trust agreement of the applicable
Morgan Stanley Capital Trust, that the property trustee and the holders of
common securities determine in their discretion to be necessary or desirable
for those purposes, as long as the action does not materially adversely affect
the interests of the holders of the capital securities of the applicable
Morgan Stanley Capital Trust.
Holders of the trust securities have no preemptive or similar rights.
The Morgan Stanley Capital Trusts may not borrow money, 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.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will constitute junior subordinated
debt of Morgan Stanley and will be issued under a junior subordinated
indenture, dated March 1, 1998, entered into between us and The Bank of New
York, as indenture trustee. The indenture contains, and the junior
subordinated debentures, when issued, will contain, additional important terms
and provisions. The indenture and the form of the junior subordinated
debentures are filed as exhibits to the registration statement that includes
this prospectus. The following summaries of certain provisions of the
indenture and the junior subordinated debentures do not purport to be complete
and are subject to the detailed provisions of the indenture and junior
subordinated debentures. Where appropriate, we use parentheses to refer you to
the
14
particular sections of the indenture. Any reference to particular sections
or defined terms of the indenture in any statement under this heading
qualifies the entire statement and incorporates by reference the applicable
section or definition into that statement.
This summary of the indenture and the junior subordinated debentures
relates to terms and conditions applicable to the junior subordinated
debentures generally. The particular terms of any series of junior
subordinated debentures will be summarized in the applicable prospectus
supplement. If indicated in the prospectus supplement, the terms of any series
may differ from the terms summarized below.
General
Each series of junior subordinated debentures issued under the
indenture will rank equally with all other series of junior subordinated
debentures issued under the indenture and will be unsecured and subordinate
and junior in right of payment to the extent and in the manner set forth in
the indenture to all senior indebtedness of Morgan Stanley. See
"--Subordination." Most of our assets are owned by our subsidiaries.
Therefore, our rights and the rights of our creditors, including holders of
junior subordinated debentures, to participate in the assets of any subsidiary
upon the subsidiary's liquidation or recapitalization will be subject to the
prior claims of the subsidiary's creditors, except to the extent that we
ourselves may be a creditor with recognized claims against the subsidiary. In
addition, dividends, loans and advances to us from certain subsidiaries are
restricted by legal requirements, including (in the case of Morgan Stanley &
Co. Incorporated and Morgan Stanley DW Inc.) net capital requirements under
the Securities Exchange Act of 1934 and under rules of certain exchanges and
other regulatory bodies, and (in the case of Discover Bank, a
Delaware-chartered bank and our wholly-owned indirect subsidiary, and other
bank subsidiaries) by banking regulations. Except as otherwise provided in the
applicable prospectus supplement, the indenture does not limit the incurrence
or issuance of other secured or unsecured debt of Morgan Stanley, including
senior indebtedness, whether under the indenture, any other existing indenture
or any other indenture that Morgan Stanley may enter into in the future, or
otherwise afford holders of junior subordinated debentures protection in the
event of a highly leveraged or similar transaction that may adversely affect
the holders of the junior subordinated debentures. See "--Subordination" and
the applicable prospectus supplement relating to any offering of capital
securities or junior subordinated debentures.
We may issue junior subordinated debentures from time to time in one
or more series pursuant to a supplemental indenture or a resolution of our
board of directors or a committee of our board of directors.
The applicable prospectus supplement will contain, where applicable,
the following terms of and other information relating to any offered junior
subordinated debentures:
o the title of the junior subordinated debentures;
o any limit upon the aggregate principal amount of the junior
subordinated debentures;
o the date or dates on which the principal of the junior
subordinated debentures is payable or the method of determination
thereof, including the right, if any, of Morgan Stanley to shorten
or extend the stated maturity date in certain circumstances;
o the rate or rates, if any, at which the junior subordinated
debentures will bear interest, the dates on which that interest
will be payable, the right, if any, of Morgan Stanley to defer or
extend an interest payment date and the record dates for any
interest payable on any interest payment date or the method by
which any of the foregoing will be determined;
o the place or places where the principal of and premium, if any,
and interest on the junior subordinated debentures will be payable
and where, subject to the terms of the indenture as described
below under "--Registration and Transfer of Junior Subordinated
Debentures," the junior subordinated debentures may be presented
for registration of transfer or exchange and
15
the place or places where notices and demands to or upon Morgan
Stanley in respect of the junior subordinated debentures and the
indenture may be made;
o any period or periods within which, or date or dates on which, the
price or prices at which and the terms and conditions upon which
junior subordinated debentures may be redeemed, in whole or in
part, at the option of Morgan Stanley or a holder of junior
subordinated debentures;
o the obligation, if any, of Morgan Stanley to redeem, purchase or
repay the junior subordinated debentures and the period or periods
within which, the price or prices at which, and the other terms
and conditions upon which the junior subordinated debentures will
be redeemed, repaid or purchased, in whole or in part, pursuant to
that obligation;
o the denominations in which any junior subordinated debentures will
be issuable if other than denominations of $25 and any integral
multiple of $25;
o if other than in U.S. dollars, the currency or currencies
(including currency unit or units) in which the principal of (and
premium, if any) and interest, if any, on the junior subordinated
debentures will be payable, or in which the junior subordinated
debentures will be denominated;
o any additions, modifications or deletions in the events of default
under the indenture or covenants of Morgan Stanley specified in
the indenture with respect to the junior subordinated debentures;
o if other than the principal amount, the portion of the principal
amount of junior subordinated debentures that will be payable upon
declaration of acceleration of maturity;
o any index or indices used to determine the amount of payments of
principal of and premium, if any, and interest on the junior
subordinated debentures and the manner in which those amounts will
be determined;
o whether the junior subordinated debentures will be issuable in
registered form or bearer form 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 the bearer
securities;
o any additions or changes to the indenture with respect to a series
of junior subordinated debentures as will be necessary to permit
or facilitate the issuance of that series in bearer form,
registrable or not registrable as to principal, and with or
without interest coupons;
o the appointment of any trustees, depositaries, authenticating or
paying agents, transfer agents or registrars or other agents;
o whether the junior subordinated debentures will be convertible or
exchangeable for other securities or property and, if so, the
terms of any conversion or exchange and the terms of the other
securities; and
o any other terms of the junior subordinated debentures not
inconsistent with the provisions of the indenture.
