PROSPECTUS Filed Pursuant to Rule 424(b)(2)
Registration Statement Nos. 333-131266
333-131266-01
333-131266-02
333-131266-03
333-131266-04
Morgan Stanley
DEBT SECURITIES
UNITS
WARRANTS
PURCHASE CONTRACTS
PREFERRED STOCK
COMMON STOCK
---------------------
We, Morgan Stanley, may offer from time to time debt securities, units,
warrants, purchase contracts, preferred stock and common stock. 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.
---------------------
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
January 25, 2006
You should rely on the information we incorporate by reference or provide in
this prospectus or the relevant prospectus supplement. We have not authorized
anyone else to provide you with different or additional information. We are not
making an offer of these securities in any state where the offer is not
permitted. Except as we indicate under the headings "Consolidated Ratios of
Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Stock
Dividends," "Morgan Stanley" and "Use of Proceeds," the terms "Morgan Stanley,"
"we," "us" and "our" refer to Morgan Stanley excluding its consolidated
subsidiaries.
SUMMARY
We, Morgan Stanley, may offer any of the following securities: debt
securities, units, warrants, purchase contracts, preferred stock and common
stock. The following summary describes these securities in general terms only.
You should read the summary together with the more detailed information
contained in the rest of this prospectus and the applicable prospectus
supplement.
Debt Securities............ Our debt securities may be senior or subordinated
in priority of payment. We will provide a
prospectus supplement that describes the ranking,
whether senior or subordinated, the specific
designation, the aggregate principal amount, the
purchase price, the maturity, the redemption
terms, the interest rate or manner of calculating
the interest rate, the time of payment of
interest, if any, the terms for any conversion or
exchange, including the terms relating to the
adjustment of any conversion or exchange
mechanism, the listing, if any, on a securities
exchange and any other specific terms of the debt
securities.
The senior and subordinated debt securities will
be issued under separate indentures between us and
a U.S. banking institution as trustee. Neither of
the indentures that govern our debt securities
limits the amount of additional indebtedness that
we or any of our subsidiaries may incur. We have
summarized the general features of the indentures
under the heading "Description of Debt
Securities." We encourage you to read the
indentures, which are exhibits to our registration
statement.
Units...................... We may sell any combination of warrants, purchase
contracts, shares of preferred stock, shares of
common stock and debt securities issued by us,
debt obligations or other securities of an entity
affiliated or not affiliated with us or other
property together as units. In a prospectus
supplement, we will describe the particular
combination of warrants, purchase contracts,
shares of preferred stock, shares of common stock
and debt securities issued by us, or debt
obligations or other securities of an entity
affiliated or not affiliated with us or other
property constituting any units and any other
specific terms of the units.
Warrants................... We may sell warrants to purchase or sell:
o securities issued by us or by an entity
affiliated or not affiliated with us, a
basket of those securities, an index or
indices of those securities, any other
property,
o currencies,
o commodities, or
o any combination of the above.
3
In a prospectus supplement, we will inform you of
the exercise price and other specific terms of the
warrants, including whether our or your
obligations, if any, under any warrants may be
satisfied by delivering or purchasing the
underlying securities, currencies, commodities or
other property or their cash value.
Purchase Contracts......... We may sell purchase contracts requiring the
holders to purchase or sell:
o securities issued by us or by an entity
affiliated or not affiliated with us, a
basket of those securities, an index or
indices of those securities, any other
property,
o currencies,
o commodities, or
o any combination of the above.
In a prospectus supplement, we will describe the
specific terms of the purchase contracts,
including whether we will satisfy our obligations,
if any, or you will satisfy your obligations, if
any, under any purchase contracts by delivering
the underlying securities, currencies, commodities
or other property or their cash value.
Form....................... We may issue debt securities, units, warrants and
purchase contracts in fully registered form or in
bearer form and, in either case, in definitive
form or global form.
Preferred Stock............ We may sell our preferred stock, par value $0.01
per share, in one or more series. In a prospectus
supplement, we will describe the specific
designation, the aggregate number of shares
offered, the dividend rate or manner of
calculating the dividend rate, the dividend
periods or manner of calculating the dividend
periods, the stated value of the shares of the
series, the voting rights of the shares of the
series, whether or not and on what terms the
shares of the series will be convertible or
exchangeable, whether and on what terms we can
redeem the shares of the series, whether we will
offer depositary shares representing shares of the
series and if so, the fraction or multiple of a
share of preferred stock represented by each
depositary share, whether we will list the
preferred stock or depositary shares on a
securities exchange and any other specific terms
of the series of preferred stock.
Common Stock............... We may sell our common stock, par value $0.01 per
share. In a prospectus supplement, we will
describe the aggregate number of shares offered
and the offering price or prices of the shares.
4
Terms Specified in
Prospectus Supplements... When we decide to sell particular securities, we
will prepare a prospectus supplement, which in the
case of medium-term notes may be further
supplemented by a pricing supplement, describing
the securities offering and the specific terms of
the securities. You should carefully read this
prospectus and any applicable prospectus
supplement and pricing supplement. We may also
prepare free writing prospectuses that describe
particular securities. Any free writing prospectus
should also be read in connection with this
prospectus and with any other prospectus
supplement referred to therein. For purposes of
this prospectus, any reference to an applicable
prospectus supplement may also refer to a pricing
supplement or a free writing prospectus, unless
the context otherwise requires.
We will offer our debt securities, warrants,
purchase contracts, units, preferred stock and
common stock to investors on terms determined by
market and other conditions. Our securities may be
sold for U.S. dollars or foreign currency.
Principal of, and any premium or interest on, debt
securities and cash amounts payable under warrants
or purchase contracts may be payable in U.S.
dollars or foreign currency, as we specifically
designate in the related prospectus supplement.
In any prospectus supplement we prepare, we will
provide the name of and compensation to each
dealer, underwriter or agent, if any, involved in
the sale of the securities being offered and the
managing underwriters for any securities sold to
or through underwriters. Any underwriters,
including managing underwriters, dealers or agents
in the United States will include Morgan Stanley &
Co. Incorporated and/or Morgan Stanley DW Inc. and
any outside the United States will include Morgan
Stanley & Co. International Limited or other
affiliates of ours.
Structural Subordination;
Our Receipt of Cash from
Our Subsidiaries May Be
Restricted............... The securities are unsecured senior or
subordinated obligations of ours, but our assets
consist primarily of equity in our subsidiaries.
As a result, our ability to make payments on our
debt securities and/or pay dividends on our
preferred stock and common stock depends upon our
receipt of dividends, loan payments and other
funds from our subsidiaries. In addition, if any
of our subsidiaries becomes insolvent, the direct
creditors of that subsidiary will have a prior
claim on its assets, and our rights and the rights
of our creditors, including your rights as an
owner of our debt securities, units, warrants,
purchase contracts, preferred stock or common
stock, will be subject to that prior claim, unless
we are also a direct creditor of that subsidiary.
This subordination of creditors of a parent
company to prior claims of creditors of its
subsidiaries is commonly referred to as structural
subordination.
5
In addition, various statutes and regulations
restrict some of our subsidiaries from paying
dividends or making loans or advances to us. These
restrictions could prevent those subsidiaries from
paying the cash to us that we need in order to pay
you. These restrictions include:
o the net capital requirements under the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the
rules of some exchanges and other
regulatory bodies, which apply to some of
our principal subsidiaries, such as
Morgan Stanley & Co. Incorporated, Morgan
Stanley & Co. International Limited and
Morgan Stanley DW Inc., and
o banking regulations, which apply to
Discover Bank, a Delaware chartered bank,
and other bank subsidiaries of ours.
Market-making by Our
Affiliates............... Following the initial distribution of an offering
of securities, Morgan Stanley & Co. Incorporated,
Morgan Stanley & Co. International Limited, Morgan
Stanley DW Inc. and other affiliates of ours may
offer and sell those securities in the course of
their businesses as broker dealers, subject, in
the case of common stock, preferred stock and
depositary shares, to obtaining any necessary
approval of the New York Stock Exchange, Inc. for
any of these offers and sales our United States
affiliates may make. Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International
Limited, Morgan Stanley DW Inc. and other
affiliates of ours may act as a principal or agent
in these transactions. This prospectus and the
applicable prospectus supplement will also be used
in connection with those transactions. Sales in
any of those transactions will be made at varying
prices related to prevailing market prices and
other circumstances at the time of sale.
6
FOREIGN CURRENCY RISKS
You should consult your financial and legal advisors as to any specific
risks entailed by an investment in securities that are denominated or payable
in, or the payment of which is linked to the value of, a currency other than the
currency of the country in which you are resident or in which you conduct your
business, which we refer to as your "home currency." These securities are not
appropriate investments for investors who are not sophisticated in foreign
currency transactions. We disclaim any responsibility to advise prospective
purchasers who are residents of countries other than the United States of any
matters arising under non-U.S. law that may affect the purchase of or holding
of, or the receipt of payments on, these securities. These persons should
consult their own legal and financial advisors concerning these matters.
Exchange Rates and Exchange Controls May Affect Securities' Value or Return
General Exchange Rate and Exchange Control Risks. An investment in a
security that is denominated or payable in, or the payment of which is linked to
the value of, currencies other than your home currency entails significant
risks. These risks include the possibility of significant changes in rates of
exchange between your home currency and the relevant foreign currencies and the
possibility of the imposition or modification of exchange controls by the
relevant governmental entities. These risks generally depend on economic and
political events over which we have no control.
Exchange Rates Will Affect Your Investment. In recent years, rates of
exchange between some currencies have been highly volatile and this volatility
may continue in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations that may occur during the term of any security. Depreciation
against your home currency of the currency in which a security is payable would
result in a decrease in the effective yield of the security below its coupon
rate or in the payout of the security and could result in an overall loss to you
on a home currency basis. In addition, depending on the specific terms of a
currency-linked security, changes in exchange rates relating to any of the
relevant currencies could result in a decrease in its effective yield and in
your loss of all or a substantial portion of the value of that security.
There May Be Specific Exchange Rate Risks Applicable to Warrants and
Purchase Contracts. Fluctuations in the rates of exchange between your home
currency and any other currency (i) in which the exercise price of a warrant or
the purchase price of a purchase contract is payable, (ii) in which the value of
the property underlying a warrant or purchase contract is quoted or (iii) to be
purchased or sold by exercise of a warrant or pursuant to a purchase contract or
in the rates of exchange among any of these currencies may change the value of a
warrant, a purchase contract or a unit that includes a warrant or purchase
contract. You could lose money on your investment as a result of these
fluctuations, even if the spot price of the property underlying the warrant or
purchase contract were such that the warrant or purchase contract appeared to be
"in the money."
We Have No Control Over Exchange Rates. Currency exchange rates can either
float or be fixed by sovereign governments. Exchange rates of most economically
developed nations are permitted to fluctuate in value relative to each other.
However, from time to time governments may use a variety of techniques, such as
intervention by a country's central bank, the imposition of regulatory controls
or taxes or changes in interest rates to influence the exchange rates of their
currencies. Governments may also issue a new currency to replace an existing
currency or alter the exchange rate or relative exchange characteristics by a
devaluation or revaluation of a currency. These governmental actions could
change or interfere with currency valuations and currency fluctuations that
would otherwise occur in response to economic forces, as well as in response to
the movement of currencies across borders.
As a consequence, these government actions could adversely affect yields or
payouts in your home currency for (i) securities denominated or payable in
currencies other than your home currency, (ii) currency-linked securities, (iii)
warrants or purchase contracts where the exercise price or the purchase price is
denominated in a currency differing from your home currency or where the value
of the property underlying the warrants or purchase contracts is quoted in a
currency other than your home currency and (iv) warrants or purchase contracts
to purchase or sell foreign currency.
7
We will not make any adjustment or change in the terms of the securities in
the event that exchange rates should become fixed, or in the event of any
devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes, or in the event of other developments affecting your home
currency or any applicable foreign currency. You will bear those risks.
Some Foreign Currencies May Become Unavailable. Governments have imposed
from time to time, and may in the future impose, exchange controls that could
also affect the availability of a specified currency. Even if there are no
actual exchange controls, it is possible that the applicable currency for any
security would not be available when payments on that security are due.
Alternative Payment Method Used if Payment Currency Becomes Unavailable.
Unless otherwise specified in the applicable prospectus supplement, if a payment
currency is unavailable, we would make required payments in U.S. dollars on the
basis of the market exchange rate. However, if the applicable currency for any
security is not available because the euro has been substituted for that
currency, we would make the payments in euro. The mechanisms for making payments
in these alternative currencies are explained in "Description of Debt
Securities--Interest and Principal Payments" below.
Currency Conversions May Affect Payments on Some Securities
The applicable prospectus supplement may provide for (i) payments on a
non-U.S. dollar denominated security to be made in U.S. dollars or (ii) payments
on a U.S. dollar denominated security to be made in a currency other than U.S.
dollars. In these cases, Morgan Stanley & Co. International Limited, in its
capacity as exchange rate agent, or a different exchange rate agent identified
in the applicable prospectus supplement, will convert the currencies. You will
bear the costs of conversion through deductions from those payments. Morgan
Stanley & Co. International Limited is our affiliate.
Exchange Rates May Affect the Value of a New York Judgment Involving Non-U.S.
Dollar Securities
The securities will be governed by and construed in accordance with the
laws of the State of New York. If a New York court were to enter a judgment in
an action on any securities denominated in a foreign currency, such court would
either enter a judgment in U.S. dollars based on the prevailing rate of exchange
between the foreign currency and U.S. dollars on the date such judgment is
entered or enter judgment in the foreign currency and convert the judgment or
decree into U.S. dollars at the prevailing rate of exchange on the date such
judgment or decree is entered.
Additional risks specific to particular securities will be detailed in the
applicable prospectus supplement.
8
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current 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 1580, 100 F Street, N.E., 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. You can find information we
have filed with the SEC by reference to file number 001-11758.
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 "MS." 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 (other than
information in the documents or filings that is deemed to have been furnished
and not filed) 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:
o Annual Report on Form 10-K for the fiscal year ended November 30,
2004, as updated by Exhibit 99.1 of our Current Report on Form 8-K
filed on October 12, 2005;
o Quarterly Reports on Form 10-Q for the quarterly periods ended
February 28, 2005 and May 31, 2005, each as updated by Exhibit Nos.
99.2 and 99.3, respectively, of our Current Report on Form 8-K filed
on October 12, 2005;
o Quarterly Report on Form 10-Q for the quarterly period ended August
31, 2005;
o Current Reports on Form 8-K dated December 13, 2004, December 21,
2004, January 5, 2005, January 14, 2005 (two filings), January 21,
2005, March 3, 2005, March 17, 2005, March 23, 2005, March 28, 2005
(two filings), April 1, 2005, April 2, 2005, April 4, 2005, April 6,
2005, April 13, 2005, April 30, 2005, May 4, 2005, May 13, 2005, May
16, 2005, May 18, 2005, June 13, 2005 (as amended by a Form 8-K/A
filed on June 14, 2005), June 22, 2005, June 23, 2005, June 30, 2005
(three filings), July 11, 2005, August 17, 2005 (two filings) August
31, 2005, September 2, 2005, September 6, 2005, September 9, 2005,
September 19, 2005, September 21, 2005, October 12, 2005 (the Current
Report dated October 12, 2005 updates the historical financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on
Form 10-K for the fiscal year ended November 30, 2004 and Quarterly
Reports on Form 10-Q for the periods ended February 28, 2005 and May
31, 2005 for certain discontinued operations and the transfer of the
principal components of the residential
9
mortgage loan business from the Discover business to the Institutional
Securities business), October 31, 2005, November 14, 2005, November
22, 2005 (2 filings), December 2, 2005, December 12, 2005, December
20, 2005 (2 filings), December 21, 2005 and January 10, 2006; and
o description of our common stock in our Registration Statement on Form
10 filed with the SEC pursuant to Section 12 of the Exchange Act, on
January 15, 1993, as amended by the description contained in the Forms
8 dated February 11, February 21 and February 22, 1993.
You can request a copy of these documents, excluding exhibits not
specifically incorporated by reference into these documents, at no cost, by
writing or telephoning us at the following address:
Morgan Stanley
1585 Broadway
New York, New York 10036
Attention: Investor Relations
(212) 761-4000
10
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratios of earnings to fixed
charges and earnings to fixed charges and preferred stock dividends for the
periods indicated.
Nine Months Ended Fiscal Year
----------------------- ----------------------------------------------
August 31, August 31,
2005 2004 2004 2003 2002 2001 2000
---------- ---------- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges.................... 1.3 1.5 1.5 1.5 1.4 1.3 1.5
Ratio of earnings to fixed
charges and preferred
stock dividends............ 1.3 1.5 1.5 1.5 1.4 1.3 1.5
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 losses from unconsolidated investees, income taxes
(loss)/gain on discontinued operations, cumulative effect of
accounting change and fixed charges;
less:
o dividends on preferred securities subject to mandatory redemption.
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.
The preferred stock dividend amounts represent pre-tax earnings required to
cover dividends on preferred stock.
11
MORGAN STANLEY
Morgan Stanley is a global financial firm that, through its subsidiaries
and affiliates, provides its products and services to a large and diversified
group of clients and customers, including corporations, governments, financial
institutions and individuals. Morgan Stanley was originally incorporated under
the laws of the State of Delaware in 1981, and its predecessor companies date
back to 1924. Morgan Stanley conducts its business from its headquarters in New
York, 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 maintains leading market positions in each of its business
segments--Institutional Securities, Retail Brokerage, Asset Management and
Discover.
Morgan Stanley's Institutional Securities business 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 real estate
investment management, providing benchmark indices and risk management
analytics and research.
Morgan Stanley's Retail Brokerage business includes:
o Comprehensive brokerage, investment and financial services designed to
accommodate individual investment goals and risk profiles.
Morgan Stanley's Asset Management business 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 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 Discover business includes:
o Discover Financial Services, which offers Discover(R)-branded cards
and other consumer finance products and services.
o Discover Network, a network of merchant and cash access locations
primarily in the United States and PULSE EFT Association, Inc., a
U.S.-based automated teller machine/debit network.
o Consumer Banking Group International, which includes Morgan
Stanley-branded cards and personal loan products in the United
Kingdom.
Morgan Stanley's principal executive offices are at 1585 Broadway, New York, New
York 10036, and its telephone number is (212) 761-4000.
12
USE OF PROCEEDS
Unless otherwise set forth in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities we offer by this
prospectus for general corporate purposes, which may include, among other
things:
o additions to working capital;
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.
DESCRIPTION OF DEBT SECURITIES
Debt May Be Senior or Subordinated
We may issue senior or subordinated debt securities. The senior debt
securities and, in the case of debt securities in bearer form, any coupons to
these securities, will constitute part of our senior debt, will be issued under
our Senior Debt Indenture, as defined below, and will rank on a parity with all
of our other unsecured and unsubordinated debt. The subordinated debt securities
and any coupons will constitute part of our subordinated debt, will be issued
under our Subordinated Debt Indenture, as defined below, and will be subordinate
and junior in right of payment, as set forth in the Subordinated Debt Indenture,
to all of our "senior indebtedness," which is defined in our Subordinated Debt
Indenture. If this prospectus is being delivered in connection with a series of
subordinated debt securities, the accompanying prospectus supplement or the
information we incorporate in this prospectus by reference will indicate the
approximate amount of senior indebtedness outstanding as of the end of the most
recent fiscal quarter. We refer to our Senior Debt Indenture and our
Subordinated Debt Indenture individually as an "indenture" and collectively as
the "indentures."
We have summarized below the material provisions of the indentures and the
debt securities, or indicated which material provisions will be described in the
related prospectus supplement. These descriptions are only summaries, and each
investor should refer to the applicable indenture, which describes completely
the terms and definitions summarized below and contains additional information
regarding the debt securities. Where appropriate, we use parentheses to refer
you to the particular sections of the applicable indenture. Any reference to
particular sections or defined terms of the applicable indenture in any
statement under this heading qualifies the entire statement and incorporates by
reference the applicable section or definition into that statement. The
indentures are substantially identical, except for the provisions relating to
Morgan Stanley's negative pledge, which are included in the Senior Debt
Indenture only, the provisions relating to subordination and the shorter list of
events of default under the Subordinated Debt Indenture.
We may issue debt securities from time to time in one or more series. The
provisions of each indenture allow us to "reopen" a previous issue of a series
of debt securities and issue additional debt securities of that issue. The debt
securities may be denominated and payable in U.S. dollars or foreign currencies.
We may also issue debt securities, from time to time, with the principal amount
or interest payable on any relevant payment date to be determined by reference
to one or more currency exchange rates, securities or baskets of securities,
commodity prices or indices, or any combination of the above. Holders of these
types of debt securities will receive payments of principal or interest that
depend upon the value of the applicable currency, security or basket of
securities, commodity or index on the relevant payment dates.
Debt securities may bear interest at a fixed rate or a floating rate,
which, in either case, may be zero, or at a rate that varies during the lifetime
of the debt security. Debt securities bearing no interest or interest at a rate
that at the time of issuance is below the prevailing market rate may be sold at
a discount below their stated principal amount.
13
Terms Specified in Prospectus Supplement
The prospectus supplement will contain, where applicable, the following
terms of and other information relating to any offered debt securities:
o classification as senior or subordinated debt securities and the
specific designation;
o aggregate principal amount, purchase price and denomination;
o currency in which the debt securities are denominated and/or in which
principal, and premium, if any, and/or interest, if any, is payable;
o date of maturity;
o the interest rate or rates or the method by which the calculation
agent will determine the interest rate or rates, if any;
o whether interest will be payable in cash or payable in kind;
o the interest payment dates, if any;
o the place or places for payment of the principal of and any premium
and/or interest on the debt securities;
o any repayment, redemption, prepayment or sinking fund provisions,
including any redemption notice provisions;
o whether we will issue the debt securities in registered form or bearer
form or both and, if we are offering debt securities in bearer form,
any restrictions applicable to the exchange of one form for another
and to the offer, sale and delivery of those debt securities in bearer
form;
o whether we will issue the debt securities in definitive form and under
what terms and conditions;
o the terms on which holders of the debt securities may convert or
exchange these securities into or for common or preferred stock or
other securities of ours offered hereby, into or for common or
preferred stock or other securities of an entity affiliated with us or
debt or equity or other securities of an entity not affiliated with
us, or for the cash value of our stock or any of the above securities,
the terms on which conversion or exchange may occur, including whether
conversion or exchange is mandatory, at the option of the holder or at
our option, the period during which conversion or exchange may occur,
the initial conversion or exchange price or rate and the circumstances
or manner in which the amount of common or preferred stock or other
securities issuable upon conversion or exchange may be adjusted;
o information as to the methods for determining the amount of principal
or interest payable on any date and/or the currencies, securities or
baskets of securities, commodities or indices to which the amount
payable on that date is linked;
o any agents for the debt securities, including trustees, depositories,
authenticating or paying agents, transfer agents or registrars;
o any applicable U.S. federal income tax consequences, including:
o whether and under what circumstances we will pay additional
amounts on debt securities held by a person who is not a U.S.
person for any tax, assessment or governmental charge withheld or
deducted and, if so, whether we will have the option to redeem
those debt securities rather than pay the additional amounts;
o tax considerations applicable to any discounted debt securities
or to debt securities issued at par that are treated as having
been issued at a discount for U.S. federal income tax purposes;
and
14
o tax considerations applicable to any debt securities denominated
and payable in foreign currencies; and
o any other specific terms of the debt securities, including any
additions, modifications or deletions in the defaults, events of
default or covenants, and any terms required by or advisable under
applicable laws or regulations.
Some Definitions
We have defined some of the terms that we use frequently in this prospectus
below:
A "business day" means any day, other than a Saturday or Sunday, (i) that
is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close (a) in The City of New York
or (b) for debt securities denominated in a specified currency other than U.S.
dollars, euro or Australian dollars, in the principal financial center of the
country of the specified currency or (c) for debt securities denominated in
Australian dollars, in Sydney, and (ii) for debt securities denominated in euro,
that is also a TARGET Settlement Day.
"Clearstream, Luxembourg" means Clearstream Banking, societe anonyme.
"Depositary" means The Depository Trust Company, New York, New York.
"Euro LIBOR debt securities" means LIBOR debt securities for which the
index currency is euros.
"Euroclear operator" means Euroclear Bank S.A./N.V., as operator of the
Euroclear System.
An "interest payment date" for any debt security means a date on which,
under the terms of that debt security, regularly scheduled interest is payable.
"London banking day" means any day on which dealings in deposits in the
relevant index currency are transacted in the London interbank market.
The "record date" for any interest payment date is the date 15 calendar
days prior to that interest payment date, whether or not that date is a business
day.
"TARGET Settlement Day" means any day on which the Trans-European Automated
Real-time Gross Settlement Express Transfer System is open.
References in this prospectus to "U.S. dollar," or "U.S.$" or "$" are to
the currency of the United States of America. References in this prospectus to
"euro" and "(euro)" are to the single currency introduced at the commencement of
the third stage of the European Economic and Monetary Union pursuant to the
Treaty establishing the European Community, as amended.
Interest and Principal Payments
Payments, Exchanges and Transfers. Holders may present debt securities for
payment of principal, premium, if any, and interest, if any, register the
transfer of the debt securities and exchange the debt securities at the agency
in the Borough of Manhattan, The City of New York, maintained by us for that
purpose. However, holders of global debt securities may transfer and exchange
global debt securities only in the manner and to the extent set forth under
"Forms of Securities--Global Securities" below. On the date of this prospectus,
the agent for the payment, transfer and exchange of debt securities issued under
our senior indenture is JPMorgan Chase Bank, N.A. (formerly known as JPMorgan
Chase Bank) acting through its corporate trust office at 4 New York Plaza, New
York, New York 10004. On the date of this prospectus, the agent for the payment,
transfer and exchange of debt securities issued under our subordinated indenture
is J.P. Morgan Trust Company, National Association, acting through its corporate
trust office at 4 New York Plaza, New York, New York 10004. We refer to each of
JPMorgan Chase Bank, N.A. and J.P. Morgan Trust Company, National Association,
each acting in this capacity for the respective debt securities, as the paying
agent.
15
We will not be required to:
o register the transfer of or exchange any debt security if the holder
has exercised the holder's right, if any, to require us to repurchase
the debt security, in whole or in part, except the portion of the debt
security not required to be repurchased;
o register the transfer of or exchange debt securities to be redeemed
for a period of fifteen calendar days preceding the mailing of the
relevant notice of redemption; or
o register the transfer of or exchange any registered debt security
selected for redemption in whole or in part, except the unredeemed or
unpaid portion of that registered debt security being redeemed in
part.
No service charge will be made for any registration or transfer or exchange
of debt securities, but we may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection with the registration of
transfer or exchange of debt securities.
Holders may transfer debt securities 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. See "Forms of Securities" below.
Although we anticipate making payments of principal, premium, if any, and
interest, if any, on most debt securities in U.S. dollars, some debt securities
may be payable in foreign currencies as specified in the applicable prospectus
supplement. Currently, few facilities exist in the United States to convert U.S.
dollars into foreign currencies and vice versa. In addition, most U.S. banks do
not offer non-U.S. dollar denominated checking or savings account facilities.
Accordingly, unless alternative arrangements are made, we will pay principal,
premium, if any, and interest, if any, on debt securities that are payable in a
foreign currency to an account at a bank outside the United States, which, in
the case of a debt security payable in euro, will be made by credit or transfer
to a euro account specified by the payee in a country for which the euro is the
lawful currency.
Recipients of Payments. The paying agent will pay interest to the person in
whose name the debt security is registered at the close of business on the
applicable record date. However, upon maturity, redemption or repayment, the
paying agent will pay any interest due to the person to whom it pays the
principal of the debt security. The paying agent will make the payment of
interest on the date of maturity, redemption or repayment, whether or not that
date is an interest payment date. The paying agent will make the initial
interest payment on a debt security on the first interest payment date falling
after the date of issuance, unless the date of issuance is less than 15 calendar
days before an interest payment date. In that case, the paying agent will pay
interest or, in the case of an amortizing debt security, principal and interest,
on the next succeeding interest payment date to the holder of record on the
record date corresponding to the succeeding interest payment date.
Book-Entry Debt Securities. The paying agent will make payments of
principal, premium, if any, and interest, if any, to the account of the
Depositary, as holder of book-entry debt securities, by wire transfer of
immediately available funds. We expect that the Depositary, upon receipt of any
payment, will immediately credit its participants' accounts in amounts
proportionate to their respective beneficial interests in the book-entry debt
securities as shown on the records of the Depositary. We also expect that
payments by the Depositary's participants to owners of beneficial interests in
the book-entry debt securities will be governed by standing customer
instructions and customary practices and will be the responsibility of those
participants.
Certificated Debt Securities. Except as indicated below for payments of
interest at maturity, redemption or repayment, the paying agent will make U.S.
dollar payments of interest either:
o by check mailed to the address of the person entitled to payment as
shown on the debt security register; or
o for a holder of at least $10,000,000 in aggregate principal amount of
certificated debt securities of a series having the same interest
payment date, by wire transfer of immediately available funds, if the
holder has
16
given written notice to the paying agent not later than 15 calendar
days prior to the applicable interest payment date.
U.S. dollar payments of principal, premium, if any, and interest, if any, upon
maturity, redemption or repayment on a debt security will be made in immediately
available funds against presentation and surrender of the debt security.
Unavailability of Foreign Currency. The relevant specified currency may not
be available to us for making payments of principal of, premium, if any, or
interest, if any, on any debt security. This could occur due to the imposition
of exchange controls or other circumstances beyond our control or if the
specified currency is no longer used by the government of the country issuing
that currency or by public institutions within the international banking
community for the settlement of transactions. If the specified currency is
unavailable, we may satisfy our obligations to holders of the debt securities by
making those payments on the date of payment in U.S. dollars on the basis of the
noon dollar buying rate in The City of New York for cable transfers of the
currency or currencies in which a payment on any debt security was to be made,
published by the Federal Reserve Bank of New York, which we refer to as the
"market exchange rate." If that rate of exchange is not then available or is not
published for a particular payment currency, the market exchange rate will be
based on the highest bid quotation in The City of New York received by the
exchange rate agent at approximately 11:00 a.m., New York City time, on the
second business day preceding the applicable payment date from three recognized
foreign exchange dealers for the purchase by the quoting dealer:
o of the specified currency for U.S. dollars for settlement on the
payment date;
o in the aggregate amount of the specified currency payable to those
holders or beneficial owners of debt securities; and
o at which the applicable dealer commits to execute a contract.
One of the dealers providing quotations may be the exchange rate agent unless
the exchange rate agent is our affiliate. If those bid quotations are not
available, the exchange rate agent will determine the market exchange rate at
its sole discretion.
These provisions do not apply if a specified currency is unavailable
because it has been replaced by the euro. If the euro has been substituted for a
specified currency, we may at our option, or will, if required by applicable
law, without the consent of the holders of the affected debt securities, pay the
principal of, premium, if any, or interest, if any, on any debt security
denominated in the specified currency in euro instead of the specified currency,
in conformity with legally applicable measures taken pursuant to, or by virtue
of, the Treaty establishing the European Community, as amended. Any payment made
in U.S. dollars or in euro as described above where the required payment is in
an unavailable specified currency will not constitute an event of default.
Discount Debt Securities. Some debt securities may be considered to be
issued with original issue discount, which must be included in income for U.S.
federal income tax purposes at a constant yield. We refer to these debt
securities as "discount notes." See the discussion under "United States Federal
Taxation--Tax Consequences to U.S. Holders--Discount Notes" below. In the event
of a redemption or repayment of any discount note or if the principal of any
debt security that is considered to be issued with original issue discount is
declared to be due and payable immediately as described under "Description of
Debt Securities--Events of Default" below, the amount of principal due and
payable on that debt security will be limited to:
o the aggregate principal amount of the debt security multiplied by the
sum of
o its issue price, expressed as a percentage of the aggregate
principal amount, plus
o the original issue discount amortized from the date of issue to
the date of declaration, expressed as a percentage of the
aggregate principal amount.
For purposes of determining the amount of original issue discount that has
accrued as of any date on which a redemption, repayment or acceleration of
maturity occurs for a discount note, original issue discount will be accrued
using a constant yield method. The constant yield will be calculated using a
30-day month, 360-day year
17
convention, a compounding period that, except for the initial period (as defined
below), corresponds to the shortest period between interest payment dates for
the applicable discount note (with ratable accruals within a compounding
period), and an assumption that the maturity of a discount note will not be
accelerated. If the period from the date of issue to the first interest payment
date for a discount note (the "initial period") is shorter than the compounding
period for the discount note, a proportionate amount of the yield for an entire
compounding period will be accrued. If the initial period is longer than the
compounding period, then the period will be divided into a regular compounding
period and a short period with the short period being treated as provided in the
preceding sentence. The accrual of the applicable original issue discount
discussed above may differ from the accrual of original issue discount for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), certain
discount notes may not be treated as having original issue discount within the
meaning of the Code, and debt securities other than discount notes may be
treated as issued with original issue discount for federal income tax purposes.
See the discussion under "United States Federal Taxation" below. See the
applicable prospectus supplement for any special considerations applicable to
these debt securities.
Fixed Rate Debt Securities
Each fixed rate debt security will bear interest from the date of issuance
at the annual rate stated on its face until the principal is paid or made
available for payment.
How Interest Is Calculated. Interest on fixed rate debt securities will be
computed on the basis of a 360-day year of twelve 30-day months.
How Interest Accrues. Interest on fixed rate debt securities will accrue
from and including the most recent interest payment date to which interest has
been paid or duly provided for, or, if no interest has been paid or duly
provided for, from and including the issue date or any other date specified in a
prospectus supplement on which interest begins to accrue. Interest will accrue
to but excluding the next interest payment date, or, if earlier, the date on
which the principal has been paid or duly made available for payment, except as
described below under "--If a Payment Date Is Not a Business Day."
When Interest Is Paid. Payments of interest on fixed rate debt securities
will be made on the interest payment dates specified in the applicable
prospectus supplement. However, if the first interest payment date is less than
15 days after the date of issuance, interest will not be paid on the first
interest payment date, but will be paid on the second interest payment date.
Amount of Interest Payable. Interest payments for fixed rate debt
securities will include accrued interest from and including the date of issue or
from and including the last date in respect of which interest has been paid, as
the case may be, to but excluding the relevant interest payment date or date of
maturity or earlier redemption or repayment, as the case may be.
If a Payment Date Is Not a Business Day. If any scheduled interest payment
date is not a business day, we will pay interest on the next business day, but
interest on that payment will not accrue during the period from and after the
scheduled interest payment date. If the scheduled maturity date or date of
redemption or repayment is not a business day, we may pay interest, if any, and
principal and premium, if any, on the next succeeding business day, but interest
on that payment will not accrue during the period from and after the scheduled
maturity date or date of redemption or repayment.
Amortizing Debt Securities. A fixed rate debt security may pay a level
amount in respect of both interest and principal amortized over the life of the
debt security. Payments of principal and interest on amortizing debt securities
will be made on the interest payment dates specified in the applicable
prospectus supplement, and at maturity or upon any earlier redemption or
repayment. Payments on amortizing debt securities will be applied first to
interest due and payable and then to the reduction of the unpaid principal
amount. We will provide to the original purchaser, and will furnish to
subsequent holders upon request to us, a table setting forth repayment
information for each amortizing debt security.
18
Floating Rate Debt Securities
Each floating rate debt security will mature on the date specified in the
applicable prospectus supplement.
Each floating rate debt security will bear interest at a floating rate
determined by reference to an interest rate or interest rate formula, which we
refer to as the "base rate." The base rate may be one or more of the following:
o the CD rate;
o the commercial paper rate;
o EURIBOR;
o the federal funds rate;
o the federal funds (open) rate;
o LIBOR;
o the prime rate;
o the Treasury rate;
o the CMT rate; or
o any other rate or interest rate formula specified in the applicable
prospectus supplement and in the floating rate debt security.
Formula for Interest Rates. The interest rate on each floating rate debt
security will be calculated by reference to:
o the specified base rate based on the index maturity;
o plus or minus the spread, if any; and/or
o multiplied by the spread multiplier, if any.
For any floating rate debt security, "index maturity" means the period of
maturity of the instrument or obligation from which the base rate is calculated
and will be specified in the applicable prospectus supplement. The "spread" is
the number of basis points (one one-hundredth of a percentage point) specified
in the applicable prospectus supplement to be added to or subtracted from the
base rate for a floating rate debt security. The "spread multiplier" is the
percentage specified in the applicable prospectus supplement to be applied to
the base rate for a floating rate debt security. The interest rate on any
inverse floating rate debt security will also be calculated by reference to a
fixed rate.
Limitations on Interest Rate. A floating rate debt security may also have
either or both of the following limitations on the interest rate:
o a maximum limitation, or ceiling, on the rate of interest which may
accrue during any interest period, which we refer to as the "maximum
interest rate"; and/or
o a minimum limitation, or floor, on the rate of interest that may
accrue during any interest period, which we refer to as the "minimum
interest rate."
Any applicable maximum interest rate or minimum interest rate will be set forth
in the applicable prospectus supplement.
19
In addition, the interest rate on a floating rate debt security may not be
higher than the maximum rate permitted by New York law, as that rate may be
modified by United States law of general application. Under current New York
law, the maximum rate of interest, subject to some exceptions, for any loan in
an amount less than $250,000 is 16% and for any loan in the amount of $250,000
or more but less than $2,500,000 is 25% per annum on a simple interest basis.
These limits do not apply to loans of $2,500,000 or more.
How Floating Interest Rates Are Reset. The interest rate in effect from the
date of issue to the first interest reset date for a floating rate debt security
will be the initial interest rate specified in the applicable prospectus
supplement. We refer to this rate as the "initial interest rate." The interest
rate on each floating rate debt security may be reset daily, weekly, monthly,
quarterly, semiannually or annually. This period is the "interest reset period"
and the first day of each interest reset period is the "interest reset date."
The "interest determination date" for any interest reset date is the day the
calculation agent will refer to when determining the new interest rate at which
a floating rate will reset, and is applicable as follows:
o for federal funds rate debt securities, federal funds (open) rate debt
securities, and prime rate debt securities, the interest determination
date will be on the business day prior to the interest rate reset
date;
o for CD rate debt securities, commercial paper rate debt securities and
CMT rate debt securities, the interest determination date will be the
second business day prior to the interest reset date;
o for EURIBOR debt securities or Euro LIBOR debt securities, the
interest determination date will be the second TARGET Settlement Day,
as defined above under "--General Terms of Debt securities--Some
Definitions," prior to the interest reset date;
o for LIBOR debt securities (other than Euro LIBOR debt securities), the
interest determination date will be the second London banking day
prior to the interest reset date, except that the interest
determination date pertaining to an interest reset date for a LIBOR
debt security for which the index currency is pounds sterling will be
the interest reset date;
o for Treasury rate debt security, the interest determination date will
be the day of the week in which the interest reset date falls on which
Treasury bills would normally be auctioned. Treasury bills are
normally sold at auction on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the
following Tuesday, except that the auction may be held on the
preceding Friday; provided, however, that if an auction is held on the
Friday of the week preceding the interest reset date, the interest
determination date will be that preceding Friday; and
o for debt securities with two or more base rates, the interest
determination date will be the latest business day that is at least
two business days before the applicable interest reset date on which
each base rate is determinable.
If Treasury bills are sold at an auction that falls on a day that is an interest
reset date, that interest reset date will be the next following business day.
The interest reset dates will be specified in the applicable prospectus
supplement. If an interest reset date for any floating rate debt security falls
on a day that is not a business day, it will be postponed to the following
business day, except that, in the case of a EURIBOR debt security or a LIBOR
debt security, if that business day is in the next calendar month, the interest
reset date will be the immediately preceding business day.
The interest rate in effect for the ten calendar days immediately prior to
maturity, redemption or repayment will be the one in effect on the tenth
calendar day preceding the maturity, redemption or repayment date.
In the detailed descriptions of the various base rates which follow, the
"calculation date" pertaining to an interest determination date means the
earlier of (i) the tenth calendar day after that interest determination date,
or, if that day is not a business day, the next succeeding business day, or (ii)
the business day immediately preceding the applicable interest payment date or
maturity date or, for any principal amount to be redeemed or repaid, any
redemption or repayment date.
20
How Interest Is Calculated. Interest on floating rate debt securities will
accrue from and including the most recent interest payment date to which
interest has been paid or duly provided for, or, if no interest has been paid or
duly provided for, from and including the issue date or any other date specified
in a prospectus supplement on which interest begins to accrue. Interest will
accrue to but excluding the next interest payment date or, if earlier, the date
on which the principal has been paid or duly made available for payment, except
as described below under "--If a Payment Date Is Not a Business Day."
The applicable prospectus supplement will specify a calculation agent for
any issue of floating rate debt securities. Upon the request of the holder of
any floating rate debt security, the calculation agent will provide the interest
rate then in effect and, if determined, the interest rate that will become
effective on the next interest reset date for that floating rate debt security.
The calculation agent will notify the UK Listing Authority and/or the London
Stock Exchange plc, in the case of debt securities admitted to listing on the
Official List of the UK Listing Authority and to trading on the London Stock
Exchange plc, and the paying agents of each determination of the interest rate
applicable to any floating rate debt security promptly after the determination
is made.
For a floating rate debt security, accrued interest will be calculated by
multiplying the principal amount of the floating rate debt security by an
accrued interest factor. This accrued interest factor will be computed by adding
the interest factors calculated for each day in the period for which interest is
being paid. The interest factor for each day is computed by dividing the
interest rate applicable to that day:
o by 360, in the case of CD rate debt securities, commercial paper rate
debt securities, EURIBOR debt securities, federal funds rate debt
securities, federal funds (open) rate debt securities, LIBOR debt
securities, except for LIBOR debt securities denominated in pounds
sterling, and prime rate debt securities;
o by 365, in the case of LIBOR debt securities denominated in pounds
sterling; or
o by the actual number of days in the year, in the case of Treasury rate
debt securities and CMT rate debt securities.
For these calculations, the interest rate in effect on any interest reset date
will be the applicable rate as reset on that date. The interest rate applicable
to any other day is the interest rate from the immediately preceding interest
reset date or, if none, the initial interest rate.
All percentages used in or resulting from any calculation of the rate of
interest on a floating rate debt security will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with .000005% rounded up
to .00001%, and all U.S. dollar amounts used in or resulting from these
calculations on floating rate debt securities will be rounded to the nearest
cent, with one-half cent rounded upward. All Japanese Yen amounts used in or
resulting from these calculations will be rounded downward to the next lower
whole Japanese Yen amount. All amounts denominated in any other currency used in
or resulting from these calculations will be rounded to the nearest two decimal
places in that currency, with .005 rounded up to .01.
When Interest Is Paid. We will pay interest on floating rate debt
securities on the interest payment dates specified in the applicable prospectus
supplement. However, if the first interest payment date is less than 15 days
after the date of issuance, interest will not be paid on the first interest
payment date, but will be paid on the second interest payment date.
If a Payment Date Is Not a Business Day. If any scheduled interest payment
date, other than the maturity date or any earlier redemption or repayment date,
for any floating rate debt security falls on a day that is not a business day,
it will be postponed to the following business day, except that, in the case of
a EURIBOR debt security or a LIBOR debt security, if that business day would
fall in the next calendar month, the interest payment date will be the
immediately preceding business day. If the scheduled maturity date or any
earlier redemption or repayment date of a floating rate debt security falls on a
day that is not a business day, the payment of principal, premium, if any, and
interest, if any, will be made on the next succeeding business day, but interest
on that payment will not accrue during the period from and after the maturity,
redemption or repayment date.
21
Base Rates
CD Rate Debt Securities. CD rate debt securities will bear interest at the
interest rates specified in the CD rate debt securities and in the
applicable prospectus supplement. Those interest rates will be based on the
CD rate and any spread and/or spread multiplier and will be subject to the
minimum interest rate and the maximum interest rate, if any.
The "CD rate" means, for any interest determination date, the rate on that
date for negotiable U.S. dollar certificates of deposit having the index
maturity specified in the applicable prospectus supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates," or any successor publication of the Board
of Governors of the Federal Reserve System ("H.15(519)") under the heading "CDs
(Secondary Market)."
The following procedures will be followed if the CD rate cannot be
determined as described above:
o If the above rate is not published in H.15(519) by 3:00 p.m., New York
City time, on the calculation date, the CD rate will be the rate on
that interest determination date set forth in the daily update of
H.15(519), available through the world wide website of the Board of
Governors of the Federal Reserve System at
http://www.federalreserve.gov/releases/h15/update, or any successor
site or publication, which is commonly referred to as the "H.15 Daily
Update," for the interest determination date for certificates of
deposit having the index maturity specified in the applicable
prospectus supplement, under the caption "CDs (Secondary Market)."
o If the above rate is not yet published in either H.15(519) or the H.15
Daily Update by 3:00 p.m., New York City time, on the calculation
date, the calculation agent will determine the CD rate to be the
arithmetic mean of the secondary market offered rates as of 10:00
a.m., New York City time, on that interest determination date of three
leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York, which may include the agent and its
affiliates, selected by the calculation agent, after consultation with
us, for negotiable U.S. dollar certificates of deposit of major U.S.
money center banks of the highest credit standing in the market for
negotiable certificates of deposit with a remaining maturity closest
to the index maturity specified in the applicable prospectus
supplement in an amount that is representative for a single
transaction in that market at that time.
o If the dealers selected by the calculation agent are not quoting as
set forth above, the CD rate for that interest determination date will
remain the CD rate for the immediately preceding interest reset
period, or, if there was no interest reset period, the rate of
interest payable will be the initial interest rate.
Commercial Paper Rate Debt Securities. Commercial paper rate debt
securities will bear interest at the interest rates specified in the
commercial paper rate debt securities and in the applicable prospectus
supplement. Those interest rates will be based on the commercial paper rate
and any spread and/or spread multiplier and will be subject to the minimum
interest rate and the maximum interest rate, if any.
The "commercial paper rate" means, for any interest determination date, the
money market yield, calculated as described below, of the rate on that date for
U.S dollar commercial paper having the index maturity specified in the
applicable prospectus supplement, as that rate is published in H.15(519), under
the heading "Commercial Paper--Nonfinancial."
The following procedures will be followed if the commercial paper rate
cannot be determined as described above:
o If the above rate is not published by 3:00 p.m., New York City time,
on the calculation date, then the commercial paper rate will be the
money market yield of the rate on that interest determination date for
commercial paper of the index maturity specified in the applicable
prospectus supplement as published in the H.15 Daily Update, or other
recognized electronic source used for the purpose of displaying the
applicable rate, under the heading "Commercial Paper--Nonfinancial."
22
o If by 3:00 p.m., New York City time, on that calculation date the rate
is not yet published in either H.15(519) or the H.15 Daily Update, or
other recognized electronic source used for the purpose of displaying
the applicable rate, then the calculation agent will determine the
commercial paper rate to be the money market yield of the arithmetic
mean of the offered rates as of 11:00 a.m., New York City time, on
that interest determination date of three leading dealers of U.S.
dollar commercial paper in The City of New York, which may include the
agent and its affiliates, selected by the calculation agent, after
consultation with us, for commercial paper of the index maturity
specified in the applicable prospectus supplement, placed for an
industrial issuer whose bond rating is "Aa," or the equivalent, from a
nationally recognized statistical rating agency.
o If the dealers selected by the calculation agent are not quoting as
set forth above, the commercial paper rate for that interest
determination date will remain the commercial paper rate for the
immediately preceding interest reset period, or, if there was no
interest reset period, the rate of interest payable will be the
initial interest rate.
The "money market yield" will be a yield calculated in accordance with the
following formula:
D x 360
money market yield = --------------- x 100
360 - (D x M)
where "D" refers to the applicable per year rate for commercial paper quoted on
a bank discount basis and expressed as a decimal and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
EURIBOR Debt Securities. EURIBOR debt securities will bear interest at the
interest rates specified in the EURIBOR debt securities and in the
applicable prospectus supplement. That interest rate will be based on
EURIBOR and any spread and/or spread multiplier and will be subject to the
minimum interest rate and the maximum interest rate, if any.