Registration and Transfer of Junior Subordinated Debentures
Holders may present junior subordinated debentures for exchange, and
holders of registered junior subordinated debentures may present these
securities for transfer, in the manner, at the places and subject to the
restrictions stated in the junior subordinated debentures and described in the
applicable prospectus
16
supplement. We will provide these services without charge except for any tax or
other governmental charge payable in connection with these services and subject
to any limitations provided in the indenture.
Holders may transfer junior subordinated debentures in bearer form and
the related coupons, if any, by delivery to the transferee. If any of the
securities are held in global form, the procedures for transfer of interests
in those securities will depend upon the procedures of the depositary for
those global securities.
Subordination
Holders of the junior subordinated debentures should recognize that
contractual provisions in the indenture may prohibit us from making payments
on these securities. The junior subordinated debentures are subordinate and
junior in right of payment, to the extent and in the manner stated in the
indenture, to all of our senior indebtedness. The indenture defines senior
indebtedness as obligations of, or guaranteed or assumed by, Morgan Stanley
for borrowed money or evidenced by bonds, debentures, notes or other similar
instruments, and amendments, renewals, extensions, modifications and
refundings of any of that indebtedness or of those obligations. Nonrecourse
obligations, the junior subordinated debentures and any other obligations
specifically designated as being subordinate in right of payment to senior
indebtedness are not senior indebtedness as defined under the indenture.
(Section 1.01)
The indenture does not restrict our ability to issue senior
indebtedness.
The indenture provides that, unless all principal of and any premium
or interest on the senior indebtedness has been paid in full, or provision has
been made to make these payments in full, no payment of principal of, or any
premium or interest on, any junior subordinated debentures may be made in the
event:
o of any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceedings involving
us or a substantial part of our property;
o that (a) a default has occurred in the payment of principal, any
premium, interest or other monetary amounts due and payable on any
senior indebtedness or (b) there has occurred any other event of
default concerning senior indebtedness, that permits the holder or
holders of the senior indebtedness to accelerate the maturity of
the senior indebtedness, with notice or passage of time, or both,
and that event of default has continued beyond the applicable
grace period, if any, and that default or event of default has not
been cured or waived or has not ceased to exist; or
o that the principal of and accrued interest on any junior
subordinated debentures have been declared due and payable upon an
event of default as defined under the indenture and that
declaration has not been rescinded and annulled as provided under
the indenture. (Section 13.01)
The applicable prospectus supplement or the information incorporated
by reference in this prospectus will set forth the approximate amount of
senior indebtedness outstanding as of the end of the most recent fiscal
quarter.
Merger, Consolidation, Sale, Lease or Conveyance
The indenture provides that we will not merge or consolidate with any
other person and will not sell, lease or convey all or substantially all of
our assets to any other person, unless:
o we will be the continuing corporation; or
o the successor corporation or person that acquires all or
substantially all of our assets:
17
o will be a corporation organized under the laws of the
United States, a state of the United States or the
District of Columbia; and
o will expressly assume all of our obligations under
the indenture and the junior subordinated debentures
issued under the indenture; and
o immediately after the merger, consolidation, sale, lease or
conveyance, we, that person or that successor corporation will not
be in default in the performance of the covenants and conditions
of the indenture applicable to us. (Section 9.01)
There are no covenants or other provisions in the indenture that would
afford holders of junior subordinated debentures additional protection in the
event of a recapitalization transaction, a change of control of Morgan Stanley
or a highly leveraged transaction. The merger covenant described above would
only apply if the recapitalization transaction, change of control or highly
leveraged transaction were structured to include a merger or consolidation of
Morgan Stanley or a sale, lease or conveyance of all or substantially all of
our assets. However, we may provide specific protections, such as a put right
or increased interest, for particular junior subordinated debentures, which we
would describe in the applicable prospectus supplement.