"EURIBOR" means, for any interest determination date, the rate for deposits
in euros as sponsored, calculated and published jointly by the European Banking
Federation and ACI - The Financial Market Association, or any company
established by the joint sponsors for purposes of compiling and publishing those
rates, for the index maturity specified in the applicable prospectus supplement
as that rate appears on the display on Moneyline Telerate, or any successor
service, on page 248 or any other page as may replace page 248 on that service,
which is commonly referred to as "Telerate Page 248," as of 11:00 a.m., Brussels
time.
The following procedures will be followed if the rate cannot be determined
as described above:
o If the above rate does not appear, the calculation agent will request
the principal Euro-zone office of each of four major banks in the
Euro-zone interbank market, as selected by the calculation agent,
after consultation with us, to provide the calculation agent with its
offered rate for deposits in euros, at approximately 11:00 a.m.,
Brussels time, on the interest determination date, to prime banks in
the Euro-zone interbank market for the index maturity specified in the
applicable prospectus supplement commencing on the applicable interest
reset date, and in a principal amount not less than the equivalent of
U.S.$1 million in euro that is representative of a single transaction
in euro, in that market at that time. If at least two quotations are
provided, EURIBOR will be the arithmetic mean of those quotations.
o If fewer than two quotations are provided, EURIBOR will be the
arithmetic mean of the rates quoted by four major banks in the
Euro-zone interbank market, as selected by the calculation agent,
after consultation with us, at approximately 11:00 a.m., Brussels
time, on the applicable interest reset date for loans in euro to
leading European banks for a period of time equivalent to the index
maturity specified in the applicable prospectus supplement commencing
on that interest reset date in a principal amount not less than the
equivalent of U.S.$1 million in euro.
o If the banks so selected by the calculation agent are not quoting as
set forth above, EURIBOR for that interest determination date will
remain EURIBOR for the immediately preceding interest reset period,
or, if there was no interest reset period, the rate of interest
payable will be the initial interest rate.
23
"Euro-zone" means the region comprising member states of the European Union
that have adopted the single currency in accordance with the relevant treaty of
the European Union, as amended.
Federal Funds Rate Debt Securities. Federal funds rate debt securities will
bear interest at the interest rates specified in the federal funds rate
debt securities and in the applicable prospectus supplement. Those interest
rates will be based on the federal funds rate and any spread and/or spread
multiplier and will be subject to the minimum interest rate and the maximum
interest rate, if any.
The "federal funds rate" means, for any interest determination date, the
rate on that date for U.S. dollar federal funds as published in H.15(519) under
the heading "Federal Funds (Effective)" as displayed on Moneyline Telerate, or
any successor service, on page 120 or any other page as may replace the
applicable page on that service, which is commonly referred to as "Telerate Page
120."
The following procedures will be followed if the federal funds rate cannot
be determined as described above:
o If the above rate is not published by 3:00 p.m., New York City time,
on the calculation date, the federal funds rate will be the rate on
that interest determination date as published in the H.15 Daily
Update, or other recognized electronic source used for the purpose of
displaying the applicable rate, under the heading "Federal Funds
(Effective)."
o If the above rate is not yet published in either H.15(519) or the H.15
Daily Update, or other recognized electronic source used for the
purpose of displaying the applicable rate, by 3:00 p.m., New York City
time, on the calculation date, the calculation agent will determine
the federal funds rate to be the arithmetic mean of the rates for the
last transaction in overnight U.S. dollar federal funds prior to 9:00
a.m., New York City time, on that interest determination date, by each
of three leading brokers of U.S. dollar federal funds transactions in
The City of New York, which may include the agent and its affiliates,
selected by the calculation agent, after consultation with us.
o If the brokers selected by the calculation agent are not quoting as
set forth above, the federal funds rate for that interest
determination date will remain the federal funds rate for the
immediately preceding interest reset period, or, if there was no
interest reset period, the rate of interest payable will be the
initial interest rate.
Federal Funds (Open) Rate Debt Securities. Federal funds (open) rate debt
securities will bear interest at the interest rates specified in the federal
funds (open) rate debt securities and in the applicable prospectus supplement.
Those interest rates will be based on the federal funds (open) rate and any
spread and/or spread multiplier and will be subject to the minimum interest rate
and the maximum interest rate, if any.
The "federal funds (open) rate" means, for any interest determination date,
the rate on that date for U.S. dollar federal funds as published in H.15(519)
under the heading "Federal Funds (Open)" as displayed on Moneyline Telerate, or
any successor service, on page 5 or any other page as may replace the applicable
page on that service, which is commonly referred to as Telerate Page 5.
The following procedures will be followed if the federal funds (open) rate
cannot be determined as described above:
o If the above rate is not published by 3:00 p.m., New York City time,
on the calculation date, the federal funds (open) rate will be the
rate on that interest determination date as published in the H.15
Daily Update, or other recognized electronic source used for the
purpose of displaying the applicable rate, under the heading "Federal
Funds (Open)."
o If the above rate is not yet published in either H.15(519) or the H.15
Daily Update, or other recognized electronic source used for the
purpose of displaying the applicable rate, by 3:00 p.m., New York City
time, on the calculation date, the calculation agent will determine
the federal funds (open) rate to be the arithmetic mean of the rates
for the last transaction in overnight U.S. dollar federal funds (based
on the federal funds (open) rate) prior to 9:00 a.m., New York City
time, on that interest determination date, by
24
each of three leading brokers of U.S. dollar federal funds
transactions in The City of New York, which may include the agent and
its affiliates, selected by the calculation agent, after consultation
with us.
o If the brokers selected by the calculation agent are not quoting as
set forth above, the federal funds (open) rate for that interest
determination date will remain the federal funds (open) rate for the
immediately preceding interest reset period, or, if there was no
interest reset period, the rate of interest payable will be the
initial interest rate.
LIBOR Debt Securities. LIBOR debt securities will bear interest at the
interest rates specified in the LIBOR debt securities and in the applicable
prospectus supplement. That interest rate will be based on London Interbank
Offered Rate, which is commonly referred to as "LIBOR," and any spread
and/or spread multiplier and will be subject to the minimum interest rate
and the maximum interest rate, if any.
The calculation agent will determine LIBOR for each interest determination
date as follows:
o As of the interest determination date, LIBOR will be either:
o if "LIBOR Reuters" is specified in the applicable prospectus
supplement, the arithmetic mean of the offered rates for deposits
in the index currency having the index maturity designated in the
applicable prospectus supplement, commencing on the second London
banking day immediately following that interest determination
date, that appear on the Designated LIBOR Page, as defined below,
as of 11:00 a.m., London time, on that interest determination
date, if at least two offered rates appear on the Designated
LIBOR Page; except that if the specified Designated LIBOR Page,
by its terms provides only for a single rate, that single rate
will be used; or
o if "LIBOR Telerate" is specified in the applicable prospectus
supplement, the rate for deposits in the index currency having
the index maturity designated in the applicable prospectus
supplement, commencing on the second London banking day
immediately following that interest determination date or, if
pounds sterling is the index currency, commencing on that
interest determination date, that appears on the Designated LIBOR
Page at approximately 11:00 a.m., London time, on that interest
determination date.
o If (i) fewer than two offered rates appear and "LIBOR Reuters" is
specified in the applicable prospectus supplement, or (ii) no rate
appears and the applicable prospectus supplement specifies either (a)
"LIBOR Telerate" or (b) "LIBOR Reuters" and the Designated LIBOR Page
by its terms provides only for a single rate, then the calculation
agent will request the principal London offices of each of four major
reference banks in the London interbank market, as selected by the
calculation agent after consultation with us, to provide the
calculation agent with its offered quotation for deposits in the index
currency for the period of the index maturity specified in the
applicable prospectus supplement commencing on the second London
banking day immediately following the interest determination date or,
if pounds sterling is the index currency, commencing on that interest
determination date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on that interest determination
date and in a principal amount that is representative of a single
transaction in that index currency in that market at that time.
o If at least two quotations are provided, LIBOR determined on that
interest determination date will be the arithmetic mean of those
quotations. If fewer than two quotations are provided, LIBOR will be
determined for the applicable interest reset date as the arithmetic
mean of the rates quoted at approximately 11:00 a.m., London time, or
some other time specified in the applicable prospectus supplement, in
the applicable principal financial center for the country of the index
currency on that interest reset date, by three major banks in that
principal financial center selected by the calculation agent, after
consultation with us, for loans in the index currency to leading
European banks, having the index maturity specified in the applicable
prospectus supplement and in a principal amount that is representative
of a single transaction in that index currency in that market at that
time.
25
o If the banks so selected by the calculation agent are not quoting as
set forth above, LIBOR for that interest determination date will
remain LIBOR for the immediately preceding interest reset period, or,
if there was no interest reset period, the rate of interest payable
will be the initial interest rate.
The "index currency" means the currency specified in the applicable
prospectus supplement as the currency for which LIBOR will be calculated, or, if
the euro is substituted for that currency, the index currency will be the euro.
If that currency is not specified in the applicable prospectus supplement, the
index currency will be U.S. dollars.
"Designated LIBOR Page" means either (i) if "LIBOR Reuters" is designated
in the applicable prospectus supplement, the display on the Reuters Money 3000
Service for the purpose of displaying the London interbank rates of major banks
for the applicable index currency or its designated successor, or (ii) if "LIBOR
Telerate" is designated in the applicable prospectus supplement, the display on
Moneyline Telerate, or any successor service, on the page specified in the
applicable prospectus supplement, or any other page as may replace that page on
that service, for the purpose of displaying the London interbank rates of major
banks for the applicable index currency.
If neither LIBOR Reuters nor LIBOR Telerate is specified in the applicable
prospectus supplement, LIBOR for the applicable index currency will be
determined as if LIBOR Telerate were specified, and, if the U.S. dollar is the
index currency, as if Page 3750, had been specified.
Prime Rate Debt Securities. Prime rate debt securities will bear interest
at the interest rates specified in the prime rate debt securities and in
the applicable prospectus supplement. That interest rate will be based on
the prime rate and any spread and/or spread multiplier, and will be subject
to the minimum interest rate and the maximum interest rate, if any.
The "prime rate" means, for any interest determination date, the rate on
that date as published in H.15(519) under the heading "Bank Prime Loan."
The following procedures will be followed if the prime rate cannot be
determined as described above:
o If the above rate is not published prior to 3:00 p.m., New York City
time, on the calculation date, then the prime rate will be the rate on
that interest determination date as published in H.15 Daily Update
under the heading "Bank Prime Loan."
o If the rate is not published in either H.15(519) or the H.15 Daily
Update by 3:00 p.m., New York City time, on the calculation date, then
the calculation agent will determine the prime rate to be the
arithmetic mean of the rates of interest publicly announced by each
bank that appears on the Reuters Screen USPRIME 1 Page, as defined
below, as that bank's prime rate or base lending rate as in effect for
that interest determination date.
o If fewer than four rates for that interest determination date appear
on the Reuters Screen USPRIME 1 Page by 3:00 p.m., New York City time,
on the calculation date, the calculation agent will determine the
prime rate to be the arithmetic mean of the prime rates quoted on the
basis of the actual number of days in the year divided by 360 as of
the close of business on that interest determination date by at least
three major banks in The City of New York, which may include
affiliates of the agent, selected by the calculation agent, after
consultation with us.
o If the banks selected by the calculation agent are not quoting as set
forth above, the prime rate for that interest determination date will
remain the prime rate for the immediately preceding interest reset
period, or, if there was no interest reset period, the rate of
interest payable will be the initial interest rate.
"Reuters Screen USPRIME 1 Page" means the display designated as page
"USPRIME 1" on the Reuters Money 3000 Service, or any successor service, or any
other page as may replace the USPRIME 1 Page on that service for the purpose of
displaying prime rates or base lending rates of major U.S. banks.
Treasury Rate Debt Securities. Treasury rate debt securities will bear
interest at the interest rates specified in the Treasury rate debt
securities and in the applicable prospectus supplement. That interest rate
will be based
26
on the Treasury rate and any spread and/or spread multiplier and will be
subject to the minimum interest rate and the maximum interest rate, if any.
The "Treasury rate" means:
o the rate from the auction held on the applicable interest
determination date, which we refer to as the "auction," of direct
obligations of the United States, which are commonly referred to as
"Treasury Bills," having the index maturity specified in the
applicable prospectus supplement as that rate appears under the
caption "INVESTMENT RATE" on the display on Moneyline Telerate, or any
successor service, on page 56 or any other page as may replace page 56
on that service, which we refer to as "Telerate Page 56," or page 57
or any other page as may replace page 57 on that service, which we
refer to as "Telerate Page 57"; or
o if the rate described in the first bullet point is not published by
3:00 p.m., New York City time, on the calculation date, the bond
equivalent yield of the rate for the applicable Treasury Bills as
published in the H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate, under
the caption "U.S. Government Securities/Treasury Bills/Auction High";
or
o if the rate described in the second bullet point is not published by
3:00 p.m., New York City time, on the related calculation date, the
bond equivalent yield of the auction rate of the applicable Treasury
Bills, announced by the United States Department of the Treasury; or
o if the rate referred to in the third bullet point is not announced by
the United States Department of the Treasury, or if the auction is not
held, the bond equivalent yield of the rate on the applicable interest
determination date of Treasury Bills having the index maturity
specified in the applicable prospectus supplement published in
H.15(519) under the caption "U.S. Government Securities/Treasury
Bills/Secondary Market"; or
o if the rate referred to in the fourth bullet point is not so published
by 3:00 p.m., New York City time, on the related calculation date, the
rate on the applicable interest determination date of the applicable
Treasury Bills as published in H.15 Daily Update, or other recognized
electronic source used for the purpose of displaying the applicable
rate, under the caption "U.S. Government Securities/Treasury
Bills/Secondary Market"; or
o if the rate referred to in the fifth bullet point is not so published
by 3:00 p.m., New York City time, on the related calculation date, the
rate on the applicable interest determination date calculated by the
calculation agent as the bond equivalent yield of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 p.m., New
York City time, on the applicable interest determination date, of
three primary U.S. government securities dealers, which may include
the agent and its affiliates, selected by the calculation agent, for
the issue of Treasury Bills with a remaining maturity closest to the
index maturity specified in the applicable prospectus supplement; or
o if the dealers selected by the calculation agent are not quoting as
set forth above, the Treasury rate for that interest determination
date will remain the Treasury rate for the immediately preceding
interest reset period, or, if there was no interest reset period, the
rate of interest payable will be the initial interest rate.
The "bond equivalent yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D x N
bond equivalent yield = --------------- x 100
360 - (D x M)
27
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the interest period for which interest is
being calculated.
CMT Rate Debt Securities. CMT rate debt securities will bear interest at
the interest rates specified in the CMT rate debt securities and in the
applicable prospectus supplement. That interest rate will be based on the
CMT rate and any spread and/or spread multiplier and will be subject to the
minimum interest rate and the maximum interest rate, if any.
The "CMT rate" means, for any interest determination date, the rate
displayed on the Designated CMT Telerate Page, as defined below, under the
caption "... Treasury Constant Maturities ... Federal Reserve Board Release
H.15... Mondays Approximately 3:45 p.m.," under the column for the Designated
CMT Maturity Index, as defined below, for:
o the rate on that interest determination date, if the Designated CMT
Telerate Page is 7051; and
o the week or the month, as applicable, ended immediately preceding the
week in which the related interest determination date occurs, if the
Designated CMT Telerate Page is 7052.
The following procedures will be followed if the CMT rate cannot be
determined as described above:
o If the above rate is no longer displayed on the relevant page, or if
not displayed by 3:00 p.m., New York City time, on the related
calculation date, then the CMT rate will be the Treasury Constant
Maturity rate for the Designated CMT Maturity Index as published in
the relevant H.15(519).
o If the above rate described in the first bullet point is no longer
published, or if not published by 3:00 p.m., New York City time, on
the related calculation date, then the CMT rate will be the Treasury
Constant Maturity rate for the Designated CMT Maturity Index or other
U.S. Treasury rate for the Designated CMT Maturity Index on the
interest determination date as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of the Treasury that the calculation agent determines to be
comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519).
o If the information described in the second bullet point is not
provided by 3:00 p.m., New York City time, on the related calculation
date, then the calculation agent will determine the CMT rate to be a
yield to maturity, based on the arithmetic mean of the secondary
market closing offer side prices as of approximately 3:30 p.m., New
York City time, on the interest determination date, reported,
according to their written records, by three leading primary U.S.
government securities dealers, which we refer to as a "reference
dealer," in The City of New York, which may include the agent or
another affiliate of ours, selected by the calculation agent as
described in the following sentence. The calculation agent will select
five reference dealers, after consultation with us, and will eliminate
the highest quotation or, in the event of equality, one of the
highest, and the lowest quotation or, in the event of equality, one of
the lowest, for the most recently issued direct noncallable fixed rate
obligations of the United States, which are commonly referred to as
"Treasury notes," with an original maturity of approximately the
Designated CMT Maturity Index, a remaining term to maturity of no more
than 1 year shorter than that Designated CMT Maturity Index and in a
principal amount that is representative for a single transaction in
the securities in that market at that time. If two Treasury notes with
an original maturity as described above have remaining terms to
maturity equally close to the Designated CMT Maturity Index, the
quotes for the Treasury note with the shorter remaining term to
maturity will be used.
o If the calculation agent cannot obtain three Treasury notes quotations
as described in the immediately preceding sentence, the calculation
agent will determine the CMT rate to be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 p.m., New York City time, on the interest
determination date of three reference dealers in The City of New York,
selected using the same method described in the immediately preceding
sentence, for Treasury notes with an original maturity equal to the
number of years closest to but not less than the Designated CMT
Maturity Index and a
28
remaining term to maturity closest to the Designated CMT Maturity
Index and in a principal amount that is representative for a single
transaction in the securities in that market at that time.
o If three or four, and not five, of the reference dealers are quoting
as described above, then the CMT rate will be based on the arithmetic
mean of the offer prices obtained and neither the highest nor the
lowest of those quotes will be eliminated.
o If fewer than three reference dealers selected by the calculation
agent are quoting as described above, the CMT rate for that interest
determination date will remain CMT rate for the immediately preceding
interest reset period, or, if there was no interest reset period, the
rate of interest payable will be the initial interest rate.
"Designated CMT Telerate Page" means the display on Moneyline Telerate, or
any successor service, on the page designated in the applicable prospectus
supplement or any other page as may replace that page on that service for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no page is specified in the applicable prospectus supplement, the Designated CMT
Telerate Page will be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities, which is either 1, 2, 3, 5, 7, 10, 20 or 30 years,
as specified in the applicable prospectus supplement, for which the CMT rate
will be calculated. If no maturity is specified in the applicable prospectus
supplement, the Designated CMT Maturity Index will be two years.
Redemption and Repurchase of Debt Securities
Optional Redemption by Morgan Stanley. If applicable, the prospectus
supplement will indicate the terms of our option to redeem the debt securities.
Notice of Redemption. We will mail a notice of redemption to each holder
or, in the case of global debt securities, to the Depositary, as holder of the
global debt securities, by first-class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption, or within the
redemption notice period designated in the applicable prospectus supplement, to
the address of each holder as that address appears upon the books maintained by
the paying agent. The debt securities, except for amortizing debt securities,
will not be subject to any sinking fund.
Optional Make-whole Redemption of Debt Securities. If specified in the
applicable prospectus supplement, we may redeem any such debt securities in
whole at any time or in part from time to time, at our option, at a
make-whole redemption price equal to the greater of:
o 100% of the principal amount of the debt securities to be redeemed,
and
o the sum of the present values of the remaining scheduled payments of
principal and interest on the debt securities to be redeemed (not
including any portion of such payments of interest accrued to the date
of redemption) discounted to the date of redemption on a semiannual
basis (assuming, unless otherwise specified in the applicable
prospectus supplement, a 360-day year consisting of twelve 30-day
months) at the treasury rate, plus a spread as indicated in the
applicable prospectus supplement, as calculated by the premium
calculation agent (as defined below);
plus, in either case, accrued and unpaid interest on the principal
amount being redeemed to the redemption date.
"treasury rate" means, with respect to any redemption date:
o the yield, under the heading that represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor
publication that is published weekly by the Board of Governors of the
Federal Reserve System and that establishes yields on actively traded
U.S. Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding
to the comparable treasury issue (if no maturity is within three
29
months before or after the remaining life (as defined below), yields
for the two published maturities most closely corresponding to the
comparable treasury issue will be determined and the treasury rate
will be interpolated or extrapolated from such yields on a
straight-line basis, rounding to the nearest month); or
o if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semiannual equivalent yield to
maturity of the comparable treasury issue, calculated using a price
for the comparable treasury issue (expressed as a percentage of its
principal amount) equal to the comparable treasury price for such
redemption date.
The treasury rate will be calculated on the third business day preceding
the redemption date.
We will mail a notice of redemption to the Depositary, as holder of the
debt securities by first-class mail at least 30 and not more than 60 days prior
to the date fixed for redemption in such notice, or within such other notice
period as may be indicated in the applicable prospectus supplement. Unless we
default on payment of the redemption price, interest will cease to accrue on the
debt securities or portions thereof called for redemption on the applicable
redemption date. If fewer than all of the debt securities of a particular series
of debt securities are to be redeemed, the trustee will select, not more than 60
days (or such other indicated period) prior to the redemption date, the
particular debt securities or portions thereof for redemption from the
outstanding debt securities of such series not previously called for redemption
by such method as the trustee deems fair and appropriate.
"premium calculation agent" means Morgan Stanley & Co. Incorporated, or if
that firm is unwilling or unable to select the comparable treasury issue, an
investment banking institution of national standing appointed by the trustee
after consultation with us.
"comparable treasury issue" means the U.S. Treasury security selected by
the premium calculation agent as having a maturity comparable to the remaining
term ("remaining life") of the debt securities to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such debt securities to be redeemed.
"comparable treasury price" means, with respect to a redemption date (1)
the average of five reference treasury dealer quotations for such redemption
date, after excluding the highest and lowest reference treasury dealer
quotations, or (2) if the premium calculation agent obtains fewer than five such
reference treasury dealer quotations, the average of all such quotations.
"reference treasury dealer" means (1) Morgan Stanley & Co. Incorporated and
its successors, provided, however, that if the foregoing shall cease to be a
primary U.S. government securities dealer in New York City (a "primary treasury
dealer") we will substitute therefor another primary treasury dealer and (2) any
other primary treasury dealers selected by the premium calculation agent after
consultation with us.
"reference treasury dealer quotations" means, with respect to each
reference treasury dealer and any redemption date, the average, as determined by
the premium calculation agent, of the bid and asked prices for the comparable
treasury issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the premium calculation agent at 5:00 p.m., New York City
time, on the third business day preceding such redemption date.
Because Morgan Stanley & Co. Incorporated is our affiliate, the economic
interests of Morgan Stanley & Co. Incorporated may be adverse to your interests
as an owner of the debt securities subject to our redemption, including with
respect to certain determinations and judgments that it must make as premium
calculation agent in the event we redeem such debt securities before their
maturity. Morgan Stanley & Co. Incorporated is obligated to carry out its duties
and functions as premium calculation agent in good faith and using its
reasonable judgment.
We will notify the relevant trustee of the redemption price promptly after
the calculation thereof and such trustee will have no responsibility for
calculating the redemption price.
Repayment at Option of Holder. If applicable, the prospectus supplement
relating to a series of debt securities will indicate that the holder has the
option to have us repay the debt security on a date or dates specified prior to
its maturity date. The repayment price will be equal to 100% of the principal
amount of the debt security, together with
30
accrued interest to the date of repayment. For debt securities issued with
original issue discount, the prospectus supplement will specify the amount
payable upon repayment.
For us to repay a debt security, the paying agent must receive at least 15
days but not more than 30 days prior to the repayment date:
o the debt security with the form entitled "Option to Elect Repayment"
on the reverse of the debt security duly completed; or
o a telegram, telex, facsimile transmission or a letter from a member of
a national securities exchange, or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the
United States setting forth the name of the holder of the debt
security, the principal amount of the debt security, the principal
amount of the debt security to be repaid, the certificate number or a
description of the tenor and terms of the debt security, a statement
that the option to elect repayment is being exercised and a guarantee
that the debt security to be repaid, together with the duly completed
form entitled "Option to Elect Repayment" on the reverse of the debt
security, will be received by the paying agent not later than the
fifth business day after the date of that telegram, telex, facsimile
transmission or letter. However, the telegram, telex, facsimile
transmission or letter will only be effective if that debt security
and form duly completed are received by the paying agent by the fifth
business day after the date of that telegram, telex, facsimile
transmission or letter.
Exercise of the repayment option by the holder of a debt security will be
irrevocable. The holder may exercise the repayment option for less than the
entire principal amount of the debt security but, in that event, the principal
amount of the debt security remaining outstanding after repayment must be an
authorized denomination.
Special Requirements for Optional Repayment of Global Debt Securities. If a
debt security is represented by a global debt security, the Depositary or the
Depositary's nominee will be the holder of the debt security and therefore will
be the only entity that can exercise a right to repayment. In order to ensure
that the Depositary's nominee will timely exercise a right to repayment of a
particular debt security, the beneficial owner of the debt security must
instruct the broker or other direct or indirect participant through which it
holds an interest in the debt security to notify the Depositary of its desire to
exercise a right to repayment. Different firms have different cut-off times for
accepting instructions from their customers and, accordingly, each beneficial
owner should consult the broker or other direct or indirect participant through
which it holds an interest in a debt security in order to ascertain the cut-off
time by which an instruction must be given in order for timely notice to be
delivered to the Depositary.
Open Market Purchases by Morgan Stanley. We may purchase debt securities at
any price in the open market or otherwise. Debt securities so purchased by us
may, at our discretion, be held or resold or surrendered to the relevant trustee
for cancellation.
Indentures
Debt securities that will be senior debt will be issued under a Senior
Indenture dated as of November 1, 2004 between Morgan Stanley and JPMorgan Chase
Bank, N.A. (formerly known as JPMorgan Chase Bank) as trustee. We call that
indenture, as it may be supplemented from time to time, the Senior Debt
Indenture. Debt securities that will be subordinated debt will be issued under a
Subordinated Indenture dated as of October 1, 2004 between Morgan Stanley and
J.P. Morgan Trust Company, National Association, as trustee. We call that
indenture, as it may be supplemented from time to time, the Subordinated Debt
Indenture. We refer to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan
Chase Bank) and J.P. Morgan Trust Company, National Association, individually as
a "trustee" and collectively as the "trustees."
Subordination Provisions
Holders of subordinated debt securities should recognize that contractual
provisions in the Subordinated Debt Indenture may prohibit us from making
payments on these securities. Subordinated debt securities are subordinate and
junior in right of payment, to the extent and in the manner stated in the
Subordinated Debt Indenture, to all of our senior indebtedness. The Subordinated
Debt Indenture defines senior indebtedness as (i) obligations of, or
31
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 and (ii) if provided in the supplemental indenture under which a
series of debt securities is issued or in the form of debt security for such
series, any additional obligations that Morgan Stanley determines to include
within the definition of senior indebtedness in order to assure that the debt
securities of such series will be accorded the regulatory capital recognition
desired by Morgan Stanley in accordance with Rule 15c3-1 under the Securities
Exchange Act of 1934, as amended, or any other rule or regulation governing the
definition of capital that is applicable to Morgan Stanley or its affiliates.
Nonrecourse obligations, the subordinated debt securities and any other
obligations specifically designated as being subordinate in right of payment to
senior indebtedness are not senior indebtedness as defined under the
Subordinated Debt Indenture. (Subordinated Debt Indenture, Section 1.01).
The Subordinated Debt 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 subordinated debt securities 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 subordinated debt
securities have been declared due and payable upon an event of default
as defined under the Subordinated Debt Indenture and that declaration
has not been rescinded and annulled as provided under the Subordinated
Debt Indenture. (Subordinated Debt Indenture, Section 13.01).
We currently have outstanding subordinated debt securities, which were
issued under an amended and restated subordinated indenture, dated May 1, 1999,
between us and J.P. Morgan Trust Company, National Association (as successor in
interest to Bank One Trust Company, N.A., successor to The First National Bank
of Chicago) as trustee, with terms and conditions substantially similar to those
of the subordinated debt securities described in this prospectus. At August 31,
2005, there was $4 billion aggregate principal amount of such subordinated debt
securities outstanding. Those subordinated debt securities contain certain
acceleration provisions that could be triggered prior to the acceleration
provisions of the subordinated debt securities described in this prospectus.
Accordingly, the outstanding amount of those subordinated debt securities could
become due and payable by acceleration prior to the subordinated debt securities
described in this prospectus.
Covenants Restricting Pledges, Mergers and Other Significant Corporate Actions
Negative Pledge. Because we are a holding company, our assets consist
primarily of the securities of our subsidiaries. The negative pledge provisions
of the Senior Debt Indenture limit our ability to pledge some of these
securities. The Senior Debt Indenture provides that we will not, and will not
permit any subsidiary to, create, assume, incur or guarantee any indebtedness
for borrowed money that is secured by a pledge, lien or other encumbrance except
for liens specifically permitted by the Senior Debt Indenture on:
o the voting securities of Morgan Stanley & Co. Incorporated, Morgan
Stanley & Co. International Limited, Morgan Stanley DW Inc., Discover
Bank or any subsidiary succeeding to any substantial part of the
business now conducted by any of those corporations, which we refer to
collectively as the "principal subsidiaries," or
o the voting securities of a subsidiary that owns, directly or
indirectly, the voting securities of any of the principal
subsidiaries, other than directors' qualifying shares,
32
without making effective provisions so that the debt securities issued under the
Senior Debt Indenture will be secured equally and ratably with indebtedness so
secured.
For these purposes, "subsidiary" means any corporation, partnership or
other entity of which at the time of determination we own or control directly or
indirectly more than 50% of the shares of the voting stock or equivalent
interest, and "voting securities" means stock of any class or classes having
general voting power under ordinary circumstances to elect a majority of the
board of directors, managers or trustees of the relevant subsidiary, other than
stock that carries only the conditional right to vote upon the happening of an
event, whether or not that event has happened. (Senior Debt Indenture, Section
3.06).
The Subordinated Debt Indenture does not include negative pledge
provisions.
Merger, Consolidation, Sale, Lease or Conveyance. Each 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:
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 debt securities 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. (Indentures, Section 9.01).
Absence of Protections against All Potential Actions of Morgan Stanley.
There are no covenants or other provisions in the indentures that would afford
holders of debt securities 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 debt securities, which we would describe in
the applicable prospectus supplement.
Events of Default
The indentures provide holders of debt securities with remedies if we fail
to perform specific obligations 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. Each indenture permits the issuance of debt securities
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 Senior Debt Indenture, with
respect to any series of debt securities issued under that indenture, as being:
o default in payment of any principal of the debt securities 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 debt securities
of that series;
o default for 60 days after written notice in the observance or
performance of any covenant or agreement in the debt securities of
that series or the indenture (other than a covenant or warranty with
respect to the debt securities of that series the breach or
nonperformance of which is otherwise included in the definition of
"event of default");
33
o events of bankruptcy, insolvency or reorganization; or
o any other event of default provided in the supplemental indenture
under which that series of debt securities is issued. (Senior Debt
Indenture, Section 5.01).
An event of default is defined under the Subordinated Debt Indenture, with
respect to any series of debt securities issued under that indenture, as being:
o events of bankruptcy, insolvency or reorganization; or
o any other event of default provided in the supplemental indenture
under which that series of debt securities is issued. (Subordinated
Debt Indenture, Section 5.01).
Unless otherwise stated in the applicable prospectus supplement, the debt
securities issued under either indenture will not have the benefit of any
cross-default or cross-acceleration provisions with our other indebtedness.
Acceleration of Debt Securities upon an Event of Default. The Senior Debt
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 debt securities issued
under that indenture, or due to the default in the performance or
breach of any other covenant or warranty of Morgan Stanley applicable
to the debt securities of that series but not applicable to all
outstanding debt securities issued under that indenture occurs and is
continuing, either the trustee or the holders of not less than 25% in
aggregate principal amount of the outstanding debt securities of each
affected series, voting as one class, by notice in writing to Morgan
Stanley and to the trustee, if given by security holders, may declare
the principal of all debt securities of all 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 that indenture applicable to all
outstanding debt securities issued under that 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
debt securities issued under that indenture, voting as one class, by
notice in writing to Morgan Stanley and to the trustee, if given by
security holders, may declare the principal of all those debt
securities and interest accrued thereon to be due and payable
immediately. (Senior Debt Indenture, Section 5.01).
The Subordinated Debt Indenture provides that:
o if an event of default applicable to the debt securities of that
series but not applicable to all outstanding debt securities issued
under that indenture occurs and is continuing, either the trustee or
the holders of not less than 25% in aggregate principal amount of the
outstanding debt securities of each affected series, voting as one
class, by notice in writing to Morgan Stanley and to the trustee, if
given by security holders, may declare the principal of all debt
securities of all affected series and interest accrued thereon to be
due and payable immediately; and
o if an event of default due to specified events of bankruptcy,
insolvency or reorganization of Morgan Stanley, occurs and is
continuing, or if an event of default applicable to all outstanding
debt securities issued under that indenture is provided in the
supplemental indenture under which such series of debt securities is
issued or in the form of debt securities for such series and such
event of default has occurred and is continuing, either the trustee or
the holders of not less than 25% in aggregate principal amount of all
outstanding debt securities issued under that indenture, voting as one
class, by notice in writing to Morgan Stanley and to the trustee, if
given by security holders, may declare the principal of all those debt
securities and interest accrued thereon to be due and payable
immediately. (Subordinated Debt Indenture, Section 5.01).
Annulment of Acceleration and Waiver of Defaults. The Senior Debt Indenture
provides that:
34
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 debt securities affected, voting as one class, may
waive past defaults and rescind and annul past declarations of acceleration of
the debt securities. (Senior Debt Indenture, Section 5.01).
Prior to the acceleration of any debt securities, the holders of a majority
in aggregate principal amount of all series of outstanding debt securities with
respect to which an event of default has occurred and is continuing, voting as
one class, may waive any past default or event of default, other than a default
in the payment of principal or interest (unless such default has been cured and
an amount sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the trustee) or a
default in respect of a covenant or provision in the indenture that cannot be
modified or amended without the consent of the holder of each debt security
affected. (Senior Debt Indenture, Section 5.10).
The Subordinated Debt Indenture provides that:
In some circumstances, if any and all defaults (as defined below) 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 debt securities affected, voting as one class, may
waive past defaults and rescind and annul past declarations of acceleration of
the debt securities. (Subordinated Debt Indenture, Section 5.01).
Prior to the acceleration of any debt securities, the holders of a majority
in aggregate principal amount of all series of outstanding debt securities with
respect to which a default has occurred and is continuing, voting as one class,
may waive any past default, other than a default in the payment of principal or
interest (unless such default has been cured and an amount sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the trustee) or a default in respect of a
covenant or provision in the indenture that cannot be modified or amended
without the consent of the holder of each debt security affected. (Subordinated
Debt Indenture, Section 5.10).
Defaults. In the case of the Subordinated Debt Indenture, a default is
defined, with respect to any series of debt securities issued under that
indenture, as being:
o default in payment of any principal of the debt securities 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 debt securities
of that series;
o default for 60 days after written notice in the observance or
performance of any covenant or agreement in the debt securities of
that series or the indenture (other than a covenant or warranty with
respect to the debt securities of that series the breach or
nonperformance of which is otherwise included in the definition of
"event of default" or "default");
o an event of default with respect such series of debt securities; or
o any other default provided in the supplemental indenture under which
that series of debt securities is issued. (Subordinated Debt
Indenture, Section 5.06).
There will be no event of default, and therefore no right of acceleration,
in the case of a default in the performance of any covenant or obligation with
respect to the debt securities issued under the Subordinated Debt Indenture,
including a default in the payment of principal or interest. If a default in the
payment of principal of, or any interest on, any series of debt securities
issued under the Subordinated Debt Indenture occurs and is continuing and we
fail to pay the full amount then due and payable with respect to all debt
securities of the affected series immediately upon the demand of the trustee,
the trustee is entitled to institute an action or proceeding to collect the
amount due and unpaid. (Subordinated Debt Indenture, Section 5.02). If any
default occurs and is continuing, the trustee may pursue legal action to enforce
the performance of any provision in the indenture to protect the rights of
35
the trustee and the holders of the debt securities issued under the Subordinated
Debt Indenture. (Subordinated Debt Indenture, Section 5.04).
Indemnification of Trustee for Actions Taken on Your Behalf. Each indenture
contains a provision entitling the trustee, subject to the duty of the trustee
during a default to act with the required standard of care, to be indemnified by
the holders of debt securities issued under that indenture before proceeding to
exercise any trust or power at the request of holders. (Indentures, 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 debt
securities 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 trustee. (Indentures,
Section 5.09).
Limitation on Actions by You as an Individual Holder. Each indenture
provides that no individual holder of debt securities 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 debt securities of each affected series, treated as one
class, must have (1) requested the trustee to institute that action
and (2) offered the trustee reasonable indemnity;
o the 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 debt
securities of each affected series, voting as one class, must not have
given directions to the trustee inconsistent with those of the holders
referred to above. (Indentures, Sections 5.06 and 5.09).
Annual Certification. Each indenture contains a covenant that we will file
annually with the trustee a certificate of no default or a certificate
specifying any default that exists. (Indentures, Section 3.05).
Discharge, Defeasance and Covenant Defeasance
We have the ability to eliminate most or all of our obligations on any
series of debt securities prior to maturity if we comply with the following
provisions. (Indentures, Section 10.01).
Discharge of Indenture. If at any time we have:
o paid or caused to be paid the principal of and interest on all of the
outstanding debt securities in accordance with their terms;
o delivered to the applicable trustee for cancellation all of the
outstanding debt securities; or
o irrevocably deposited with the applicable trustee cash or, in the case
of a series of debt securities payable only in U.S. dollars, U.S.
government obligations in trust for the benefit of the holders of any
series of debt securities issued under the Indenture that have either
become due and payable, or are by their terms due and payable within
one year 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 debt securities;
and if, in any such case, we also pay or cause to be paid all other sums payable
by us under the indenture with respect to the securities of such series, then
the indenture shall cease to be of further effect with respect to the securities
of such series, except as to certain rights and with respect to the transfer and
exchange of securities, rights of the holders to receive payment and certain
other rights and except that the deposit of cash or U.S. government obligations
for the benefit of holders of a series of debt securities that are due and
payable or are due and payable within one year or are scheduled for redemption
within one year will discharge obligations under the relevant indenture relating
only to that series of debt securities.
36
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 debt securities at any time, which we refer to as "defeasance."
We may be released with respect to any outstanding series of debt
securities from the obligations imposed by Sections 3.06 (in the case of the
Senior Debt Indenture) and 9.01, which sections contain the covenants described
above limiting liens and consolidations, mergers, asset sales and leases, and
elect not to comply with those sections without creating an event of default or
a default. Discharge under those procedures is called "covenant defeasance."
Defeasance or covenant defeasance may be effected only if, among other
things:
o We irrevocably deposit with the relevant trustee cash or, in the case
of debt securities payable only in U.S. dollars, U.S. government
obligations, as trust funds in an amount certified to be sufficient to
pay on each date that they become due and payable or a combination of
the above sufficient to pay the principal of and interest on, and any
mandatory sinking fund payments for, all outstanding debt securities
of the series being defeased.
o We deliver to the relevant trustee an opinion of counsel to the effect
that:
o the holders of the series of debt securities being defeased will
not recognize income, gain or loss for U.S. 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' U.S. federal income tax treatment of principal and
interest payments on the series of debt securities 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 U.S. federal income tax
law occurring after the date of this prospectus, since that result
would not occur under current tax law.
o In the case of the Subordinated Debt Indenture:
o no event or condition will exist that, under the provisions
described under "--Subordination Provisions" above, would prevent
us from making payments of principal or interest on the
subordinated debt securities at the date of the irrevocable
deposit referred to above or at any time during the period ending
on the 91st day after that deposit date; and
o we deliver to the trustee for the Subordinated Debt Indenture an
opinion of counsel to the effect that (i) the trust funds will
not be subject to any rights of holders of senior indebtedness
and (ii) 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 relevant trustee and the holders
of the subordinated debt securities would be entitled to some
enumerated rights as secured creditors in the trust funds.
(Subordinated Debt Indenture, Section 10.01).
Modification of the Indentures
Modification Without Consent of Holders. We and the relevant trustee may
enter into supplemental indentures without the consent of the holders of debt
securities issued under a particular indenture to:
o secure any debt securities;
o evidence the assumption by a successor corporation of our obligations;
o add covenants for the protection of the holders of debt securities;
o cure any ambiguity or correct any inconsistency;
37
o establish the forms or terms of debt securities of any series; or
o evidence the acceptance of appointment by a successor trustee.
(Indentures, Section 8.01).
Modification with Consent of Holders. We and the applicable trustee, with
the consent of the holders of not less than a majority in aggregate principal
amount of each affected series of outstanding debt securities, voting as one
class, may add any provisions to, or change in any manner or eliminate any of
the provisions of, the applicable indenture or modify in any manner the rights
of the holders of those debt securities. However, we and the trustee may not
make any of the following changes to any outstanding debt security 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 modify or amend the provisions for conversion of any currency into
another currency;
o reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy;
o alter the terms on which holders of the debt securities may convert or
exchange debt securities for stock or other securities of Morgan
Stanley or of other entities or for other property or the cash value
of the property, other than in accordance with the antidilution
provisions or other similar adjustment provisions included in the
terms of the debt securities;
o alter certain provisions of the relevant indenture relating to debt
securities not denominated in U.S. dollars;
o impair the right of any holder to institute suit for the enforcement
of any payment on any debt security when due; or
o reduce the percentage of debt securities the consent of whose holders
is required for modification of the relevant indenture. (Indentures,
Section 8.02).
Modification of Subordination Provisions. We may not amend the Subordinated
Debt Indenture to alter the subordination of any outstanding subordinated debt
securities without the written consent of each potentially adversely affected
holder of senior indebtedness then outstanding. (Subordinated Debt Indenture,
Section 8.06).
Replacement of Debt Securities
At the expense of the holder, we may, in our discretion, replace any debt
securities that become mutilated, destroyed, lost or stolen or are apparently
destroyed, lost or stolen. The mutilated debt securities must be delivered to
the applicable trustee, the paying agent and the registrar, in the case of
registered debt securities, or satisfactory evidence of the destruction, loss or
theft of the debt securities must be delivered to us, the paying agent, the
registrar, in the case of registered debt securities, and the applicable
trustee. At the expense of the holder, an indemnity that is satisfactory to us,
the principal paying agent, the registrar, in the case of registered debt
securities, and the applicable trustee may be required before a replacement debt
security will be issued.
38
Concerning Our Relationship with the Trustees
We and our subsidiaries maintain ordinary banking relationships and credit
facilities with JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase
Bank), which is an affiliate of J.P. Morgan Trust Company, National Association.
Governing Law
The debt securities and the indentures will be governed by, and construed
in accordance with, the laws of the State of New York.
Predecessor Indentures
From time to time we may reopen previous issuances of our debt securities
issued pursuant to earlier predecessor indentures. Any such senior debt security
reopening would be issued under an Amended and Restated Senior Indenture dated
as of May 1, 1999 between us and JPMorgan Chase Bank, N.A. (formerly known as
The Chase Manhattan Bank), as trustee. Any such subordinated debt security
reopening would be issued under an Amended and Restated Subordinated Indenture
dated as of May 1, 1999 between us and J.P. Morgan Trust Company, National
Association, as successor in interest to The First National Bank of Chicago, as
trustee. We call these indentures, as they may be supplemented from time to
time, the "predecessor indentures."
The predecessor indentures have terms identical to the terms of the
indentures in all material respects; provided that the indentures also include
the following provisions. The predecessor indentures include an event of default
upon our failure to make any payment at maturity, including any applicable grace
period, on other 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 applicable trustee, or to us and the applicable trustee by
the holders of not less than 25% in aggregate principal amount of the
outstanding debt securities, treated as one class, issued under the indentures.
The predecessor indentures also include an event of default upon a default with
respect to any other indebtedness, which default results in the acceleration of
indebtedness in an amount in excess of $10,000,000 without the indebtedness
having been 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 aggregate principal amount of the outstanding debt
securities, treated as one class, issued under the indenture. For purposes of
the previous two sentences, indebtedness means obligations of, or guaranteed or
assumed by, us, other than the debt securities, 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 above ceases or is cured, waived, rescinded or annulled, then the
event of default under the predecessor indentures caused by such default or
acceleration will also be considered cured. The predecessor subordinated
debenture also includes events of default upon our failure to pay either (i) any
installment of interest upon any series of debt securities issued under such
indenture when the same shall become due and payable, and continuance of such
default for a period of 30 days or (ii) all or any part of principal of any
series of debt securities issued under such indenture when the same shall become
due and payable at maturity, upon any redemption, by declaration or otherwise.
DESCRIPTION OF UNITS
Units will consist of any combination of warrants, purchase contracts,
shares of preferred stock, shares of common stock and debt securities issued by
us, debt obligations or other securities of an entity affiliated or not
affiliated with us or other property. The applicable prospectus supplement will
also describe:
o the designation and the terms of the units and of any combination of
warrants, purchase contracts, shares of preferred stock, shares of
common stock and debt securities issued by us, debt obligations or
other securities of an entity affiliated or not affiliated with us or
other property constituting the units, including whether and under
what circumstances the warrants, purchase contracts, shares of
preferred stock, shares of common stock and debt securities issued by
us, debt obligations or other securities of an entity affiliated or
not affiliated with us or other securities may be traded separately;
39
o any additional terms of the governing Unit Agreement;
o any additional provisions for the issuance, payment, settlement,
transfer or exchange of the units or of the warrants, purchase
contracts, shares of preferred stock, shares of common stock and debt
securities issued by us, debt obligations or other securities of an
entity affiliated or not affiliated with us or other property
constituting the units; and
o any applicable U.S. federal income tax consequences.
The terms and conditions described under "Description of Debt Securities,"
"Description of Warrants," "Description of Purchase Contracts," "Description of
Capital Stock--Offered Preferred Stock" and "Description of Capital
Stock--Offered and Existing Common Stock" and those described below under
"--Significant Provisions of the Unit Agreement" and "--Significant Provisions
of the Unit Agreement Without Holders' Obligations" will apply to each unit and
to any warrants, purchase contracts, shares of preferred stock, shares of common
stock or debt securities issued by us, debt obligations or other securities of
an entity affiliated or not affiliated with us or other property included in
each unit, unless otherwise specified in the applicable prospectus supplement.
We will issue the units under one or more Unit Agreements, each referred to
as a Unit Agreement, to be entered into between us and a bank or trust company,
as unit agent. We may issue units in one or more series, which will be described
in the applicable prospectus supplement. Units that include purchase contracts
that are all pre-paid purchase contracts, as defined below under "Description of
Purchase Contracts," will be governed by one or more Unit Agreements designed
for units where the holders do not have any further obligations under the
purchase contracts, each referred to as a Unit Agreement Without Holders'
Obligations. We have filed the forms of Unit Agreement and Unit Agreement
Without Holders' Obligations as exhibits to the registration statement. Although
we have described below the material provisions of the Unit Agreement, the Unit
Agreement Without Holders' Obligations and the units, these descriptions are not
complete, and you should review the detailed provisions of the Unit Agreement
and Unit Agreement Without Holders' Obligations for a full description,
including the definition of some of the terms used in this prospectus and for
other information regarding the units.