Events of Default
The indenture provides holders of junior subordinated debentures with
remedies if we fail to perform specific obligations, such as making payments
on the junior subordinated debentures or other indebtedness, or if we become
bankrupt. Holders should review these provisions and understand which of our
actions trigger an event of default and which actions do not. The indenture
permits the issuance of junior subordinated debentures in one or more series,
and, in many cases, whether an event of default has occurred is determined on
a series by series basis.
An event of default is defined under the indenture, with respect to
any series of junior subordinated debentures issued under the indenture, as
being:
o default in payment of any principal of the junior subordinated
debentures of that series, either at maturity or upon any
redemption, by declaration or otherwise;
o default for 30 days in payment of any interest on any junior
subordinated debentures of that series, provided, however, that a
valid extension of an interest payment period by Morgan Stanley in
accordance with the terms of the junior subordinated debentures of
any series will not constitute a default in the payment of
interest for this purpose;
o default for 60 days after written notice in the observance or
performance of any other covenant or agreement in the junior
subordinated debentures of that series or the indenture (other
than a covenant or warranty with respect to the junior
subordinated debentures of that series the breach or
nonperformance of which is otherwise included in the definition of
"event of default");
o events of bankruptcy, insolvency or reorganization;
o failure to make any payment at maturity, including any applicable
grace period, on indebtedness in an amount in excess of
$10,000,000 and continuance of that failure for a period of 30
days after written notice of the failure to us by the indenture
trustee, or to us and the indenture trustee by the holders of not
less than 25% in principal amount of the outstanding junior
subordinated debentures, treated as one class, issued under the
indenture;
o default with respect to any indebtedness, which default results in
the acceleration of indebtedness in an amount in excess of
$10,000,000 without the indebtedness having been
18
discharged or the acceleration having been cured, waived, rescinded
or annulled for a period of 30 days after written notice of the
acceleration to us by the applicable trustee, or to us and the
applicable trustee by the holders of not less than 25% in
principal amount of the outstanding junior subordinated
debentures, treated as one class, issued under the indenture; or
o any other event of default provided in a supplemental indenture
under which the series of junior subordinated debentures is
issued.
For purposes of the fifth and sixth clauses above, indebtedness means
obligations of, or guaranteed or assumed by, Morgan Stanley, other than the
junior subordinated debentures of that series, for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments, but does not include
non-recourse obligations. In addition, if a failure, default or acceleration
referred to in the fifth and sixth clauses above ceases or is cured, waived,
rescinded or annulled, then the event of default under the indenture caused by
that failure, default or acceleration will also be considered cured. (Section
5.01)
Acceleration of Junior Subordinated Debentures upon an Event of Default
The indenture provides that:
o if an event of default due to the default in payment of principal
of, or any premium or interest on, any series of junior
subordinated debentures issued under the indenture, or due to the
default in the performance or breach of any other covenant or
warranty of Morgan Stanley applicable to the junior subordinated
debentures of that series but not applicable to all outstanding
junior subordinated debentures issued under the indenture, occurs
and is continuing, either the trustee or the holders of not less
than 25% in aggregate principal amount of the outstanding junior
subordinated debentures of each affected series, voting as one
class, by notice in writing to Morgan Stanley, may declare the
principal of all junior subordinated debentures of each affected
series and interest accrued thereon to be due and payable
immediately; and
o if an event of default due to a default in the performance of any
other covenants or agreements in the indenture applicable to all
outstanding junior subordinated debentures issued under the
indenture or due to specified events of bankruptcy, insolvency or
reorganization of Morgan Stanley occurs and is continuing, either
the trustee or the holders of not less than 25% in aggregate
principal amount of all outstanding junior subordinated debentures
issued under that indenture, voting as one class, by notice in
writing to Morgan Stanley may declare the principal of all those
junior subordinated debentures and interest accrued thereon to be
due and payable immediately. (Section 5.01)
Annulment of Acceleration and Waiver of Defaults
In some circumstances, if any and all events of default under the
indenture, other than the non-payment of the principal of the securities that
has become due as a result of an acceleration, have been cured, waived or
otherwise remedied, then the holders of a majority in aggregate principal
amount of all series of outstanding junior subordinated debentures affected,
voting as one class, may annul past declarations of acceleration of or waive
past defaults of the junior subordinated debentures. (Section 5.10)
Indemnification of Trustee for Actions Taken on Your Behalf
The indenture contains a provision entitling the indenture trustee,
subject to the duty of the indenture trustee during a default to act with the
required standard of care, to be indemnified by the holders of junior
subordinated debentures issued under that indenture before proceeding to
exercise any right or power at the request of holders. (Section 6.02) Subject
to these provisions and some other limitations, the holders of a majority in
aggregate principal amount of each series of outstanding junior subordinated
19
debentures of each affected series, voting as one class, may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or exercising any trust or power conferred on the indenture trustee.