Significant Provisions of the Unit Agreement
Obligations of Unit Holder. Under the terms of the Unit Agreement, each
owner of a unit:
o consents to and agrees to be bound by the terms of the Unit Agreement;
o appoints the unit agent as its authorized agent to execute, deliver
and perform any purchase contract included in the unit in which that
owner has an interest, except in the case of pre-paid purchase
contracts, which require no further performance by the owner; and
o irrevocably agrees to be a party to and be bound by the terms of any
purchase contract, other than a pre-paid purchase contract issued
pursuant to an indenture, included in the unit in which that owner has
an interest.
Assumption of Obligations by Transferee. Upon the registration of transfer
of a unit, the transferee will assume the obligations, if any, of the transferor
under any purchase contract included in the unit and under any other security
constituting that unit, and the transferor will be released from those
obligations. Under the Unit Agreement, we consent to the transfer of these
obligations to the transferee, to the assumption of these obligations by the
transferee and to the release of the transferor, if the transfer is made in
accordance with the provisions of the Unit Agreement.
Remedies. Upon the acceleration of the debt securities constituting any
units, our obligations and those of the owners under any purchase contracts
constituting a part of the units may also be accelerated upon the request of the
owners of not less than 25% of the affected purchase contracts, on behalf of all
the owners.
Limitation on Actions by You as an Individual Holder. No owner of any unit
will have any right under the Unit Agreement to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise regarding the Unit
Agreement, or for the appointment of a trustee, receiver, liquidator, custodian
or other similar official, unless the
40
owner will have given written notice to the unit agent and to us of the
occurrence and continuance of a default thereunder and:
o in the case of an event of default under the debt securities or the
relevant indenture, unless the procedures, including notice to us and
the trustee, described in the indenture have been complied with; and
o in the case of a failure by Morgan Stanley to observe or perform any
of its obligations under the Unit Agreement relating to any purchase
contracts, other than pre-paid purchase contracts, included in the
unit, unless:
o owners of not less than 25% of the affected purchase contracts
have (a) requested the unit agent to institute that action or
proceeding in its own name as unit agent under the Unit Agreement
and (b) offered the unit agent reasonable indemnity;
o the unit agent has failed to institute that action or proceeding
within 60 days of that request by the owners referred to above;
and
o the owners of a majority of the outstanding affected units have
not given directions to the unit agent inconsistent with those of
the owners referred to above.
If these conditions have been satisfied, any owner of an affected unit may then,
but only then, institute an action or proceeding. Notwithstanding the above, the
owner of any unit or purchase contract will have the unconditional right to
purchase or sell, as the case may be, purchase contract property under the
purchase contract and to institute suit for the enforcement of that right.
Purchase contract property is defined under "Description of Purchase Contracts"
below.
Negative Pledge. Because we are a holding company, our assets consist
primarily of the securities of our subsidiaries. The negative pledge provisions
of the Unit Agreement limit our ability to pledge some of these securities. The
Unit Agreement provides that we will not, and will not permit any subsidiary to,
create, assume, incur or guarantee any indebtedness for borrowed money that is
secured by a pledge, lien or other encumbrance except for liens specifically
permitted by the Unit Agreement on:
(1) the voting securities of Morgan Stanley & Co. Incorporated, Morgan
Stanley & Co. International Limited, Morgan Stanley DW Inc., Discover Bank
or any subsidiary succeeding to any substantial part of the business now
conducted by any of those corporations, which we refer to collectively as
the "principal subsidiaries," or
(2) the voting securities of a subsidiary that owns, directly or
indirectly, the voting securities of any of the principal subsidiaries,
other than directors' qualifying shares,
without making effective provisions so that the units and the securities
constituting the units under the Unit Agreement will be secured equally and
ratably with indebtedness so secured.
For these purposes, "subsidiary" means any corporation, partnership or
other entity of which at the time of determination we own or control directly or
indirectly more than 50% of the shares of the voting stock or equivalent
interest, and "voting securities" means stock of any class or classes having
general voting power under ordinary circumstances to elect a majority of the
board of directors, managers or trustees of the relevant subsidiary, other than
stock that carries only the conditional right to vote upon the happening of an
event, whether or not that event has happened.
Absence of Protections Against All Potential Actions of Morgan Stanley.
There are no covenants or other provisions in the Unit Agreement providing for a
put right or increased interest or otherwise that would afford holders of units
additional protection in the event of a recapitalization transaction, a change
of control of Morgan Stanley or a highly leveraged transaction.
41
Modification Without Consent of Holders. We and the unit agent may amend or
supplement the Unit Agreement and the terms of the purchase contracts and the
purchase contract certificates without the consent of the holders:
o to evidence the assumption by a successor of our covenants;
o to evidence the acceptance of appointment by a successor agent or
collateral agent;
o to add covenants for the protection of the holders of the units;
o to comply with the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act or the Investment Company Act of 1940, as
amended;
o to cure any ambiguity;
o to correct or supplement any defective or inconsistent provision; or
o in any other manner which we may deem necessary or desirable and which
will not adversely affect the interests of the affected holders in any
material respect.
Modification with Consent of Holders. We and the unit agent, with the
consent of the holders of not less than a majority of all series of outstanding
units affected may modify the rights of the holders of the units of each series
so affected or the terms of any purchase contracts included in any of those
series of units and the terms of the Unit Agreement relating to the purchase
contracts of each series so affected. However, we and the unit agent may not
make the following first three modifications without the consent of the holder
of each outstanding purchase contract included in units and may not make the
following last two modifications without the consent of the holder of each
outstanding unit affected by the modification that:
o impair the right to institute suit for the enforcement of any purchase
contract;
o materially adversely affect the holders' rights and obligations under
any purchase contract;
o reduce the percentage of purchase contracts constituting part of
outstanding units the consent of whose owners is required for the
modification of the provisions of the Unit Agreement relating to those
purchase contracts or for the waiver of any defaults under the Unit
Agreement relating to those purchase contracts;
o materially adversely affect the holders' units or the terms of the
Unit Agreement (other than terms related to the first three clauses
above); or
o reduce the percentage of outstanding units the consent of whose owners
is required for the modification of the provisions of the Unit
Agreement (other than terms related to the first three clauses above).
Modifications of any debt securities or pre-paid purchase contracts issued
pursuant to an indenture included in units may only be made in accordance with
the applicable indenture, as described under "Description of Debt
Securities--Modification of the Indentures." Modifications of any warrants
included in units may only be made in accordance with the terms of the warrant
agreement as described under "Description of Warrants--Significant Provisions of
the Warrant Agreement."
Merger, Consolidation, Sale, Lease or Conveyance. The Unit Agreement
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 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:
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
42
o will expressly assume all of our obligations under the Unit
Agreement; 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
Unit Agreement applicable to us.
Replacement of Unit Certificates or Purchase Contract Certificates. We will
replace any mutilated certificate evidencing a definitive unit or purchase
contract at the expense of the holder upon surrender of that certificate to the
unit agent. We will replace certificates that have been destroyed, lost or
stolen at the expense of the holder upon delivery to us and the unit agent of
evidence satisfactory to us and the unit agent of the destruction, loss or theft
of the certificates. In the case of a destroyed, lost or stolen certificate, an
indemnity satisfactory to the unit agent and to us may be required at the
expense of the holder of the units or purchase contracts evidenced by that
certificate before a replacement will be issued.
The Unit Agreement provides that, notwithstanding the foregoing, no
replacement certificate need be delivered:
o during the period beginning 15 days before the day of mailing of a
notice of redemption or of any other exercise of any right held by
Morgan Stanley with respect to the unit or any security constituting
the unit evidenced by the mutilated, destroyed, lost or stolen
certificate and ending on the day of the giving of that notice;
o if the mutilated, destroyed, lost or stolen certificate evidences any
security selected or called for redemption or other exercise of a
right held by Morgan Stanley; or
o at any time on or after the date of settlement or redemption for any
purchase contract included in the unit, or at any time on or after the
last exercise date for any warrant included in the unit, evidenced by
the mutilated, destroyed, lost or stolen certificate, except with
respect to any units that remain or will remain outstanding following
the date of settlement or redemption or the last exercise date.
Unit Agreement Not Qualified Under Trust Indenture Act. The Unit Agreement
will not be qualified as an indenture under, and the unit agent will not be
required to qualify as a trustee under, the Trust Indenture Act. Accordingly,
the holders of units and purchase contracts, other than pre-paid purchase
contracts issued pursuant to an indenture, will not have the benefits of the
protections of the Trust Indenture Act. However, any debt securities or pre-paid
purchase contracts issued under an indenture that are issued as part of a unit
will be issued under an indenture qualified under the Trust Indenture Act, and
the trustee under that indenture will be qualified as a trustee under the Trust
Indenture Act.
Title. We, the unit agent, the trustee, the warrant agent and any of their
agents will treat the registered owner of any unit as its owner, notwithstanding
any notice to the contrary, for all purposes.
New York Law to Govern. The Unit Agreement, the units and the purchase
contracts constituting part of the units will be governed by, and construed in
accordance with, the laws of the State of New York.
Significant Provisions of the Unit Agreement Without Holders' Obligations
Remedies. The unit agent will act solely as our agent in connection with
the units governed by the Unit Agreement Without Holders' Obligations and will
not assume any obligation or relationship of agency or trust for or with any
holders of units or interests in those units. Any holder of units or interests
in those units may, without the consent of the unit agent or any other holder or
beneficial owner of units, enforce by appropriate legal action, on its own
behalf, its rights under the Unit Agreement Without Holders' Obligations.
However, the holders of units or interests in those units may only enforce their
rights under any pre-paid purchase contracts issued pursuant to an indenture and
any debt securities or under any warrants issued as parts of those units in
accordance with the terms of the applicable indenture and the warrant agreement.
Modification. We and the unit agent may amend the Unit Agreement Without
Holders' Obligations without the consent of the holders:
43
o to cure any ambiguity;
o to cure, correct or supplement any defective or inconsistent provision
in the agreement; or
o in any other manner which we may deem necessary or desirable and which
will not adversely affect the interest of the affected holders of
units in any material respect.
We and the unit agent, with the consent of the holders of not less than a
majority of units at the time outstanding, may modify or amend the rights of the
affected holders of the affected units and the terms of the Unit Agreement
Without Holders' Obligations. However, we and the unit agent may not, without
the consent of each affected holder of units, make any modifications or
amendments that would:
o materially and adversely affect the exercise rights of the affected
holders; or
o reduce the percentage of outstanding units the consent of whose owners
is required to consent to a modification or amendment of the Unit
Agreement Without Holders' Obligations.
Any debt securities and pre-paid purchase contracts issued pursuant to an
indenture that are issued as part of units governed by the Unit Agreement
Without Holders' Obligations may be modified only in accordance with the
applicable indenture, as described above under "Description of Debt
Securities--Modification of the Indentures." Any warrants issued as part of
units may be modified only in accordance with the terms of the warrant agreement
as described in "Description of Warrants--Significant Provisions of the Warrant
Agreement."
Merger, Consolidation, Sale, Lease or Conveyance. The Unit Agreement
Without Holders' Obligations 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 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:
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 Unit
Agreement Without Holders' Obligations; 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
Unit Agreement Without Holders' Obligations applicable to us.
Replacement of Unit Certificates. We will replace any mutilated certificate
evidencing a definitive unit at the expense of the holder upon surrender of that
certificate to the unit agent. We will replace certificates that have been
destroyed, lost or stolen at the expense of the holder upon delivery to us and
the unit agent of evidence satisfactory to us and the unit agent of the
destruction, loss or theft of the certificates. In the case of a destroyed, lost
or stolen certificate, an indemnity satisfactory to the unit agent and to us may
be required at the expense of the holder of the units or prepaid purchase
contracts evidenced by that certificate before a replacement will be issued.
Title. We, the unit agent, the trustee, the warrant agent and any of their
agents will treat the registered owner of any unit as its owner, notwithstanding
any notice to the contrary, for all purposes.
New York Law to Govern. The Unit Agreement Without Holders' Obligations,
the units and the pre-paid purchase contracts constituting part of the units
will be governed by, and construed in accordance with, the laws of the State of
New York.
44
DESCRIPTION OF WARRANTS
Offered Warrants
We may offer warrants separately or together with one or more additional
warrants, purchase contracts, shares of preferred stock, shares of common stock
and debt securities issued by us, debt obligations or other securities of an
entity affiliated or not affiliated with us, other property or any combination
of those securities in the form of units, as described in the applicable
prospectus supplement. If we issue warrants as part of a unit, the accompanying
prospectus supplement will specify whether those warrants may be separated from
the other securities or property in the unit prior to the warrants' expiration
date. Warrants to purchase or sell securities of entities not affiliated with us
issued in the United States may not be so separated prior to the 91st day after
the issuance of the unit, unless otherwise specified in the applicable
prospectus supplement.
We may issue warrants to purchase or sell, on terms to be determined at the
time of sale:
o securities issued by us or by an entity affiliated or not affiliated
with us, a basket of those securities, an index or indices of those
securities or any other property;
o currencies;
o commodities; or
o any combination of the above.
We refer to the property in the above clauses as "warrant property." We may
satisfy our obligations, if any, with respect to any warrants by delivering the
warrant property or, in the case of warrants to purchase or sell securities,
commodities or other property, the cash value of the securities or commodities,
as described in the applicable prospectus supplement.
Further Information in Prospectus Supplement
The applicable prospectus supplement will contain, where applicable, the
following terms of, and other information relating to, the warrants:
o the specific designation and aggregate number of, and the price at
which we will issue, the warrants;
o the currency with which the warrants may be purchased;
o whether the warrants will be issued in fully registered form or bearer
form, in definitive or global form or in any combination of these
forms, although, in any case, the form of a warrant included in a unit
will correspond to the form of the unit and of any debt security or
purchase contract included in that unit;
o the date on which the right to exercise the warrants will begin and
the date on which that right will expire or, if you may not
continuously exercise the warrants throughout that period, the
specific date or dates on which you may exercise the warrants;
o if applicable, the date on and after which the warrants and the
related securities will be separately transferable;
o whether the warrants are put warrants or call warrants, whether you or
we will have the right to exercise the warrants and any conditions or
restrictions on the exercise of the warrants;
o the specific warrant property, and the amount or the method for
determining the amount of the warrant property, purchasable or
saleable upon exercise of each warrant;
o the price at which and the currency with which the underlying
securities, currencies, commodities or other property may be purchased
or sold upon the exercise of each warrant, or the method of
determining that price;
45
o whether the exercise price may be paid in cash, by the exchange of any
other security or property offered with the warrants or both and the
method of exercising the warrants;
o whether the exercise of the warrants is to be settled in cash or by
delivery of the underlying securities, commodities, other property or
combination thereof;
o any applicable U.S. federal income tax consequences;
o the identity of the warrant agent for the warrants and of any other
depositaries, execution or paying agents, transfer agents, registrars,
determination, or other agents;
o the proposed listing, if any, of the warrants or any securities
purchasable upon exercise of the warrants on any securities exchange;
o whether the warrants are to be sold separately or with other
securities as part of units; and
o any other terms of the warrants.
Significant Provisions of the Warrant Agreement
We will issue the warrants under one or more warrant agreements to be
entered into between us and a bank or trust company, as warrant agent, in one or
more series, which will be described in the prospectus supplement for the
warrants. The form of warrant agreement is filed as an exhibit to the
registration statement. The following summaries of significant provisions of the
warrant agreement and the warrants are not intended to be comprehensive and
holders of warrants should review the detailed provisions of the warrant
agreement for a full description and for other information regarding the
warrants.
Modifications Without Consent of Warrantholders. We and the warrant agent
may amend the terms of the warrants and the warrant certificates without the
consent of the holders:
o to cure any ambiguity;
o to cure, correct or supplement any defective or inconsistent
provision;
o to establish the forms or terms of warrant certificates or warrants of
any series;
o to evidence the acceptance of appointment by a successor agent; or
o in any other manner which we may deem necessary or desirable and which
will not adversely affect the interests of the affected holders in any
material respect.
Modifications with Consent of Warrantholders. We and the warrant agent,
with the consent of the holders of not less than a majority in number of the
then outstanding unexercised warrants affected, may modify or amend the warrant
agreement. However, we and the warrant agent may not make any of the following
modifications or amendments without the consent of each affected warrantholder:
o change the exercise price of the warrants;
o reduce the amount receivable upon exercise, cancellation or expiration
of the warrants other than in accordance with the antidilution
provisions or other similar adjustment provisions included in the
terms of the warrants;
o shorten the period of time during which the warrants may be exercised;
o materially and adversely affect the rights of the owners of the
warrants; or
o reduce the percentage of outstanding warrants the consent of whose
owners is required for the modification of the applicable warrant
agreement.
46
Merger, Consolidation, Sale or Other Disposition. If at any time we merge
or consolidate with, or transfer substantially all of our assets to, another
entity, the successor corporation will succeed to and assume all of our
obligations under each warrant agreement and the warrant certificates. We will
then be relieved of any further obligation under each of those warrant
agreements and the warrants issued under those warrant agreements.
Enforceability of Rights of Warrantholders. The warrant agents will act
solely as our agents in connection with the warrant certificates and will not
assume any obligation or relationship of agency or trust for or with any holders
of warrant certificates or beneficial owners of warrants. Any holder of warrant
certificates and any beneficial owner of warrants may, without the consent of
any other person, enforce by appropriate legal action, on its own behalf, its
right to exercise the warrants evidenced by the warrant certificates in the
manner provided for in that series of warrants or pursuant to the applicable
warrant agreement. No holder of any warrant certificate or beneficial owner of
any warrants will be entitled to any of the rights of a holder of the debt
securities or any other warrant property purchasable upon exercise of the
warrants, including the right to receive the payments on those debt securities
or other warrant property or to enforce any of the covenants or rights in the
relevant indenture or any other similar agreement.
Registration and Transfer of Warrants. Subject to the terms of the
applicable warrant agreement, warrants in registered, definitive form may be
presented for exchange and for registration of transfer, at the corporate trust
office of the warrant agent for that series of warrants, or at any other office
indicated in the prospectus supplement relating to that series of warrants,
without service charge. However, the holder will be required to pay any taxes
and other governmental charges as described in the warrant agreement. The
transfer or exchange will be effected only if the warrant agent for the series
of warrants is satisfied with the documents of title and identity of the person
making the request.
New York Law to Govern. The warrants and each warrant agreement will be
governed by, and construed in accordance with, the laws of the State of New
York.
DESCRIPTION OF PURCHASE CONTRACTS
We may issue purchase contracts, including purchase contracts issued as
part of a unit with one or more warrants, shares of preferred stock, shares of
common stock and debt securities issued by us, debt obligations or other
securities of an entity affiliated or not affiliated with us or other property,
for the purchase or sale of:
o securities issued by us or by an entity affiliated or not affiliated
with us, a basket of those securities, an index or indices of those
securities or any other property;
o currencies;
o commodities; or
o any combination of the above.
We refer to this property in the above clauses as "purchase contract
property."
Each purchase contract will obligate the holder to purchase or sell, and
obligate us to sell or purchase, on specified dates, the purchase contract
property at a specified price or prices, all as described in the applicable
prospectus supplement. The applicable prospectus supplement will also specify
the methods by which the holders may purchase or sell the purchase contract
property and any acceleration, cancellation or termination provisions or other
provisions relating to the settlement of a purchase contract.
Pre-Paid Purchase Contracts
Purchase contracts may require holders to satisfy their obligations under
the purchase contracts at the time they are issued. We refer to these purchase
contracts as "pre-paid purchase contracts." In certain circumstances, our
obligation to settle pre-paid purchase contracts on the relevant settlement date
may constitute senior indebtedness or subordinated indebtedness of ours.
Accordingly, pre-paid purchase contracts may be issued under the Senior Debt
Indenture or the Subordinated Debt Indenture, as specified in the applicable
prospectus supplement.
47
Purchase Contracts Issued as Part of Units
Purchase contracts issued as part of a unit will be governed by the terms
and provisions of a Unit Agreement or, in the case of pre-paid purchase
contracts issued as part of a unit that contains no other purchase contracts, a
Unit Agreement Without Holders' Obligations. See "Description of
Units--Significant Provisions of the Unit Agreement" and "--Significant
Provisions of the Unit Agreement Without Holders' Obligations." The applicable
prospectus supplement will specify the following:
o whether the purchase contract obligates the holder to purchase or sell
the purchase contract property;
o whether and when a purchase contract issued as part of a unit may be
separated from the other securities or property constituting part of
that unit prior to the purchase contract's settlement date;
o the methods by which the holders may purchase or sell the purchase
contract property;
o any acceleration, cancellation or termination provisions or other
provisions relating to the settlement of a purchase contract; and
o whether the purchase contracts will be issued in fully registered or
bearer form, in definitive or global form or in any combination of
these forms, although, in any case, the form of a purchase contract
included in a unit will correspond to the form of the unit and of any
debt security or warrant included in that unit.
Settlement of Purchase Contracts. Where purchase contracts issued together
with debt securities or debt obligations as part of a unit require the holders
to buy purchase contract property, the unit agent may apply principal payments
from the debt securities or debt obligations in satisfaction of the holders'
obligations under the related purchase contract as specified in the prospectus
supplement. The unit agent will not so apply the principal payments if the
holder has delivered cash to meet its obligations under the purchase contract.
To settle the purchase contract and receive the purchase contract property, the
holder must present and surrender the unit certificates at the office of the
unit agent. If a holder settles its obligations under a purchase contract that
is part of a unit in cash rather than by delivering the debt security or debt
obligation that is part of the unit, that debt security or debt obligation will
remain outstanding, if the maturity extends beyond the relevant settlement date
and, as more fully described in the applicable prospectus supplement, the holder
will receive that debt security or debt obligation or an interest in the
relevant global debt security.
Pledge by Purchase Contract Holders to Secure Performance. To secure the
obligations of the purchase contract holders contained in the Unit Agreement and
in the purchase contracts, the holders, acting through the unit agent, as their
attorney-in-fact, will assign and pledge the items in the following sentence,
which we refer to as the "pledge," to JPMorgan Chase Bank, N.A. (formerly known
as JPMorgan Chase Bank), in its capacity as collateral agent, for our benefit.
The pledge is a security interest in, and a lien upon and right of set-off
against, all of the holders' right, title and interest in and to:
o any common stock, preferred stock, debt securities, debt obligations
or other property that are, or become, part of units that include the
purchase contracts, or other property as may be specified in the
applicable prospectus supplement, which we refer to as the "pledged
items";
o all additions to and substitutions for the pledged items as may be
permissible, if so specified in the applicable prospectus supplement;
o all income, proceeds and collections received or to be received, or
derived or to be derived, at any time from or in connection with the
pledged items described in the two clauses above; and
o all powers and rights owned or thereafter acquired under or with
respect to the pledged items.
The pledge constitutes collateral security for the performance when due by
each holder of its obligations under the Unit Agreement and the applicable
purchase contract. The collateral agent will forward all payments from the
pledged items to us, unless the payments have been released from the pledge in
accordance with the Unit Agreement. We will use the payments received from the
pledged items to satisfy the obligations of the holder of the Unit under the
related purchase contract.
48
Property Held in Trust by Unit Agent. If a holder fails to settle in cash
its obligations under a purchase contract that is part of a unit and fails to
present and surrender its unit certificate to the unit agent when required, that
holder will not receive the purchase contract property. Instead, the unit agent
will hold that holder's purchase contract property, together with any
distributions, as the registered owner in trust for the benefit of the holder
until the holder presents and surrenders the certificate or provides
satisfactory evidence that the certificate has been destroyed, lost or stolen.
The unit agent or Morgan Stanley may require an indemnity from the holder for
liabilities related to any destroyed, lost or stolen certificate. If the holder
does not present the unit certificate, or provide the necessary evidence of
destruction or loss and indemnity, on or before the second anniversary of the
settlement date of the related purchase contract, the unit agent will pay to us
the amounts it received in trust for that holder. Thereafter, the holder may
recover those amounts only from us and not the unit agent. The unit agent will
have no obligation to invest or to pay interest on any amounts it holds in trust
pending distribution.
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, Morgan Stanley's authorized capital
stock consists of 3,500,000,000 shares of common stock, par value $0.01 per
share, and 30,000,000 shares of preferred stock, par value $0.01 per share.
The rights of holders of preferred stock or common stock offered by this
prospectus will be subject to, and may be adversely affected by, issuances of
preferred stock in the future. Under some circumstances, alone or in combination
with certain provisions of our certificate of incorporation and/or with the
provisions of our rights agreement, described below under "--Additional
Provisions of Morgan Stanley's Certificate of Incorporation and Bylaws,"
respectively, our issuances of preferred stock may discourage or make more
difficult an acquisition of Morgan Stanley that the Board of Directors deems
undesirable.
The Board of Directors of Morgan Stanley has the power, without further
action by the stockholders, unless action is required by applicable laws or
regulations or by the terms of outstanding preferred stock, to issue preferred
stock in one or more series and to fix the voting rights, designations,
preferences and other terms applicable to the preferred stock to be issued. The
Board of Directors may issue preferred stock to obtain additional financing, in
connection with acquisitions, as compensation to officers, directors or
employees of Morgan Stanley and its subsidiaries in accordance with benefit
plans or otherwise and for other proper corporate purposes.
Outstanding Capital Stock
Outstanding Common Stock. As of November 30, 2005, there were approximately
1,057,677,994 shares of our common stock outstanding.
Outstanding Preferred Stock. As of November 30, 2005, there were no shares
of our preferred stock outstanding.
Cumulative Preferred Stock Issuable under the Capital Units. In addition,
we and our wholly owned subsidiary Morgan Stanley Finance plc have outstanding
Capital Units. Each Capital Unit consists of a subordinated debenture issued by
Morgan Stanley Finance plc, which we guaranteed on a subordinated basis, and a
related purchase contract we issued that requires the holder to purchase one
depositary share representing ownership of multiple shares of our preferred
stock. The Capital Units outstanding on November 30, 2005 may result in the
issuance at any time of up to 329,050 shares of our 8.03% Cumulative Preferred
Stock, par value $0.01 per share, with a stated value of $200.00 per share,
which we refer to as the Capital Units Cumulative Preferred Stock.
The preceding summary and the following summary of the terms of the offered
preferred stock do not purport to be complete and are qualified by our
certificate of incorporation and by the Certificates of Designation of
Preferences and Rights for the Capital Units Cumulative Preferred Stock.
Offered and Existing Common Stock
Our Board of Directors has authorized the issuance of shares of common
stock and has authorized a committee of the Board of Directors to establish the
price and other terms and conditions of any offering which will be
49
described in the applicable prospectus supplement. The shares of offered common
stock, when issued and sold, will be fully paid and nonassessable.
Terms Specified in Prospectus Supplement. The following description sets
forth some general terms and provisions of the offered common stock. The
applicable prospectus supplement will contain, where applicable, the following
terms of and other information relating to any offered common stock:
o number of shares to be offered;
o offering price or prices;
o any other relevant terms of the offered common stock that the Board of
Directors or the committee establishes, including any restrictions on
the transfer or resale of the offered common stock; and
o any additional terms of the offering.
Voting Rights. Each holder of our common stock has one vote per share on
all matters voted on generally by the stockholders, including the election of
directors. Except as otherwise required by law or as provided with respect to
any series of preferred stock, the holders of our common stock will possess all
voting power. The Board of Directors is currently divided into three classes of
directors with the term of one class expiring at each annual meeting of
stockholders. Beginning with the 2006 annual meeting of stockholders, directors
elected to succeed those directors whose class's term then expires will be
elected by a plurality vote of all votes cast at such meeting to hold office
until the next annual meeting of stockholders, with each director to hold office
until his or her successor shall have been duly elected and qualified. The
classification of the Board of Directors will then cease altogether at the 2008
annual meeting of stockholders. Because our certificate of incorporation does
not provide for cumulative voting rights, the holders of a plurality of the
voting power of the then outstanding shares of capital stock entitled to be
voted generally in the election of directors, which we refer to as the "voting
stock," represented at a meeting will be able to elect all the directors
standing for election at the meeting.
Dividends. The holders of our common stock are entitled to share equally in
dividends as may be declared by the Board of Directors out of funds legally
available therefor, but only after payment of dividends required to be paid on
outstanding shares of offered preferred stock and any other class or series of
stock having preference over the common stock as to dividends, including, if
issued, the Capital Units Cumulative Preferred Stock.
Liquidation Rights. Upon voluntary or involuntary liquidation, dissolution
or winding up of Morgan Stanley, the holders of the common stock will share pro
rata in the assets remaining after payments to creditors and holders of any
offered preferred stock and any other class or series of stock having preference
over the common stock upon liquidation, dissolution or winding up that may be
then outstanding, including, if issued, the Capital Units Cumulative Preferred
Stock. There are no preemptive or other subscription rights, conversion rights
or redemption or sinking fund provisions with respect to shares of our common
stock.
Because Morgan Stanley is a holding company, our rights and the rights of
holders of our capital stock, including the holders of our common stock, to
participate in the distribution of assets of any of our subsidiaries upon the
subsidiary's liquidation or recapitalization will be subject to the prior claims
of the subsidiary's creditors and preferred shareholders, except to the extent
Morgan Stanley may itself be a creditor with recognized claims against the
subsidiary or a holder of preferred stock of the subsidiary.
Agents and Registrar for Offered and Existing Common Stock. The transfer
agent and registrar for the common stock is Mellon Investor Services L.L.C.
Offered Preferred Stock
Our Board of Directors has authorized the issuance of one or more series of
additional shares of preferred stock and has authorized a committee of the Board
of Directors to establish and designate series and to fix the number of shares
and the relative rights, preferences and limitations of the respective series of
the preferred stock offered by this prospectus and the applicable prospectus
supplement. The shares of offered preferred stock, when issued and sold, will be
fully paid and nonassessable.
50
Terms Specified in Prospectus Supplement. The following description sets
forth some general terms and provisions of the offered preferred stock. The
number of shares and all of the relative rights, preferences and limitations of
the respective series of offered preferred stock that the Board of Directors or
the committee establishes will be described in the applicable prospectus
supplement. The terms of particular series of offered preferred stock may
differ, among other things, in:
o designation;
o number of shares that constitute the series;
o dividend rate, or the method of calculating the dividend rate;
o dividend periods, or the method of calculating the dividend periods;
o redemption provisions, including whether or not, on what terms and at
what prices the shares will be subject to redemption at our option;
o voting rights;
o preferences and rights upon liquidation or winding up;
o whether or not and on what terms the shares will be convertible into
or exchangeable for shares of any other class, series or security of
ours or any other corporation or any other property;
o for preferred stock convertible into common stock, the number of
shares of common stock to be reserved in connection with, and issued
upon conversion of, the preferred stock;
o whether depositary shares representing the offered preferred stock
will be offered and, if so, the fraction or multiple of a share that
each depositary share will represent; and
o the other rights and privileges and any qualifications, limitations or
restrictions of those rights or privileges.
We have summarized below the material provisions of a certificate of
designation authorizing the issuance of a series of offered preferred stock.
These summaries are not complete and each investor should refer to the form of
certificate of designation which has been filed as an exhibit to the
registration statement and to our certificate of incorporation for a complete
description of the terms and definitions. The Board of Directors or a duly
authorized committee of the Board of Directors will adopt the resolutions to be
included in the certificate of designation prior to the issuance of a series of
offered preferred stock, and the certificate of designation will be filed with
the Secretary of State of the State of Delaware as soon thereafter as reasonably
practicable.
Rank. Each series of offered preferred stock will rank, with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up:
o junior to any series of our capital stock expressly stated to be
senior to that series of offered preferred stock;
o senior to our common stock and any class of our capital stock
expressly stated to be junior to that series of offered preferred
stock; and
o on a parity with each other series of offered preferred stock and all
other classes of our capital stock.
The offered preferred stock will rank, as to payment of dividends and
amounts payable on liquidation, on a parity with the Capital Units Cumulative
Preferred Stock, if issued.
Dividends. If described in the applicable prospectus supplement, we will
pay cumulative cash dividends to the holders of offered preferred stock, when
and as declared by the Board of Directors or the committee, out of funds legally
available for payment. The prospectus supplement will detail the annual rate of
dividends or the method or formula for determining or calculating them, and the
payment dates and payment periods for dividends. The Board of Directors or the
committee will fix a record date for the payment of dividends not more than 60
or less than 10 days preceding the dividend payment date. We will pay dividends
on the offered preferred stock to the holders of record on that record date.
Dividends will be cumulative from the date of original issue of the series. A
series of offered preferred stock will be junior as to payment of dividends to
any series of preferred stock that may be issued in the future that is expressly
stated to be senior as to payment of dividends to that series of offered
preferred stock.
51
If at any time we have failed to pay accrued dividends on any of those senior
shares when payable, we may not pay any dividend on that series of offered
preferred stock or redeem or otherwise repurchase any shares of that series
until we have paid or set aside for payment the full amount of the accumulated
but unpaid dividends on the senior shares.
We will not declare, pay or set aside for payment any dividends on any
preferred stock ranking on a parity as to payment of dividends with the offered
preferred stock unless we declare, pay or set aside for payment dividends on all
the outstanding shares of offered preferred stock for all dividend payment
periods ending on or before the dividend payment date for that parity stock. We
must declare, pay or set aside for payment any amounts on the offered preferred
stock ratably in proportion to the respective amounts of dividends (1)
accumulated and unpaid or payable on that parity stock, on the one hand, and (2)
accumulated and unpaid or payable through the dividend payment period or periods
of the offered preferred stock preceding the dividend payment date for that
parity stock, on the other hand.
Except as described above, unless we have paid the full cumulative
dividends on the outstanding shares of offered preferred stock, we may not take
any of the following actions with respect to our common stock or any other
preferred stock of Morgan Stanley ranking junior or on parity with the offered
preferred stock as to dividend payments:
o declare, pay or set aside for payment any dividends, other than
dividends payable in our common stock;
o make other distributions;
o redeem, purchase or otherwise acquire our common stock or junior
preferred stock for any consideration; or
o make any payment to or available for a sinking fund for the redemption
of our common stock or junior preferred stock.
Preferred stock on a parity with offered preferred stock currently would include
the Capital Units Cumulative Preferred Stock, if issued.
The provisions of the immediately preceding paragraph will not prevent us
from applying any monies previously deposited in any sinking fund with respect
to any preferred stock in compliance with the provisions of the sinking fund to
the purchase or redemption of that preferred stock in accordance with the terms
of the sinking fund, regardless of whether at the time of application we have
paid or declared and set aside for payment full cumulative dividends upon shares
of the offered preferred stock outstanding on the last dividend payment date for
any series of offered preferred stock. The provisions of the immediately
preceding paragraph also do not restrict the ability of a holder of any junior
or parity preferred stock or common stock to convert those securities into or
exchange those securities for Morgan Stanley capital stock ranking junior to the
offered preferred stock as to dividend payments.
We will compute the amount of dividends payable for the initial dividend
period or any period shorter than a full dividend period on the basis of a
360-day year of twelve 30-day months, unless otherwise indicated in the
prospectus supplement. Accrued but unpaid dividends will not bear interest.
Redemption. The prospectus supplement will indicate whether, and on what
terms, shares of any series of offered preferred stock will be subject to
mandatory redemption or sinking fund provision. The prospectus supplement will
also indicate whether, and on what terms, including the date on or after which
redemption may occur, we may redeem shares of a series of the offered preferred
stock. We will effect any optional redemption upon not less than 30 days' notice
at a redemption price of not less than the stated value per share of the
applicable series of offered preferred stock plus accrued and accumulated but
unpaid dividends to but excluding the date fixed for redemption. If we have not
paid full cumulative dividends on all outstanding shares of offered preferred
stock, we may not redeem the offered preferred stock in part and we may not
purchase or acquire any shares of offered preferred stock, otherwise than by a
purchase or exchange offer made on the same terms to all holders of the offered
preferred stock. If fewer than all the outstanding shares of a series of offered
preferred stock are to be redeemed, we will select those to be redeemed by lot
or a substantially equivalent method.
52
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of Morgan Stanley, the holders of shares of offered preferred stock will be
entitled to receive, out of the assets of Morgan Stanley available for
distribution to stockholders, liquidating distributions in an amount equal to
the stated value per share of offered preferred stock, as described in the
applicable prospectus supplement, plus accrued and accumulated but unpaid
dividends to the date of final distribution, before any distribution is made to
holders of:
o any class or series of capital stock ranking junior to the offered
preferred stock as to rights upon liquidation, dissolution or winding
up; or
o our common stock.
However, holders of the shares of offered preferred stock will not be entitled
to receive the liquidation price of their shares until we have paid or set aside
an amount sufficient to pay in full the liquidation preference of any class or
series of our capital stock ranking senior as to rights upon liquidation,
dissolution or winding up. Neither a consolidation or merger of Morgan Stanley
with or into another corporation nor a merger of another corporation with or
into Morgan Stanley nor a sale or transfer of all or part of Morgan Stanley's
assets for cash or securities will be considered a liquidation, dissolution or
winding up of Morgan Stanley.
If, upon any liquidation, dissolution or winding up of Morgan Stanley,
assets of Morgan Stanley then distributable are insufficient to pay in full the
amounts payable with respect to the offered preferred stock and any other
preferred stock ranking on parity with the offered preferred stock as to rights
upon liquidation, dissolution or winding up, the holders of the offered
preferred stock and of that other preferred stock will share ratably in any
distribution in proportion to the full respective preferential amounts to which
they are entitled. After we have paid the full amount of the liquidating
distribution to which they are entitled, the holders of the offered preferred
stock will not be entitled to any further participation in any distribution of
assets by Morgan Stanley.
Voting Rights. Unless otherwise determined by our Board of Directors and
indicated in the prospectus supplement, holders of the offered preferred stock
will not have any voting rights except as described below or as otherwise from
time to time required by law. Whenever dividends on the shares of offered
preferred stock or any other stock ranking on a parity with the offered
preferred stock with respect to the payment of dividends and having similar
voting rights are in arrears for dividend periods, whether or not consecutive,
containing in the aggregate a number of days equivalent to six calendar
quarters, the holders of shares of offered preferred stock, voting separately as
a class with holders of one or more other classes or series of preferred stock,
including any issued Capital Units Cumulative Preferred Stock, having similar
voting rights that are exercisable, will be entitled to vote for the election of
two of the authorized number of directors of Morgan Stanley at the next annual
meeting of stockholders and at each subsequent meeting until we have paid or set
apart for payment all dividends accumulated on the offered preferred stock or
the other class or series of stock having similar voting rights, as applicable.
The term of office of all directors elected by the holders of preferred stock
will terminate immediately upon the termination of the right of the holders of
preferred stock to vote for directors. Each holder of shares of the offered
preferred stock will have one vote for each share of offered preferred stock
held.
So long as any shares of the offered preferred stock remain outstanding, we
will not, without the consent of the holders of at least two thirds of the
shares of offered preferred stock outstanding at the time, voting together as
one class with all other series of preferred stock having similar voting rights
that have been conferred and are exercisable:
o issue or increase the authorized amount of any class or series of
stock ranking prior to the outstanding offered preferred stock as to
dividends or upon liquidation; or
o amend, alter or repeal the provisions of our certificate of
incorporation or of the resolutions contained in the certificate of
designation, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any power, preference or special right
of the outstanding offered preferred stock or its holders.
Holders of the offered preferred stock will vote separately as a class with all
other series of preferred stock, including any issued Capital Units Cumulative
Preferred Stock, having similar voting rights that have been conferred and are
exercisable. For purposes of the preceding sentences, any increase in the amount
of the authorized common stock or authorized preferred stock or the creation and
issuance of other series of common stock or
53
preferred stock ranking on a parity with or junior to the offered preferred
stock as to dividends and upon liquidation will not be considered to materially
and adversely affect those powers, preferences or special rights.
Agents and Registrar for Offered Preferred Stock. The transfer agent,
dividend disbursing agent and registrar for each series of offered preferred
stock will be The Bank of New York.
Depositary Shares
We may, at our option, elect to offer fractional shares or some multiple of
shares of offered preferred stock, rather than individual shares of offered
preferred stock. If we choose to do so, we will issue depositary receipts for
depositary shares, each of which will represent a fraction or a multiple of a
share of a particular series of offered preferred stock as described below.
The following statements concerning depositary shares, depositary receipts,
and the deposit agreement are not intended to be comprehensive and are qualified
in their entirety by reference to the forms of these documents, which we have
filed as exhibits to the registration statement. Each investor should refer to
the detailed provisions of those documents, as we have explained under the
heading "Where You Can Find More Information" in the Summary.
The shares of any series of offered preferred stock represented by
depositary shares will be deposited under a deposit agreement among Morgan
Stanley, The Bank of New York, as depositary, which we refer to as the Preferred
Stock Depositary, and the holders from time to time of depositary receipts
issued under the agreement. Subject to the terms of the deposit agreement, each
holder of a depositary share will be entitled, in proportion to the fraction or
multiple of a share of offered preferred stock represented by that depositary
share, to all the rights and preferences of the offered preferred stock
represented by that depositary share, including dividend, voting and liquidation
rights.
The depositary shares will be evidenced by depositary receipts issued under
the deposit agreement. Depositary receipts will be distributed to those persons
purchasing the fractional or multiple shares of the related series of offered
preferred stock. Immediately following the issuance of shares of a series of
offered preferred stock, we will deposit those shares with the Preferred Stock
Depositary, which will then issue and deliver the depositary receipts to the
purchasers. Depositary receipts will only be issued evidencing whole depositary
shares. A depositary receipt may evidence any number of whole depositary shares.
Dividends and Other Distributions. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received on the
related series of offered preferred stock to the record holders of depositary
receipts relating to those series in proportion to the number of the depositary
shares evidenced by depositary receipts those holders own.
If we make a distribution other than in cash, the Preferred Stock
Depositary will distribute the property it receives to the record holders of
depositary receipts in proportion to the number of depositary shares evidenced
by depositary receipts those holders own, unless the Preferred Stock Depositary
determines that the distribution cannot be made proportionately among those
holders or that it is not feasible to make the distribution. In that event, the
Preferred Stock Depositary may, with our approval, sell the property and
distribute the net proceeds to the holders in proportion to the number of
depositary shares evidenced by depositary receipts they own.
The amount distributed to holders of depositary shares will be reduced by
any amounts required to be withheld by Morgan Stanley or the Preferred Stock
Depositary on account of taxes or other governmental charges.
Withdrawal of Stock. Upon surrender of the depositary receipts at the
corporate trust office of the Preferred Stock Depositary and upon payment of the
taxes, charges and fees provided for in the deposit agreement and compliance
with any other requirement of the deposit agreement, the holder of the
depositary shares evidenced by those depositary receipts is entitled to delivery
of the number of whole shares of the related series of offered preferred stock
and all money or other property, if any, represented by those shares. Holders of
depositary receipts representing any number of whole shares of offered preferred
stock will be entitled to receive whole shares of the related series of offered
preferred stock, but those holders of whole shares of offered preferred stock
will not thereafter be entitled to deposit those shares of offered preferred
stock with the Preferred Stock Depositary or to receive depositary shares
therefor. If the depositary receipts delivered by the holder evidence a number
of
54
depositary shares in excess of the number representing whole shares of the
related series of offered preferred stock to be withdrawn, the Preferred Stock
Depositary will deliver to the holder at the same time a new depositary receipt
evidencing the excess number of depositary shares.
Voting the Offered Preferred Stock. Upon receiving notice of any meeting at
which the holders of any series of the offered preferred stock are entitled to
vote, the Preferred Stock Depositary will mail the information contained in the
notice of the meeting to the record holders of the depositary receipts relating
to that series of offered preferred stock. Each record holder of the depositary
receipts on the record date, which will be the same date as the record date for
the related series of offered preferred stock, may instruct the Preferred Stock
Depositary how to exercise his or her voting rights. The Preferred Stock
Depositary will endeavor, insofar as practicable, to vote or cause to be voted
the maximum number of whole shares of the offered preferred stock represented by
those depositary shares in accordance with those instructions received
sufficiently in advance of the meeting, and we will agree to take all reasonable
action that may be deemed necessary by the Preferred Stock Depositary in order
to enable the Preferred Stock Depositary to do so. The Preferred Stock
Depositary will abstain from voting shares of the offered preferred stock for
which it does not receive specific instructions from the holder of the
depositary shares representing them.
Redemption of Depositary Shares. Depositary shares will be redeemed from
any proceeds received by the Preferred Stock Depositary resulting from the
redemption, in whole or in part, of the series of the offered preferred stock
represented by those depositary shares. The redemption price per depositary
share will equal the applicable fraction or multiple of the redemption price per
share payable with respect to the series of the offered preferred stock. If we
redeem shares of a series of offered preferred stock held by the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date the number of depositary shares representing the shares of offered
preferred stock that we redeem. If less than all the depositary shares will be
redeemed, the depositary shares to be redeemed will be selected by lot or
substantially equivalent method determined by the Preferred Stock Depositary.
After the date fixed for redemption, the depositary shares called for
redemption will no longer be deemed to be outstanding, and all rights of the
holders of the depositary shares will cease, except the right to receive the
monies payable and any other property to which the holders were entitled upon
the redemption upon surrender to the Preferred Stock Depositary of the
depositary receipts evidencing the depositary shares. Any funds deposited by us
with the Preferred Stock Depositary for any depositary shares that the holders
fail to redeem will be returned to us after a period of two years from the date
the funds are deposited.
Amendment and Termination of the Deposit Agreement. We may amend the form
of depositary receipt evidencing the depositary shares and any provision of the
deposit agreement at any time and from time to time by agreement with the
Preferred Stock Depositary. However, any amendment that materially and adversely
alters the rights of the holders of depositary receipts will not be effective
unless it has been approved by the holders of at least a majority of the
depositary shares then outstanding, and no amendment may impair the right of any
holder of any depositary receipts, described above under "--Withdrawal of
Stock," to receive shares of the related series of offered preferred stock and
any money or other property represented by those depositary shares, except in
order to comply with mandatory provisions of applicable law. We may terminate
the deposit agreement at any time with at least 60 days' prior written notice to
the Preferred Stock Depositary. Within 30 days of the date of the notice, the
Preferred Stock Depositary will deliver or make available for delivery to
holders of depositary receipts, upon surrender of the depositary receipts
evidencing the depositary shares and upon payment of any applicable taxes or
governmental charges to be paid by the holders as described below, the number of
whole shares of the related series of offered preferred stock as are represented
by the depositary receipts. The deposit agreement will automatically terminate
after there has been a final distribution on the related series of offered
preferred stock in connection with any liquidation, dissolution or winding up of
Morgan Stanley and that distribution has been made to the holders of depositary
shares.
Charges of Preferred Stock Depositary. We will pay all transfer and other
taxes and governmental charges arising solely from the existence of the
depositary arrangements. We will pay all charges of the Preferred Stock
Depositary in connection with the initial deposit of the related series of
offered preferred stock, the initial issuance of the depositary shares, all
withdrawals of shares of the related series of offered preferred stock by
holders of depositary shares and the registration of transfers of title to any
depositary shares. However, holders of depositary
55
shares will pay other transfer and other taxes and governmental charges and the
other charges expressly provided in the deposit agreement to be for their
accounts.
Limitation on Liability of Company and Preferred Stock Depositary. Neither
the Preferred Stock Depositary nor Morgan Stanley will be liable if it is
prevented or delayed by law, by any provision of our certificate of
incorporation or of the depositary shares or by any circumstance beyond its
control from performing its obligations under the deposit agreement. The
obligations of Morgan Stanley and the Preferred Stock Depositary under the
deposit agreement will be limited to performance with best judgment and in good
faith of their duties thereunder, except that they will be liable for negligence
or willful misconduct in the performance of their duties thereunder, and they
will not be obligated to appear in, prosecute or defend any legal proceeding
related to any depositary receipts, depositary shares or related series of
offered preferred stock unless satisfactory indemnity is furnished.
Corporate Trust Office of Preferred Stock Depositary. The Preferred Stock
Depositary's corporate trust office is currently located at 101 Barclay Street,
New York, New York 10286. The Preferred Stock Depositary will act as transfer
agent and registrar for depositary receipts, and, if shares of a series of
offered preferred stock are redeemable, the Preferred Stock Depositary will act
as redemption agent for the corresponding depositary receipts.