(Section 5.09)
Limitation on Actions by You as an Individual Holder
The indenture provides that no individual holder of junior
subordinated debentures may institute any action against us under that
indenture, except actions for payment of overdue principal and interest,
unless the following actions have occurred:
o the holder must have previously given written notice to the
trustee of the continuing default;
o the holders of not less than 25% in aggregate principal amount of
the outstanding junior subordinated debentures of each affected
series, treated as one class, must have (1) requested the trustee
to institute that action and (2) offered the indenture trustee
reasonable indemnity;
o the indenture trustee must have failed to institute that action
within 60 days after receipt of the request referred to above; and
o the holders of a majority in principal amount of the outstanding
junior subordinated debentures of each affected series, voting as
one class, must not have given directions to the indenture trustee
inconsistent with those of the holders referred to above.
(Sections 5.06 and 5.09)
Annual Certification
The indenture contains a covenant that we will file annually with the
indenture trustee a certificate of no default or a certificate specifying any
default that exists.
(Section 3.05)
Discharge, Defeasance and Covenant Defeasance
We have the ability to eliminate most or all of our obligations on any
series of junior subordinated debentures prior to maturity if we comply with
the following provisions. (Section 10.01)
Discharge of Indenture
We may discharge all of our obligations, other than as to transfers
and exchanges, under the indenture after we have:
o paid or caused to be paid the principal of and interest on all of
the outstanding junior subordinated debentures in accordance with
their terms;
o delivered to the indenture trustee for cancellation all of the
outstanding junior subordinated debentures; or
o irrevocably deposited with the indenture trustee cash or, in the
case of a series of junior subordinated debentures payable only in
U.S. dollars, U.S. government obligations in trust for the benefit
of the holders of any series of junior subordinated debentures
issued under the indenture that have either become due and
payable, or are by their terms due and payable, or are scheduled
for redemption, within one year, in an amount certified to be
sufficient to pay on each date that they become due and payable,
the principal of and interest on, and any mandatory sinking fund
payments for, those junior subordinated debentures, except that
the deposit of cash or U.S. government obligations for the benefit
of holders of a series of junior subordinated debentures that are
due and payable, or are scheduled for redemption, within one
20
year will discharge obligations under the indenture relating only
to that series of junior subordinated debentures.
Defeasance of a Series of Securities at Any Time
We may also discharge all of our obligations, other than as to
transfers and exchanges, under any series of junior subordinated debentures at
any time, which we refer to as "defeasance."
We may be released with respect to any outstanding series of junior
subordinated debentures from the covenants described above limiting
consolidations, mergers, asset sales and leases, and elect not to comply with
that section without creating an event of default.
Discharge under these procedures is called "covenant defeasance."
Defeasance or covenant defeasance may be effected only if, among other
things:
o we irrevocably deposit with the indenture trustee cash or, in the
case of junior subordinated debentures payable only in U.S.
dollars, U.S. government obligations, as trust funds in an amount
certified to be sufficient to pay on each date that they become
due and payable, the principal of and interest on, and any
mandatory sinking fund payments for, all outstanding junior
subordinated debentures of the series being defeased;
o we deliver to the indenture trustee an opinion of counsel to the
effect that:
o the holders of the series of junior subordinated
debentures being defeased will not recognize income,
gain or loss for United States federal income tax
purposes as a result of the defeasance or covenant
defeasance; and
o the defeasance or covenant defeasance will not
otherwise alter those holders' United States federal
income tax treatment of principal and interest
payments on the series of junior subordinated
debentures being defeased;
in the case of a defeasance, this 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 this prospectus,
since that result would not occur under current tax law;
o no event or condition will exist that, under the provisions
described under "--Subordination" above, would prevent us from
making payments of principal or interest on the junior
subordinated debentures at the date of the irrevocable deposit
referred to above or at any time during the period ending on the
91st day after that deposit date; and
o we deliver to the indenture trustee an opinion of counsel to the
effect that:
o the trust funds will not be subject to any rights of
holders of senior indebtedness; and
o after the 91st day following the deposit, the trust
funds will not be subject to any applicable
bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally, except
that if a court were to rule under any of those laws
in any case or proceeding that the trust funds
remained our property, then the indenture trustee and
the holders of the junior subordinated debentures
would be entitled to some enumerated rights as
secured creditors in the trust funds. (Section 10.01)
21
Modification of Indenture
Modification Without Consent of Holders
We and the indenture trustee may enter into supplemental indentures
without the consent of the holders of junior subordinated debentures to:
o secure any junior subordinated debentures;
o evidence the assumption of our obligations by a successor
corporation;
o add covenants for the protection of the holders of junior
subordinated debentures;
o cure any ambiguity or correct any inconsistency in the indenture;
o establish the forms or terms of junior subordinated debentures of
any series; and
o evidence the acceptance of appointment by a successor indenture
trustee. (Section 8.01)
Modification with Consent of Holders
We and the trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of each affected series of outstanding
junior subordinated debentures, voting as one class, may add any provisions
to, or change in any manner or eliminate any of the provisions of, the
indenture or modify in any manner the rights of the holders of those junior
subordinated debentures. However, except as specified in the applicable
prospectus supplement, we and the trustee may not make any of the following
changes to any outstanding junior subordinated debenture without the consent
of each holder that would be affected by such change:
o extend the final maturity of the principal;
o reduce the principal amount;
o reduce the rate or extend the time of payment of interest;
o reduce any amount payable on redemption;
o change the currency in which the principal, including any amount
of original issue discount, premium, or interest thereon is
payable;
o reduce the amount of any original issue discount security payable
upon acceleration or provable in bankruptcy;
o alter certain provisions of the indenture relating to the junior
subordinated debentures not denominated in U.S. dollars;
o impair the right of any holder to institute suit for the
enforcement of any payment on any junior subordinated debenture
when due; or
o reduce the percentage of junior subordinated debentures the
consent of whose holders is required for modification of the
indenture.