Resignation and Removal of Preferred Stock Depositary. The Preferred Stock
Depositary may resign at any time by delivering to us written notice of its
election to do so, and we may at any time remove the Preferred Stock Depositary.
Any resignation or removal will take effect upon the appointment of a successor
Preferred Stock Depositary. A successor must be appointed by us within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and a combined
capital and surplus of at least $50,000,000.
Reports to Holders. We will deliver all required reports and communications
to holders of the offered preferred stock to the Preferred Stock Depositary, and
it will forward those reports and communications to the holders of depositary
shares.
Inspection by Holders. Upon request, the Preferred Stock Depositary will
provide for inspection to the holders of depositary shares the transfer books of
the depositary and the list of holders of receipts; provided that any requesting
holder certifies to the Preferred Stock Depositary that such inspection is for a
proper purpose reasonably related to such person's interest as an owner of
depositary shares evidenced by the receipts.
Capital Units Cumulative Preferred Stock
Rank. The Capital Units Cumulative Preferred Stock, if issued, will rank on
a parity with the offered preferred stock, and rank prior to the common stock as
to payment of dividends and amounts payable on liquidation. The shares of
Capital Units Cumulative Preferred Stock will not be convertible into common
stock of Morgan Stanley and will have no preemptive rights.
Dividends. Holders of the Capital Units Cumulative Preferred Stock, if
issued, are entitled to receive, when and as declared by the Board of Directors
out of legally available funds, cumulative cash dividends payable quarterly at
the rate of 8.03% per year.
The Capital Units Cumulative Preferred Stock, if issued, will be junior as
to dividends to any preferred stock that may be issued in the future that is
expressly senior as to dividends to the Capital Units Cumulative Preferred
Stock. If at any time we have failed to pay accrued dividends on any of those
senior shares at the time they are payable, we may not pay any dividend on any
issued Capital Units Cumulative Preferred Stock or redeem or otherwise
repurchase any shares of Capital Units Cumulative Preferred Stock until we have
paid in full, or set aside dividends for payment, the accumulated but unpaid
dividends on those senior shares.
We will not declare or pay or set aside for payment dividends on any
preferred stock ranking on a parity as to payment of dividends with the Capital
Units Cumulative Preferred Stock unless we also declare or pay or set aside for
payment dividends on any outstanding shares of Capital Units Cumulative
Preferred Stock for all dividend payment periods ending on or before the
dividend payment date of any parity stock. We must declare, pay or set aside for
payment any amounts on any issued Capital Units Cumulative Preferred Stock
ratably in proportion to the
56
respective amounts of dividends (1) accumulated and unpaid or payable on any
parity stock, on the one hand, and (2) accumulated and unpaid or payable through
the dividend payment period or periods of the Capital Units Cumulative Preferred
Stock next preceding the dividend payment date, on the other hand.
Except as described above, unless we have paid the full cumulative
dividends on any outstanding shares of Capital Units Cumulative Preferred Stock,
we may not with respect to our common stock or any other preferred stock of
Morgan Stanley ranking junior to or on a parity with the Capital Units
Cumulative Preferred Stock as to dividend payments:
o declare, pay or set aside for payment any dividends, other than
dividends payable in our common stock;
o make other distributions;
o redeem, purchase or otherwise acquire our common stock or junior
preferred stock for any consideration; or
o make any payment to or available for a sinking fund for redemption of
our common stock or junior preferred stock.
The provisions of the immediately preceding paragraph do not apply to any
monies we deposit in any sinking fund with respect to any preferred stock in
compliance with the provisions of that sinking fund. We may apply monies so
deposited to the purchase or redemption of the preferred stock in accordance
with the terms of the sinking fund, regardless of whether at the time of
application we have paid or declared or set aside for payment full cumulative
dividends upon any issued shares of the Capital Units Cumulative Preferred
Stock. The provisions of the immediately preceding paragraph also do not
restrict the ability of the holder of any junior or parity preferred stock or
common stock to convert their securities into or exchange those securities for
Morgan Stanley capital stock ranking junior to the Capital Units Cumulative
Preferred Stock as to dividend payments.
Redemption. The Capital Units Cumulative Preferred Stock, if issued, will
not be subject to any mandatory redemption or sinking fund provision and will
not be redeemable prior to February 28, 2007, except that under some
circumstances it may be redeemed prior to that date at specified prices.
On or after February 28, 2007, the Capital Units Cumulative Preferred Stock
will be redeemable at our option, in whole or in part, upon not less than 30
days' notice, at specified prices during specified periods following the
indicated date, plus accrued and accumulated but unpaid dividends to but
excluding the date fixed for redemption.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of Morgan Stanley, the holders of shares of Capital Units Cumulative
Preferred Stock will be entitled to receive liquidating distributions in the
amount of $200.00 per share plus accrued and accumulated but unpaid dividends to
the date of final distribution before any distribution is made to holders of
o any class or series of capital stock ranking junior to the Capital
Units Cumulative Preferred Stock, as to rights upon liquidation,
dissolution or winding up; and
o common stock.
However, the holders of the shares of Capital Units Cumulative Preferred Stock
will not be entitled to receive the liquidation price of these shares until the
liquidation preference of any other shares of Morgan Stanley's capital stock
ranking senior as to rights upon liquidation, dissolution or winding up will
have been paid in full or a sum set aside therefor sufficient to provide for
payment in full.
If upon any liquidation, dissolution or winding up of Morgan Stanley, the
amounts payable with respect to any issued Capital Units Cumulative Preferred
Stock and any other preferred stock ranking on parity as to rights upon
liquidation, dissolution or winding up are not paid in full, the holders of the
Capital Units Cumulative Preferred Stock and of that other preferred stock will
share ratably in any distribution in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Capital Units Cumulative Preferred Stock will not be entitled to any further
participation in any distribution of assets by Morgan Stanley.
57
Voting Rights. Holders of Capital Units Cumulative Preferred Stock, if
issued, will not have any voting rights except as described below or as
otherwise from time to time required by law. Whenever dividends on the Capital
Units Cumulative Preferred Stock or any other class or series of stock ranking
on a parity with the Capital Units Cumulative Preferred Stock with respect to
the payment of dividends and having similar voting rights are in arrears for
dividend periods, whether or not consecutive, containing in the aggregate a
number of days equivalent to six calendar quarters, the holders of shares of
Capital Units Cumulative Preferred Stock, voting separately as a class with
holders of one or more other classes or series of preferred stock having similar
voting rights that are exercisable, will be entitled to vote for the election of
two of the authorized number of directors of Morgan Stanley at the next annual
meeting of stockholders and at each subsequent meeting until we have paid or set
apart for payment all dividends accumulated on the Capital Units Cumulative
Preferred Stock or the other class or series of stock having similar voting
rights, as applicable. At elections of such directors, each holder of shares of
Capital Units Cumulative Preferred Stock will have one vote for each share of
Capital Units Cumulative Preferred Stock held. The term of office of all
directors elected by the holders of preferred stock will terminate immediately
upon the termination of the right of the holders of preferred stock to vote for
directors.
So long as any shares of Capital Units Cumulative Preferred Stock are
outstanding, we will not, without the consent of the holders of at least two
thirds of the shares of Capital Units Cumulative Preferred Stock outstanding at
the time, voting separately as a class with all other series of preferred stock
having similar voting rights that have been conferred and are exercisable:
o issue or increase the authorized amount of any class or series of
stock ranking prior to the Capital Units Cumulative Preferred Stock as
to dividends or upon liquidation; or
o amend, alter or repeal the provisions of our certificate of
incorporation or of the resolutions contained in the certificate of
designation relating to the Capital Units Cumulative Preferred Stock,
whether by merger, consolidation or otherwise, so as to materially and
adversely affect any power, preference or special right of the Capital
Units Cumulative Preferred Stock or its holders.
For purposes of the preceding sentence any increase in the authorized amount of
common stock or preferred stock or the creation and issuance of other series of
common stock or preferred stock ranking on a parity with or junior to the
Capital Units Cumulative Preferred Stock as to dividends and upon liquidation
will not be deemed to materially and adversely affect those powers, preferences
or special rights.
Transfer Agent for Capital Units Cumulative Preferred Stock. The transfer
agent and registrar for the Capital Units Cumulative Preferred Stock is The Bank
of New York.
Additional Provisions of Morgan Stanley's Certificate of Incorporation and
Bylaws
Size of the Board of Directors, Removal of Directors and Filling Vacancies
on the Board of Directors. Our Board of Directors currently consists of nine
directors. The Board of Directors is currently divided into three classes. At
each annual meeting of stockholders ending with the annual meeting of
stockholders in 2005, a class of directors is elected, for a term expiring at
the third succeeding annual meeting of stockholders after its election, to
succeed that class of directors whose term then expires. Beginning with the 2006
annual meeting of stockholders, directors elected to succeed those directors
whose class's term then expires will be elected by a plurality vote of all votes
cast at such meeting to hold office until the next annual meeting of
stockholders, with each director to hold office until his or her successor shall
have been duly elected and qualified. The classification of the Board of
Directors will then cease altogether at the 2008 annual meeting of stockholders
and all directors will be elected annually. Under our amended and restated
bylaws, a majority vote of the Board of Directors may increase or decrease the
number of directors. However, the bylaws provide that the Board shall consist of
not less than three nor more than fifteen members. Our certificate of
incorporation also provides that directors may be removed with the approval of
the holders of at least 80% of the voting power of the voting stock, voting
together as a single class, and, prior to the 2008 annual meeting of
stockholders, only for cause. Any vacancy on the Board of Directors or newly
created directorship will be filled by a majority vote of the remaining
directors then in office though less than a quorum, and those newly elected
directors will serve for a term expiring (i) in the case of directors chosen
prior to the 2008 annual meeting of stockholders, at the annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires and (ii) in the case of directors chosen subsequent to the 2008
annual meeting of stockholders, at the next annual meeting of stockholders. The
Board of Directors has adopted several
58
charter amendments, which, subject to shareholder approval, will eliminate the
requirement that the directors be elected by plurality vote, accelerate the
"de-staggering" of the Board of Directors so that classification will cease
altogether at the 2006 annual meeting and eliminate the super majority vote
requirement to remove directors.
Limitations on Actions by Stockholders; Calling Special Meetings of
Stockholders. Our certificate of incorporation provides that, subject to the
rights of holders of any series of preferred stock or any other series of
capital stock set forth in the certificate of incorporation, any action required
or permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any consent
in writing in lieu of a meeting. Our bylaws provide that special meetings of the
stockholders may be called at any time only by the Secretary of Morgan Stanley
at the direction of and pursuant to a resolution of the Board of Directors.
Amendment of Governing Documents. Our certificate of incorporation provides
that, generally, it can be amended in accordance with the provisions of the laws
of the State of Delaware. Under Section 242 of the Delaware General Corporation
Law, the Board of Directors may propose, and the stockholders may adopt by a
majority vote of the voting stock, an amendment to our certificate of
incorporation. However, our certificate of incorporation also provides that the
approval of 80% of the voting power of the voting stock, voting together as a
single class, is required in order to amend, repeal or adopt any provision
inconsistent with the provisions in the certificate of incorporation relating to
amendment of the bylaws, actions of stockholders and the Board of Directors and
to change the provisions establishing this 80% vote requirement.
Our certificate of incorporation provides that our bylaws may be altered,
amended or repealed or new provisions may be adopted by a majority of the Board
of Directors or with the approval of at least 80% of the voting power of the
voting stock of Morgan Stanley, voting together as a single class. Furthermore,
the bylaws provide that they may be altered, amended or repealed or new
provisions may be adopted by a majority of the Board of Directors or with the
approval of at least 80% of the voting power of the voting stock of Morgan
Stanley.
Limitation of Directors' Liability. Section 102 of the Delaware General
Corporation Law allows a corporation to eliminate the personal liability of
directors of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, except in the
case where the director breached his duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock repurchase or redemption in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. Under our certificate of incorporation, a director of Morgan
Stanley will not be personally liable to Morgan Stanley or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent the exemption from liability or limitation of liability is not permitted
under the Delaware General Corporation Law as in effect or as that law may be
amended.
FORMS OF SECURITIES
Each debt security, warrant, purchase contract and unit will be represented
either by a certificate issued in definitive form to a particular investor or by
one or more global securities representing the entire issuance of securities.
Both certificated securities in definitive form and global securities may be
issued either (1) in registered form, where our obligation runs to the holder of
the security named on the face of the security or (2) subject to the limitations
explained below under "--Limitations on Issuance of Bearer Securities," in
bearer form, where our obligation runs to the bearer of the security. Definitive
securities name you or your nominee as the owner of the security (other than
definitive bearer securities, which name the bearer as owner), and, in order to
transfer or exchange these securities or to receive payments other than interest
or other interim payments, you or your nominee must physically deliver the
securities to the trustee, registrar, paying agent or other agent, as
applicable. Global securities name a depositary or its nominee as the owner of
the debt securities, warrants, purchase contracts or units represented by these
global securities (other than global bearer securities, which name the bearer as
owner). The depositary maintains a computerized system that will reflect each
investor's beneficial ownership of the securities through an account maintained
by the investor with its broker/dealer, bank, trust company or other
representative, as we explain more fully below under "--Global Securities."
59
Our obligations, as well as the obligations of the trustee under any
indenture and the obligations, if any, of any warrant agents and unit agents and
any other agents of ours, any agents of the trustee or any agents of any warrant
agents or unit agents, run only to the persons or entities named as holders of
the securities in the relevant security register, in the case of registered
securities, or the persons or entities that are the bearers of those securities,
in the case of bearer securities. Neither we nor any trustee, warrant agent,
unit agent, other agent of ours, agent of the trustee or agent of the warrant
agents or unit agents have obligations to investors who hold beneficial interest
in global securities, in street name or by any other indirect means.
Upon making a payment or giving a notice to the holder or bearer as
required by the terms of that security, we will have no further responsibility
for that payment or notice even if that holder or bearer is required, under
agreements with depositary participants or customers or by law, to pass it along
to the indirect owners of beneficial interests in that security but does not do
so. Similarly, if we want to obtain the approval or consent of the holders or
bearers of any securities for any purpose, we would seek the approval only from
the holders or bearers, and not the indirect owners, of the relevant securities.
Whether and how the holders or bearers contact the indirect owners would be
governed by the agreements between such holders and bearers and the indirect
owners.
References to "you" in this prospectus refer to those who invest in the
securities being offered by this prospectus, whether they are the direct holders
or bearers or only indirect owners of beneficial interests in those securities.
Global Securities
Registered Global Securities. We may issue the registered debt securities,
warrants, purchase contracts and units 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.
We anticipate that the provisions described under "--The Depositary" below
will apply to all depositary arrangements, unless otherwise described in the
prospectus supplement relating to those securities.
Bearer Global Securities. 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 the Euroclear operator and Clearstream, Luxembourg, 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.
Limitations on Issuance of Bearer Securities
In compliance with U.S. federal income tax laws and regulations, bearer
securities, including bearer securities in global form, will not be offered,
sold or delivered, directly or indirectly, in the United States or its
possessions or to United States persons, as defined below, except as otherwise
permitted by United States Treasury Regulations Section 1.163-5(c)(2)(i)(D). Any
underwriters, agents or dealers participating in the offerings of bearer
securities, directly or indirectly, must agree that:
o they will not, in connection with the original issuance of any bearer
securities or during the restricted period with respect to such
securities (as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)), which we refer to as the "restricted period,"
offer, sell or deliver, directly or indirectly, any bearer securities
in the United States or its possessions or to United States persons,
other than as permitted by the applicable Treasury regulations
described above; and
60
o they will not, at any time, offer, sell or deliver, directly or
indirectly, any bearer securities in the United States or its
possessions or to United States persons, other than as permitted by the
applicable Treasury regulations described above.
In addition, any underwriters, agents or dealers must have procedures reasonably
designed to ensure that their employees or agents who are directly engaged in
selling bearer securities are aware of the above restrictions on the offering,
sale or delivery of bearer securities.
Bearer securities, other than temporary global debt securities and bearer
securities that satisfy the requirements of United States Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(3)(iii) and any coupons or talons appertaining
thereto, will not be delivered in definitive form, and no interest will be paid
thereon, unless Morgan Stanley has received a signed certificate in writing, or
an electronic certificate described in United States Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(3)(ii), stating that on the date of that certificate
the bearer security:
o is owned by a person that is not a United States person;
o is owned by a United States person that (a) is a foreign branch of a
United States financial institution, as defined in applicable United
States Treasury regulations, which we refer to as a "financial
institution," purchasing for its own account or for resale, or (b) is
acquiring the bearer security through a foreign branch of a United
States financial institution and who holds the bearer security through
that financial institution through the certification date, and in the
case of either (a) or (b) above, each of those United States financial
institutions agrees and certifies, on its own behalf or through its
agent, that Morgan Stanley may be advised that it will comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal
Revenue Code of 1986 and the regulations thereunder; or
o is owned by a United States or foreign financial institution for the
purposes of resale during the restricted period and, in addition, if
the owner of the bearer security is a United States or foreign
financial institution described in this clause, whether or not also
described in the first or second clause above, the financial
institution certifies that it has not acquired the bearer security for
purposes of resale directly or indirectly to a United States person or
to a person within the United States or its possessions.
We will make payments on bearer securities only outside the United States
and its possessions (as described in Treasury Regulations Section
1.163-5(c)(2)(v)) except as permitted by the above regulations.
Bearer securities, other than temporary global securities, and any coupons
issued with bearer securities will bear the following legend: "Any United States
person who holds this obligation will be subject to limitations under the United
States income tax laws, including the limitations provided in sections 165(j)
and 1287(a) of the Internal Revenue Code." The sections referred to in this
legend provide that, with exceptions, a United States person will not be
permitted to deduct any loss, and will not be eligible for capital gain
treatment with respect to any gain realized on the sale, exchange or redemption
of that bearer security or coupon.
As used in the preceding three paragraphs, the term bearer securities
includes bearer securities that are part of units. As used herein, "United
States person" means a citizen or resident of the United States for U.S. federal
income tax purposes, a corporation or partnership, including an entity treated
as a corporation or partnership for U.S. federal income tax purposes, created or
organized in or under the laws of the United States, or any state of the United
States or the District of Columbia (other than a partnership that is not treated
as a United States person under any applicable Treasury regulations), an estate
the income of which is subject to U.S. federal income taxation regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. In addition, some trusts treated as United States persons before August
20, 1996 that elect to continue to be so treated to the extent provided in the
Treasury regulations shall be considered United States persons.
Form of Securities Included in Units
The form of the warrant or purchase contract included in a unit will
correspond to the form of the unit and of any other security included in that
unit.
61
The Depositary
The Depository Trust Company, New York, New York will be designated as the
depositary for any registered global security. Each registered global security
will be registered in the name of Cede & Co., the Depositary's nominee.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The Depositary holds securities deposited with
it by its direct participants, and it facilitates the settlement of transactions
among its direct participants in those securities through electronic
computerized book-entry changes in participants' accounts, eliminating the need
for physical movement of securities certificates. The Depositary's direct
participants include both U.S. and non-U.S. securities brokers and dealers,
including the agents, banks, trust companies, clearing corporations and other
organizations, some of whom and/or their representatives own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as both U.S. and non-U.S. brokers and dealers, banks, trust companies and
clearing corporations, such as the Euroclear operator and Clearstream,
Luxembourg, that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The rules applicable to the
Depositary and its participants are on file with the SEC.
Purchases of the securities under the Depositary's system must be made by
or through its direct participants, which will receive a credit for the
securities on the Depositary's records. The ownership interest of each actual
purchaser of each security (the "beneficial owner") is in turn to be recorded on
the records of direct and indirect participants. Beneficial owners will not
receive written confirmation from the Depositary of their purchase, but
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owner
entered into the transaction. Transfers of ownership interests in the securities
are to be made by entries on the books of direct and indirect participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in securities, except in the
event that use of the book-entry system for the securities is discontinued.
To facilitate subsequent transfers, all securities deposited with the
Depositary are registered in the name of the Depositary's partnership nominee,
Cede & Co, or such other name as may be requested by the Depositary. The deposit
of securities with the Depositary and their registration in the name of Cede &
Co. or such other nominee of the Depositary do not effect any change in
beneficial ownership. The Depositary has no knowledge of the actual beneficial
owners of the securities; the Depositary's records reflect only the identity of
the direct participants to whose accounts the securities are credited, which may
or may not be the beneficial owners. The participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary 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.
Neither the Depositary nor Cede & Co. (nor such other nominee of the
Depositary) will consent or vote with respect to the securities unless
authorized by a direct participant in accordance with the Depositary's
procedures. Under its usual procedures, the Depositary mails an omnibus proxy to
us as soon as possible after the applicable record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants
identified in a listing attached to the omnibus proxy to whose accounts the
securities are credited on the record date.
Redemption proceeds, distributions, and dividend payments on the securities
will be made to Cede & Co or such other nominee as may be requested by the
Depositary. The Depositary's practice is to credit direct participants' accounts
upon the Depositary's receipt of funds and corresponding detail information from
us or any agent of ours, on the date payable in accordance with their respective
holdings shown on the Depositary's records. Payments by participants to
beneficial owners 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," and will be the responsibility of
such participant and not of the Depositary or its nominee, the trustee, any
agent of ours, or
62
us, subject to any statutory or regulatory requirements as may be in effect from
time to time. Payments of redemption proceeds, distributions, and dividend
payments to Cede & Co. or such other nominee as may be requested by the
Depositary is the responsibility of us or of any paying agent of ours,
disbursement of such payments to direct participants will be the responsibility
of the Depositary, and disbursement of such payments to the beneficial owners
will be the responsibility of direct and indirect participants.
The Depositary may discontinue providing its services as depositary with
respect to the securities at any time by giving reasonable notice to us or our
agent. Under such circumstances, in the event that a successor depositary is not
obtained by us within 90 days, security certificates are required to be printed
and delivered. In addition, under the terms of the indentures, we may at any
time and in our sole discretion decide not to have any of the securities
represented by one or more registered global securities. We understand, however,
that, under current industry practices, the Depositary would notify its
participants of our request, but will only withdraw beneficial interests from a
global security at the request of each participant. We would issue definitive
certificates in exchange for any such interests withdrawn. Any securities issued
in definitive form in exchange for a registered global security will be
registered in the name or names that the Depositary gives to the relevant
trustee, warrant agent, unit agent or other relevant agent of ours or theirs. It
is expected that the Depositary's instructions will be based upon directions
received by the Depositary from participants with respect to ownership of
beneficial interests in the registered global security that had been held by the
Depositary.
According to the Depositary, the foregoing information relating to the
Depositary 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.
The information in this section concerning the Depositary and Depositary's
book-entry system has been obtained from sources we believe to be reliable, but
we take no responsibility for the accuracy thereof. The Depositary may change or
discontinue the foregoing procedures at any time.
SECURITIES OFFERED ON A GLOBAL BASIS THROUGH THE DEPOSITARY
If we offer any of the securities on a global basis through the Depositary,
we will so specify in the applicable prospectus supplement. The additional
information contained in this section under "--Book-Entry, Delivery and Form"
and "--Global Clearance and Settlement Procedures" will apply to every offering
on a global basis through the Depositary. The additional provisions described
under "--Tax Redemption" and "--Payment of Additional Amounts" will apply to
securities offered on a global basis through the Depositary only if we so
specify in the applicable prospectus supplement.