If the junior subordinated debentures are owned by a Morgan Stanley
Capital Trust, none of the modifications described above may be made without
the prior written consent of all the holders of capital securities of the
Morgan Stanley Capital Trust. (Section 8.02)
22
Modification of Subordination Provisions
We may not amend the indenture to alter the subordination of any
outstanding junior subordinated debentures without the written consent of each
potentially adversely affected holder of senior indebtedness then outstanding.
(Section 8.06)
Information Concerning the Indenture Trustee
We and our subsidiaries maintain credit facilities and other ordinary
banking relationships with The Bank of New York.
Governing Law
The junior subordinated debentures and the indenture will be governed
by, and construed in accordance with, the laws of the State of New York.
DESCRIPTION OF GLOBAL SECURITIES
We may issue the registered junior subordinated debentures and capital
securities in the form of one or more fully registered global securities that
will be deposited with a depositary or its nominee identified in the
applicable prospectus supplement and registered in the name of that depositary
or its nominee. In those cases, 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 the securities to be represented by
registered global securities. Unless and until it is exchanged in whole for
securities in definitive registered form, a registered global security may not
be transferred except as a whole by and among the depositary for the
registered global security, the nominees of the depositary or any successors
of the depositary or those nominees.
The specific terms of the depositary arrangement with respect to any
portion of a series of securities to be represented by a registered global
security will be described in the prospectus supplement relating to that
series. We anticipate that the following provisions will apply to all
depositary arrangements.
Ownership of beneficial interests in a registered global security will
be limited to persons, called participants, that have accounts with the
depositary or persons that may hold interests through participants. Upon the
issuance of a registered global security, the depositary will credit, on its
book-entry registration and transfer system, the participants' accounts with
the respective principal or face amounts of the securities beneficially owned
by the participants. Any dealers, underwriters or agents participating in the
distribution of the securities will designate the accounts to be credited.
Ownership of beneficial interests in a registered global security will be
shown on, and the transfer of ownership interests will be effected only
through, records maintained by the depositary, 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
some purchasers of securities take physical delivery of these securities in
definitive form. These laws may impair your ability to own, transfer or pledge
beneficial interests in registered global securities.
So long as the depositary, or its nominee, is the registered owner of
a registered global security, that depositary or its nominee, as the case may
be, will be considered the sole owner or holder of the securities represented
by the registered global security for all purposes under the indenture. Except
as described below, owners of beneficial interests in a registered global
security will not be entitled to have the securities represented by the
registered global security registered in their names, will not receive or be
entitled to receive physical delivery of the securities in definitive form and
will not be considered the owners or holders of the securities under the
indenture. Accordingly, each person owning a beneficial interest in a
registered global security must rely on the procedures of the depositary for
that registered global security and, if that person is not a participant, on
the procedures of the participant through which
23
the person owns its interest, to exercise any rights of a holder under the
indenture. We understand that under existing industry practices, if we request
any action of holders or if an owner of a beneficial interest in a registered
global security desires to give or take any action that a holder is entitled to
give or take under the indenture, the depositary for the registered global
security would authorize the participants holding the relevant beneficial
interests to give or take that action, and the participants would authorize
beneficial owners owning through them to give or take that action or would
otherwise act upon the instructions of beneficial owners holding through them.
Payments of principal of, and premium, if any, and interest on, junior
subordinated debentures, and any payments to holders with respect to capital
securities, represented by a registered global security registered in the name
of a depositary or its nominee will be made to the depositary or its nominee,
as the case may be, as the registered owner of the registered global security.
None of Morgan Stanley, the indenture trustee, the Delaware trustee, the
property trustee or any other agent of Morgan Stanley, agent of the applicable
Morgan Stanley Capital Trust or agent of any of the aforementioned 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 the registered global security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We and the Morgan Stanley Capital Trusts expect that the depositary
for any securities represented by a registered global security, upon receipt
of any payment of principal, premium, interest or other distribution with
respect to underlying securities to holders in respect of the registered
global security, will immediately credit participants' accounts in amounts
proportionate to their respective beneficial interests in the registered
global security as shown on the records of the depositary. We and the Morgan
Stanley Capital Trusts also expect that payments by participants to owners of
beneficial interests in the registered global security held through
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 those participants.
If the depositary for any securities represented by a registered
global security is at any time unwilling or unable to continue as depositary
or ceases to be a clearing agency registered under the Securities Exchange Act
of 1934, and a successor depositary registered as a clearing agency under the
Securities Exchange Act of 1934 is not appointed by us or the applicable
Morgan Stanley Capital Trust, as the case may be, within 90 days, we or the
applicable Morgan Stanley Capital Trust, as the case may be, will issue the
securities in definitive form in exchange for the registered global security.
In addition, we or the applicable Morgan Stanley Capital Trust, as the case
may be, may at any time and in our sole discretion determine not to have any
of the securities of a series represented by one or more registered global
securities and, in that event, will issue securities of the series in
definitive form in exchange for all of the registered global security or
securities representing those securities. Any securities issued in definitive
form in exchange for a registered global security will be registered in the
name or names as the depositary instructs the relevant trustee or other
relevant agent of Morgan Stanley, the applicable Morgan Stanley Capital Trust
or that trustee. It is expected that those instructions will be based upon
directions received by the depositary from participants with respect to
ownership of beneficial interests in the registered global security.
The securities may also be issued in the form of one or more bearer
global securities that will be deposited with a common depositary for
Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream
Banking, societe anonyme, or with a nominee for the depositary identified in
the prospectus supplement relating to those securities. The specific terms and
procedures, including the specific terms of the depositary arrangement, with
respect to any securities to be represented by a bearer global security will
be described in the prospectus supplement relating to those securities.
DESCRIPTION OF GUARANTEES
Morgan Stanley will execute and deliver a guarantee concurrently with
the issuance by each Morgan Stanley Capital Trust of its capital securities
for the benefit of the holders from time to time of those capital securities.
The guarantee trustee will hold the guarantee for the benefit of the holders
of the
24
related Morgan Stanley Capital Trust's capital securities. Morgan Stanley
will qualify each of the guarantees as an indenture under the Trust
Indenture Act. The guarantees will be subject to, and governed by, the Trust
Indenture Act. 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
of terms, and those provisions made part of each guarantee by the Trust
Indenture Act. A form of guarantee is filed as an exhibit to the registration
statement that includes this prospectus. A copy of the form of the guarantee
is available upon request from the guarantee trustee. If indicated in the
applicable prospectus supplement, the terms of a particular guarantee may
differ from the terms discussed below.
General
Morgan Stanley will irrevocably and unconditionally agree to pay in
full, to the extent set forth in the guarantee, the guarantee payments to the
holders of the capital securities covered by the guarantee, as and when due,
regardless of any defense, right of set-off or counterclaim that the Morgan
Stanley Capital Trust that issued the capital securities may have or assert
other than the defense of payment. The following payments constitute guarantee
payments with respect to capital securities that, to the extent not paid by or
on behalf of the Morgan Stanley Capital Trust, will be subject to the
applicable guarantee:
o any accumulated and unpaid distributions required to be paid on
the applicable capital securities, to the extent that the
applicable Morgan Stanley Capital Trust has funds on hand
available for that purpose at that time;
o the applicable redemption price with respect to any capital
securities called for redemption, which will include all
accumulated and unpaid distributions to the date of redemption, to
the extent that the applicable Morgan Stanley Capital Trust has
funds on hand available for that purpose at that time; and
o upon a voluntary or involuntary dissolution, winding-up or
liquidation of the applicable Morgan Stanley Capital Trust (unless
the junior subordinated debentures owned by the Morgan Stanley
Capital Trust are distributed to holders of the capital securities
in accordance with the terms of the applicable trust agreement),
the lesser of:
o the aggregate of the liquidation amount and all
accumulated and unpaid distributions to the date of
payment, and
o the amount of assets of the applicable Morgan Stanley
Capital Trust remaining available for distribution to
holders of capital securities on liquidation of the
Morgan Stanley Capital Trust.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to the holders of the capital securities
or by causing the applicable Morgan Stanley Capital Trust to pay those amounts
to the holders.
Each guarantee will be an irrevocable guarantee of the related Morgan
Stanley Capital Trust's payment obligations described above under the capital
securities covered by the guarantee, but will apply only to the extent that
the Morgan Stanley Capital Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
If we do not make payments on the junior subordinated debentures owned
by a Morgan Stanley Capital Trust, the Morgan Stanley Capital Trust will not
be able to pay any amounts payable in respect of its capital securities and
will not have funds legally available for that purpose. In that event, holders
of the capital securities would not be able to rely upon the guarantee for
payment of those amounts. Each guarantee will have the same ranking as the
junior subordinated debentures owned by the Morgan Stanley
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Capital Trust that issues the capital securities covered by the guarantee.
See "--Status of the Guarantees." No guarantee will limit the incurrence or
issuance of other secured or unsecured debt of Morgan Stanley.
Status of the Guarantees
Each guarantee will constitute an unsecured obligation of Morgan
Stanley and will rank equal to the junior subordinated debentures owned by the
Morgan Stanley Capital Trust that issues the capital securities covered by the
guarantee.
Each guarantee will constitute a guarantee of payment and not of
collection. Any holder of capital securities covered by the guarantee may
institute a legal proceeding directly against us 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 or on behalf of the Morgan Stanley Capital Trust or, if
applicable, distribution to the holders of the capital securities of the
junior subordinated debentures owned by the Morgan Stanley Capital Trust.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the capital securities issued by the Morgan
Stanley Capital Trust, in which case no approval will be required, the
guarantee that covers the capital securities may not be amended without the
prior approval of the holders of at least a majority of the aggregate
liquidation amount of the outstanding capital securities covered by the
guarantee. The manner of obtaining any such approval will be as set forth
under "Description of Capital Securities--Voting Rights; Amendment of Trust
Agreements" and in the applicable prospectus supplement. All guarantees and
agreements contained in each guarantee will bind the successors, assigns,
receivers, trustees and representatives of Morgan Stanley and will inure to
the benefit of the holders of the then outstanding capital securities covered
by the guarantee.
Events of Default
An event of default under a guarantee will occur upon the failure of
Morgan Stanley to perform any of its payment obligations under that guarantee,
or to perform any non-payment obligation if the non-payment default remains
unremedied for 30 days. If an event of default under a guarantee occurred and
is continuing, the guarantee trustee will enforce the guarantee for the
benefit of the holders of capital securities covered by the guarantee. The
holders of a majority in aggregate liquidation amount of the outstanding
capital securities covered by the guarantee 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 the guarantee or to direct the exercise of any
right or power conferred upon the guarantee trustee under the guarantee.
Any holder of capital securities covered by the guarantee may
institute a legal proceeding directly against Morgan Stanley to enforce its
rights under the guarantee without first instituting a legal proceeding
against the applicable Morgan Stanley Capital Trust, the guarantee trustee or
any other person or entity.
We, as guarantor, are required to file annually with the guarantee
trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and
continuance of an event of default under the guarantee, undertakes to perform
only those duties as are specifically set forth in the guarantee and, after
the occurrence of an event of default with respect to the guarantee that has
not been cured or waived, must exercise the rights and powers vested in it by
the guarantee using 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 rights or powers vested in it by
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the guarantee at the request of any holder of the capital securities covered
by the guarantee unless it is offered reasonable indemnity, including
reasonable advances requested by it, against the costs, expenses and
liabilities that might be incurred in complying with the request or direction.
For information concerning the relationship between The Bank of New
York, which will initially be the guarantee trustee, and Morgan Stanley, see
"Description of Junior Subordinated Debentures--Information Concerning the
Indenture Trustee."
Termination of the Guarantee
Each guarantee will terminate upon full payment of the redemption
price of all of the capital securities covered by the guarantee, upon full
payment of the amounts payable with respect to the capital securities upon
liquidation of the related Morgan Stanley Capital Trust or upon distribution
of the junior subordinated debentures owned by the Morgan Stanley Capital
Trust to the holders of all the capital securities covered by the guarantee.
Each guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the capital securities covered by
the guarantee must repay any sums with respect to the capital securities or
the guarantee.
Governing Law
Each guarantee will be governed by, and construed in accordance with,
the laws of the State of New York.
PLAN OF DISTRIBUTION
We may sell junior subordinated debentures and a Morgan Stanley
Capital Trust may sell capital securities in three ways: (1) through agents,
(2) through underwriters and (3) through dealers. The agents, underwriters or
dealers in the United States will include Morgan Stanley & Co. Incorporated,
which we refer to as MS & Co., and/or Morgan Stanley DW Inc., which we refer
to as MSDWI, or other affiliates of ours, and the agents, underwriters or
dealers outside the United States will include Morgan Stanley & Co.
International Limited, which we refer to as MSIL, or other affiliates of ours.
We and/or the applicable Morgan Stanley Capital Trust may designate
agents from time to time to solicit offers to purchase these securities. We
will name any such agent, who may be deemed to be an underwriter as that term
is defined in the Securities Act of 1933, and state any commissions we are to
pay to that agent in the applicable prospectus supplement. That 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 these securities, we
and/or the applicable Morgan Stanley Capital Trust, as the case may be, will
enter into an underwriting agreement with the 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 applicable 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 these securities, we and/or the
applicable Morgan Stanley Capital Trust, as the case may be, will sell the
securities to the dealer, as principal. The dealer may then resell the
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 these securities, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of these securities or any other securities the prices of
which may be used to determine payments on these securities. Specifically, the
underwriters may sell more securities than they are obligated to purchase in
connection with the offering, creating a short position for their own
accounts. A short sale is covered if the short position is no greater than the
number or amount of securities available for purchase by the underwriters
under any overallotment option. The underwriters can
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close out a covered short sale by exercising the overallotment option or
purchasing these securities in the open market. In determining the source of
securities to close out a covered short sale, the underwriters will consider,
among other things, the open market price of these securities compared to the
price available under the overallotment option. The underwriters may also sell
these securities or any other securities in excess of the overallotment
option, creating a naked short position. The underwriters must close out any
naked short position by purchasing 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 these securities in the
open market after pricing that could adversely affect investors who purchase
in the offering. As an additional means of facilitating the offering, the
underwriters may bid for, and purchase, these securities or any other
securities in the open market to stabilize the price of these securities or of
any other securities. Finally, in any offering of the securities through a
syndicate of underwriters, the underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing these
securities in the offering, if the syndicate repurchases previously
distributed securities to cover syndicate short positions or to stabilize the
price of these securities. Any of these activities may raise or maintain the
market price of these securities above independent market levels or prevent or
retard a decline in the market price of these securities. The underwriters are
not required to engage in these activities and may end any of these activities
at any time.
If so indicated in the applicable prospectus supplement, one or more
firms, including MS & Co., MSDWI and MSIL, which we refer to as "remarketing
firms," acting as principals for their own accounts or as agents for us and/or
a Morgan Stanley Capital Trust, as the case may be, may offer and sell these
securities as part of a remarketing upon their purchase, in accordance with
their terms. We will identify any remarketing firm, the terms of its
agreement, if any, with us and/or a Morgan Stanley Capital Trust, as the case
may be, and its compensation in the applicable prospectus supplement.
Remarketing firms, agents, underwriters and dealers may be entitled
under agreements with us and/or a Morgan Stanley Capital Trust to
indemnification by us and/or a Morgan Stanley Capital Trust, against some
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with, or perform services for, us and/or
a Morgan Stanley Capital Trust in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we and/or a
Morgan Stanley Capital Trust will authorize agents, underwriters or dealers to
solicit offers by some purchasers to purchase these securities from us at the
public offering price stated in the prospectus supplement under delayed
delivery contracts providing for payment and delivery on a specified date in
the future. These contracts will be subject to only those conditions described
in the applicable prospectus supplement, and the prospectus supplement will
state the commission payable for solicitation of these 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., MSDWI and MSIL are wholly-owned subsidiaries of Morgan
Stanley. Each initial offering of securities will be conducted in compliance
with the requirements of Rule 2720 of the National Association of Securities
Dealers, Inc., which is commonly referred to as the NASD, regarding a NASD
member firm's distributing the securities of an affiliate. Following the
initial distribution of any of these securities, MS & Co., MSDWI, MSIL and
other affiliates of Morgan Stanley may offer and sell these securities in the
course of their business as broker-dealers, subject to obtaining any necessary
approval of the New York Stock Exchange, Inc. for any of the offers and sales.
MS & Co., MSDWI, MSIL and other affiliates may act as principals or agents in
these transactions and may make any sales at varying prices related to
prevailing market prices at the time of sale or otherwise. MS & Co., MSDWI,
MSIL and other affiliates may use this prospectus in connection with these
transactions. None of MS & Co., MSDWI, MSIL or any other affiliate is
obligated to make a market in any of these securities and may discontinue any
market-making activities at any time without notice.
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In the event that MS & Co., MSDWI or any other NASD member
participates in a public offering of these securities: (a) the actual price
and selling terms will be disclosed in post-effective amendments or prospectus
supplements; (b) the maximum compensation to be received by MS & Co., MSDWI or
any other NASD member in this distribution will be disclosed and submitted for
approval with the NASD's Corporate Financing Department (the "Department");
and (c) prior to the commencement of the distribution, underwriting documents
proposed for use will be submitted to the Department for review. Underwriting
discounts and commissions on securities sold in the initial distribution will
not exceed 8% of the offering proceeds.
LEGAL MATTERS
The validity of the capital securities will be passed upon for the
Morgan Stanley Capital Trusts by Richards, Layton & Finger, P.A., or other
counsel who is satisfactory to MS & Co. and/or MSDWI, as the case may be, and
who may be an officer of Morgan Stanley. The validity of the junior
subordinated debentures and the guarantees will be passed upon for Morgan
Stanley by Sidley Austin Brown & Wood LLP, or other counsel who is
satisfactory to MS & Co. and/or MSDWI, as the case may be, and who may be an
officer of Morgan Stanley. 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 and its affiliates on a regular basis and in a
variety of matters, including in connection with its private equity and
leveraged capital activities.
EXPERTS
The consolidated financial statements and financial statement
schedules of Morgan Stanley and its subsidiaries, at November 30, 2001 and
2000 and for each of the three fiscal years in the period ended November 30,
2001, included in Morgan Stanley's Annual Report on Form 10-K for the fiscal
year ended November 30, 2001, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports thereon and incorporated
herein by reference. These consolidated financial statements have been
incorporated by reference in reliance upon the respective reports given upon
the authority of Deloitte & Touche LLP, as experts in accounting and auditing.
With respect to unaudited interim financial information for the
periods included in any Quarterly Report on Form 10-Q which may be
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their report included in any such Quarterly
Report on Form 10-Q and incorporated by reference herein, they did not audit
and they do not express an opinion on such interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their reports on the unaudited interim
financial information because those reports are not "reports" or a "part" of
the registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act of 1933.
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