Book-Entry, Delivery and Form
The securities will be issued in the form of one or more fully registered
global securities which will be deposited with, or on behalf of the Depositary,
and registered in the name of Cede & Co. Beneficial interests in the registered
global securities will be represented through book-entry accounts of financial
institutions acting on behalf of beneficial owners as direct and indirect
participants in the Depositary, as described above. Investors may elect to hold
interests in the registered global securities held by the Depositary through
Clearstream, Luxembourg or the Euroclear operator if they are participants in
those systems, or indirectly through organizations which are participants in
those systems. Clearstream, Luxembourg and the Euroclear operator will hold
interests on behalf of their participants through customers' securities accounts
in Clearstream, Luxembourg'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 the Depositary. Citibank, N.A. will act as
depositary for Clearstream, Luxembourg, and JPMorgan Chase Bank, N.A. will act
as depositary for the Euroclear operator. We refer to each of Citibank, N.A. and
JPMorgan Chase Bank, N.A., acting in this depositary capacity, as the "U.S.
depositary" for the relevant clearing system. Except as set forth below, the
registered global securities may be transferred, in whole but not in part, only
to the Depositary, another nominee of the Depositary or to a successor of the
Depositary or its nominee.
63
Clearstream, Luxembourg advises that distributions with respect to the
securities held through Clearstream, Luxembourg will be credited to cash
accounts of Clearstream, Luxembourg customers in accordance with its rules and
procedures, to the extent received by the U.S. depositary for Clearstream,
Luxembourg.
The Euroclear operator advises that 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.
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.
Individual certificates in respect of the securities will not be issued in
exchange for the registered global securities, except in very limited
circumstances. If the Depositary notifies us that it is unwilling or unable to
continue as a clearing system in connection with the registered global
securities or ceases to be a clearing agency registered under the Exchange Act,
and a successor clearing system is not appointed by us within 90 days after
receiving that notice from the Depositary or upon becoming aware that the
Depositary is no longer so registered, we will issue or cause to be issued
individual certificates in registered form on registration of transfer of, or in
exchange for, book-entry interests in the securities represented by registered
global securities upon delivery of those registered global securities for
cancellation.
Title to book-entry interests in the securities will pass by book-entry
registration of the transfer within the records of Clearstream, Luxembourg, the
Euroclear operator or the Depositary, as the case may be, in accordance with
their respective procedures. Book-entry interests in the securities may be
transferred within Clearstream, Luxembourg and within the Euroclear System and
between Clearstream, Luxembourg and the Euroclear System in accordance with
procedures established for these purposes by Clearstream, Luxembourg and the
Euroclear operator. Book-entry interests in the securities may be transferred
within the Depositary in accordance with procedures established for this purpose
by the Depositary. Transfers of book-entry interests in the securities among
Clearstream, Luxembourg and the Euroclear operator and the Depositary may be
effected in accordance with procedures established for this purpose by
Clearstream, Luxembourg, the Euroclear operator and the Depositary.
Global Clearance and Settlement Procedures
Initial settlement for the securities offered on a global basis through the
Depositary will be made in immediately available funds. Secondary market trading
between the Depositary's participants will occur in the ordinary way in
accordance with the Depositary's rules and will be settled in immediately
available funds using the Depositary's Same-Day Funds Settlement System.
Secondary market trading between Clearstream, Luxembourg customers and/or
Euroclear participants will occur in the ordinary way in accordance with the
applicable rules and operating procedures of Clearstream, Luxembourg 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 the Depositary on the one hand, and directly or indirectly through
Clearstream, Luxembourg customers or Euroclear participants, on the other, will
be effected through the Depositary in accordance with the Depositary'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 the Depositary, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to the Depositary. Clearstream, Luxembourg customers and
Euroclear participants may not deliver instructions directly to their respective
U.S. depositaries.
64
Because of time-zone differences, credits of interests in the securities
received in Clearstream, Luxembourg or the Euroclear System as a result of a
transaction with a Depositary participant will be made during subsequent
securities settlement processing and dated the business day following the
Depositary settlement date. Credits of interests or any transactions involving
interests in the securities received in Clearstream, Luxembourg or the Euroclear
System as a result of a transaction with a Depositary participant and settled
during subsequent securities settlement processing will be reported to the
relevant Clearstream, Luxembourg customers or Euroclear participants on the
business day following the Depositary settlement date. Cash received in
Clearstream, Luxembourg or the Euroclear System as a result of sales of
interests in the securities by or through a Clearstream, Luxembourg customer or
a Euroclear participant to a Depositary participant will be received with value
on the Depositary settlement date but will be available in the relevant
Clearstream, Luxembourg or Euroclear cash account only as of the business day
following settlement in the Depositary.
Although the Depositary, Clearstream, Luxembourg and the Euroclear operator
have agreed to the foregoing procedures in order to facilitate transfers of
interests in the securities among participants of the Depositary, Clearstream,
Luxembourg 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.
Tax Redemption
If specified in the applicable prospectus supplement, we may redeem, in
whole but not in part, any of the securities offered on a global basis through
the Depositary at our option at any time prior to maturity, upon the giving of a
notice of tax redemption as described below, at a redemption price equal to 100%
of the principal amount of those securities, except as otherwise specified in
the applicable prospectus supplement, together with accrued interest to the date
fixed for redemption, if we determine that, as a result of any change in or
amendment to the laws (including a holding, judgment or as ordered by a court of
competent jurisdiction), or any regulations or rulings promulgated thereunder,
of the United States or of any political subdivision or taxing authority of or
in the United States affecting taxation, or any change in official position
regarding the application or interpretation of those laws, regulations or
rulings, which change or amendment occurs, becomes effective or, in the case of
a change in official position, is announced on or after the date of the
applicable prospectus supplement, we have or will become obligated to pay
additional amounts, as defined below under "--Payment of Additional Amounts",
with respect to any of those securities as described below under "--Payment of
Additional Amounts." Prior to the giving of any notice of tax redemption
pursuant to this paragraph, we will deliver to the trustee:
o a certificate stating that we are entitled to effect the redemption
and setting forth a statement of facts showing that the conditions
precedent to our right to so redeem have occurred; and
o an opinion of independent legal counsel satisfactory to the trustee to
the effect that we are entitled to effect the redemption based on the
statement of facts set forth in the certificate;
provided that no notice of tax redemption shall be given earlier than 60 days
prior to the earliest date on which we would be obligated to pay the additional
amounts if a payment in respect of the securities were then due.
Notice of tax redemption will be given not less than 30 nor more than 60
days prior to the date fixed for redemption, which date and the applicable
redemption price will be specified in the notice. Notice will be given in
accordance with "--Notices" below.
Payment of Additional Amounts
If specified in the applicable prospectus supplement, we will, with respect
to any of the securities offered on a global basis through the Depositary and
subject to certain exceptions and limitations set forth below, pay any
additional amounts, the "additional amounts," to the beneficial owner of any
security who is a U.S. Alien (as defined below) as may be necessary in order
that every net payment of the principal of and interest on such security and any
other amounts payable on such security, after withholding or deduction for or on
account of any present or future tax, assessment or governmental charge imposed
upon or as a result of the payment by the United States, or any political
subdivision or taxing authority of or in the United States, will not be less
than the amount provided for in such security to be then due and payable.
65
We will not, however, make any payment of additional amounts to any
beneficial owner who is a U.S. Alien (as defined below) for or on account of:
o any present or future tax, assessment or other governmental charge
that would not have been so imposed but for
o the existence of any present or former connection between the
beneficial owner of such security, or between a fiduciary,
settlor, beneficiary, member or shareholder of the beneficial
owner, if the beneficial owner is an estate, a trust, a
partnership or a corporation for U.S. federal income tax
purposes, and the United States, including, without limitation,
the beneficial owner, or the fiduciary, settlor, beneficiary,
member or shareholder, being or having been a citizen or resident
of the United States or being or having been engaged in a trade
or business or present in the United States or having, or having
had, a permanent establishment in the United States; or
o the presentation by or on behalf of the beneficial owner of such
security for payment on a date more than 15 days after the date
on which payment became due and payable or the date on which
payment of such security is duly provided for, whichever occurs
later;
o any estate, inheritance, gift, sales, transfer, excise or personal
property tax or any similar tax, assessment or governmental charge;
o any tax, assessment or other governmental charge imposed by reason of
the beneficial owner's past or present status as a controlled foreign
corporation or passive foreign investment company with respect to the
United States or as a corporation that accumulates earnings to avoid
U.S. federal income tax or as a private foundation or other tax-exempt
organization or a bank receiving interest under Section 881(c)(3)(A)
of the Internal Revenue Code of 1986, as amended;
o any tax, assessment or other governmental charge that is payable
otherwise than by withholding or deduction from payments on or in
respect of such security;
o any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal of, or
interest on, such security, if payment can be made without withholding
by at least one other paying agent;
o any tax, assessment or other governmental charge that would not have
been imposed but for the failure to comply with certification,
information or other reporting requirements concerning the
nationality, residence or identity of the beneficial owner of such
security, if compliance is required by statute or by regulation of the
United States or of any political subdivision or taxing authority of
or in the United States as a precondition to relief or exemption from
the tax, assessment or other governmental charge;
o any tax, assessment or other governmental charge imposed by reason of
the beneficial owner's past or present status as the actual or
constructive owner of 10% or more of the total combined voting power
of all classes of our stock entitled to vote or as a direct or
indirect subsidiary of ours; or
o any combination of the items listed above.
In addition, we will not be required to make any payment of additional amounts
with respect to any security presented for payment:
o where such withholding or deduction is imposed on a payment to an
individual and is required to be made pursuant to any law implementing
or complying with, or introduced in order to conform to, any European
Union Directive on the taxation of savings; or
o by or on behalf of a beneficial owner who would have been able to
avoid such withholding or deduction by presenting the relevant
security to another paying agent in a member state of the European
Union.
Nor will we pay additional amounts with respect to any payment on a security to
a U.S. Alien who is a fiduciary or partnership or other than the sole beneficial
owner of the payment to the extent the payment would be required by
66
the laws of the United States (or any political subdivision of the United
States) to be included in the income, for tax purposes, of a beneficiary or
settlor with respect to the fiduciary or a member of the partnership or a
beneficial owner who would not have been entitled to the additional amounts had
the beneficiary, settlor, member or beneficial owner held its interest in such
security directly.
As used in this prospectus supplement, the term "U.S. Alien" means any
person who is, for U.S. federal income tax purposes, (i) a nonresident alien
individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of a
foreign estate or trust or (iv) a foreign partnership one or more of the members
of which is, for U.S. federal income tax purposes, a nonresident alien
individual, a foreign corporation or a nonresident alien fiduciary of a foreign
estate or trust.
Notices
Notices to holders of the securities will be given by mailing the notices
to each holder by first-class mail, postage prepaid, at the respective address
of each holder as that address appears upon our books. Notices given to the
Depositary, as holder of the registered global securities, will be passed on to
the beneficial owners of the securities in accordance with the standard rules
and procedures of the Depositary and its direct and indirect participants,
including Clearstream, Luxembourg and the Euroclear operator.
UNITED STATES FEDERAL TAXATION
In the opinion of Davis Polk & Wardwell, counsel to us, the following are
the material U.S. federal tax consequences of ownership and disposition of debt
securities issued under this prospectus ("debt securities"). This discussion
only applies to initial investors in debt securities who, for U.S. federal
income tax purposes:
o purchase the debt securities at their "issue price"; and
o will hold the debt securities as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code").
Subject to any additional discussions under the applicable prospectus
supplement or pricing supplement, it is expected, and the discussion below
assumes, that, for U.S. federal income tax purposes:
o the debt securities will be treated as debt obligations; and
o the issue price of a debt security is equal to its stated issue price
indicated in the applicable pricing supplement.
This discussion is based on the Code, administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations, all
as of the date hereof, changes to any of which subsequent to the date of this
prospectus may affect the tax consequences described herein. Persons considering
the purchase of debt securities are urged to consult their tax advisors with
regard to the application of the U.S. federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction.
This discussion is subject to any additional discussion regarding U.S.
federal income taxation contained in the applicable prospectus supplement and
pricing supplement. Accordingly, you should also consult the applicable
prospectus supplement and pricing supplement for any additional discussion of
U.S. federal taxation with respect to the specific debt securities offered
thereunder.
This discussion does not describe all of the tax consequences that may be
relevant to a particular holder in light of the holder's particular
circumstances or to holders subject to special rules, such as:
o certain financial institutions;
o insurance companies;
o dealers in securities or foreign currencies;
67
o persons holding debt securities as part of a hedge or any similar
transaction;
o U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
o partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
o regulated investment companies;
o real estate investment trusts; or
o persons subject to the alternative minimum tax.
Tax Consequences to U.S. Holders
As used herein, the term "U.S. Holder" means, for U.S. federal income tax
purposes, a beneficial owner of a debt security that is:
o a citizen or resident of the United States;
o a corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized in or under the laws
of the United States or of any political subdivision thereof; or
o an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
The term U.S. Holder also includes certain former citizens and residents of
the United States.
Payments of Stated Interest. Subject to the discussion below, interest paid
on a debt security will be taxable to a U.S. Holder as ordinary interest income
at the time it accrues or is received in accordance with the U.S. Holder's
method of accounting for federal income tax purposes.
Discount Notes. A debt security that is issued at an issue price less than
its "stated redemption price at maturity" will be considered to have been issued
at an original issue discount for U.S. federal income tax purposes (and will be
referred to in this discussion as a "discount note") unless the debt security
satisfies a de minimis threshold (as described below) or is a short-term note
(as defined below). In such case, the amount of original issue discount will be
equal to the excess of the "stated redemption price at maturity" over the issue
price. The "stated redemption price at maturity" of a debt security will equal
the sum of all payments required under the debt security other than payments of
"qualified stated interest." "Qualified stated interest" is stated interest
unconditionally payable as a series of payments (other than in debt instruments
of the issuer) at least annually during the entire term of the debt security and
equal to the outstanding principal balance of the debt security multiplied by:
o a single fixed rate of interest payable throughout the term of the
debt security;
o a single variable rate payable throughout the term of the debt
security; or
o to the extent described as such in the applicable prospectus
supplement or pricing supplement, any other floating rate or rates.
If the difference between a debt security's stated redemption price at
maturity and its issue price is less than a de minimis amount, i.e., 1/4 of 1
percent of the stated redemption price at maturity multiplied by the number of
complete years to maturity, then the debt security will not be considered to
have original issue discount.
A U.S. Holder of discount notes will be required to include any qualified
stated interest payments in income in accordance with the holder's method of
accounting for U.S. federal income tax purposes. Subject to the discussion below
concerning "short-term notes," U.S. Holders of discount notes will be required
to include original issue discount in income for U.S. federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, without regard to the timing of the receipt of cash
payments attributable to this income. Under this method, U.S. Holders of
discount notes generally will be required to include in income increasingly
greater amounts of original issue discount in successive accrual periods.
68
A U.S. Holder may make an election to include in gross income all interest
that accrues on any debt security (including stated interest, acquisition
discount, original issue discount, de minimis original issue discount, and
unstated interest, as adjusted by any amortizable bond premium) in accordance
with a constant yield method based on the compounding of interest (a "constant
yield election"). Such election may be revoked only with the permission of the
Internal Revenue Service (the "IRS").
Discount Notes Subject to Early Redemption. Discount notes subject to one
or more "call options" (i.e., our unconditional option to redeem a debt security
prior to its stated maturity date) or one or more "put options" (i.e., a
holder's unconditional option to require redemption prior to maturity) may be
subject to rules that differ from the general rules described above for purposes
of determining the yield and maturity of the debt security. Under applicable
Treasury regulations, a call option will be presumed to be exercised if the
exercise of the option will lower the yield on the debt security. Conversely, a
put option will be presumed to be exercised if the exercise of the option will
increase the yield on the debt security. In either case, if this option is not
in fact exercised, the debt security would be treated solely for purposes of
calculating original issue discount as if it were redeemed, and a new debt
security were issued, on the presumed exercise date for an amount equal to the
debt security's adjusted issue price on that date.
Short-Term Notes. A debt security that matures (after taking into account
the last possible date that the debt security could be outstanding under the
terms of the debt security) one year or less from its date of issuance (a
"short-term note") will be treated as being issued at a discount and none of the
interest paid on the debt security will be treated as qualified stated interest.
In general, a cash method U.S. Holder of a short-term note is not required to
accrue the discount for U.S. federal income tax purposes unless it elects to do
so. Holders who so elect and certain other holders, including those who report
income on the accrual method of accounting for U.S. federal income tax purposes,
are required to include the discount in income as it accrues on a straight-line
basis, unless another election is made to accrue the discount according to a
constant yield method based on daily compounding. In the case of a holder who is
not required and who does not elect to include the discount in income currently,
any gain realized on the sale, exchange or retirement of the short-term note
will be ordinary income to the extent of the discount accrued on a straight-line
basis (or, if elected, according to a constant yield method based on daily
compounding) through the date of sale, exchange or retirement. In addition,
those holders will be required to defer deductions for any interest paid on
indebtedness incurred to purchase or carry short-term notes, in an amount not
exceeding the accrued discount, until the accrued discount is included in
income.
Amortizable Bond Premium. If a U.S. Holder purchases a debt security for an
amount that is greater than the sum of all amounts payable on the debt security
other than qualified stated interest, the holder will be considered to have
purchased the debt security with amortizable bond premium equal to such excess.
Special rules may apply in the case of debt securities that are subject to
optional redemption. A U.S. Holder may generally use the amortizable bond
premium allocable to an accrual period to offset qualified stated interest
required to be included in such holder's income with respect to the debt
security in that accrual period. A holder who elects to amortize bond premium
must reduce its tax basis in the debt security by the amount of the premium
previously amortized. An election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the holder and
may be revoked only with the consent of the IRS.
If a holder makes a constant yield election (as described under "Discount
Notes" above) for a debt security with amortizable bond premium, such election
will result in a deemed election to amortize bond premium for all of the
holder's debt instruments with amortizable bond premium and may be revoked only
with the permission of the IRS with respect to debt instruments acquired after
revocation.
Sale, Exchange or Retirement of the Debt Securities. Upon the sale,
exchange or retirement of a debt security, a U.S. Holder will recognize taxable
gain or loss equal to the difference between the amount realized on the sale,
exchange or retirement and the holder's adjusted tax basis in the debt security.
For these purposes, the amount realized does not include any amount attributable
to accrued but unpaid interest. Amounts attributable to accrued but unpaid
interest are treated as interest as described under "Payments of Stated
Interest" above.
A U.S. Holder's adjusted tax basis in a debt security will equal the cost
of the debt security to the holder, increased by the amounts of any original
issue discount previously included in income by the holder with respect to
69
the debt security and reduced by any principal payments received by the holder
and, in the case of a discount note, by the amounts of any other payments that
do not constitute qualified stated interest (as defined above).
Subject to the discussion above concerning "short-term notes," gain or loss
realized on the sale, exchange or retirement of a debt security will generally
be capital gain or loss and will be long-term capital gain or loss if at the
time of sale, exchange or retirement the debt security has been held for more
than one year.
Backup Withholding and Information Reporting. Backup withholding may apply
in respect of the amounts paid to a U.S. Holder, unless such U.S. Holder
provides proof of an applicable exemption or a correct taxpayer identification
number, or otherwise complies with applicable requirements of the backup
withholding rules. The amounts withheld under the backup withholding rules are
not an additional tax and may be refunded, or credited against the U.S. Holder's
U.S. federal income tax liability, provided that the required information is
furnished to the IRS. In addition, information returns will be filed with the
IRS in connection with payments on the debt securities and the proceeds from a
sale or other disposition of the debt securities, unless the U.S. Holder
provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
As used herein, the term "Non-U.S. Holder" means, for U.S. federal income
tax purposes, a beneficial owner of a debt security issued under this prospectus
that is:
o an individual who is classified as a nonresident alien;
o a foreign corporation; or
o a foreign estate or trust.
"Non-U.S. Holder" does not include a holder who is an individual present in
the United States for 183 days or more in the taxable year of disposition and
who is not otherwise a resident of the United States for U.S. federal income tax
purposes. Such a holder is urged to consult his or her own tax advisors
regarding the U.S. federal income tax consequences of the sale, exchange or
other disposition of a debt security.
A Non-U.S. Holder will not be subject to U.S. federal income tax, including
withholding tax, on payments of principal or premium, if any, or interest
(including original issue discount) on a debt security, or proceeds from or gain
on the sale or disposition of a debt security, provided that:
o the Non-U.S. Holder does not own, directly or by attribution, ten
percent or more of the total combined voting power of all classes of
our stock entitled to vote;
o the Non-U.S. Holder is not a controlled foreign corporation related,
directly or indirectly, to us through stock ownership;
o the Non-U.S. Holder is not a bank receiving interest under section
881(c)(3)(A) of the Code; and
o the certification requirement has been fulfilled with respect to the
beneficial owner, as described below.
Certification Requirement. In the case of a debt security, the
certification requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of that debt security (or a financial
institution holding a debt security on behalf of the beneficial owner) furnishes
to us an IRS Form W-8BEN, in which the beneficial owner certifies under
penalties of perjury that it is not a U.S. person.
United States Federal Estate Tax. Individual Non-U.S. Holders and entities
the property of which is potentially includible in such an individual's gross
estate for U.S. federal estate tax purposes (for example, a trust funded by such
an individual and with respect to which the individual has retained certain
interests or powers), should note that, absent an applicable treaty benefit, a
debt security that is treated as a debt obligation for U.S. federal estate tax
purposes will be treated as U.S. situs property subject to U.S. federal estate
tax if payments on the debt security, if received by the decedent at the time of
death, would have been subject to U.S. federal withholding tax (even if the
70
W-8BEN certification requirement described above were satisfied and not taking
into account an elimination of such U.S. federal withholding tax due to the
application of an income tax treaty).
Non-U.S. Holders should consult their own tax advisors regarding the U.S.
federal estate tax consequences of an investment in the debt securities in their
particular situations and the availability of benefits provided by an applicable
estate tax treaty, if any.
Backup Withholding and Information Reporting. Information returns will
generally be filed with the IRS in connection with payments on debt securities.
Unless the Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person, information returns may be filed with the IRS in
connection with the proceeds from a sale or other disposition of a debt security
and the Non-U.S. Holder may be subject to U.S. backup withholding on payments on
debt securities or on the proceeds from a sale or other disposition of debt
securities. The certification procedures required to claim the exemption from
withholding tax on interest (including original issue discount, if any)
described above will satisfy the certification requirements necessary to avoid
the backup withholding as well. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S.
Holder's U.S. federal income tax liability and may entitle the Non-U.S. Holder
to a refund, provided that the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus 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 may sell our shares at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices. Any at-the-market offering of common stock will be through an
underwriter, or underwriters, acting as principal(s) or agent(s) for us.
We 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, 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 we use any underwriters to offer and sell these securities, we will
enter into an underwriting agreement with those underwriters when we and they
determine the offering price of the securities, and we will include the names of
the underwriters and the terms of the transaction in the applicable prospectus
supplement.
If we use a dealer to offer and sell these securities, we will sell the
securities to the dealer, as principal, and will name the dealer in the
applicable prospectus supplement. The dealer may then resell the securities to
the public at varying prices to be determined by that dealer at the time of
resale.
Our net proceeds will be the purchase price in the case of sales to a
dealer, the public offering price less discount in the case of sales to an
underwriter or the purchase price less commission in the case of sales through
an agent--in each case, less other expenses attributable to issuance and
distribution.
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 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
71
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 or dealer group, the agent acting on behalf of the
underwriting syndicate or for itself may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing these securities in the
offering, if the agent 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., MSIL and MSDWI, which we refer to as "remarketing firms,"
acting as principals for their own accounts or as agents for us, 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 its compensation in the applicable prospectus
supplement.
Remarketing firms, agents, underwriters and dealers may be entitled under
agreements with us to indemnification by us against some civil liabilities,
including liabilities under the Securities Act, and may be customers of, engage
in transactions with, or perform services for us in the ordinary course of
business.
We may enter into derivative or other hedging transactions with financial
institutions. These financial institutions may in turn engage in sales of common
stock to hedge their position, deliver this prospectus in connection with some
or all of those sales and use the shares covered by this prospectus to close out
any loan of common stock or short position created in connection with those
sales. We may also sell shares of common stock short using this prospectus and
deliver common stock covered by this prospectus to close out any loan of common
stock or such short positions, or loan or pledge common stock to financial
institutions that in turn may sell the shares of common stock using this
prospectus. We may pledge or grant a security interest in some or all of the
common stock covered by this prospectus to support a derivative or hedging
position or other obligation and, if we default in the performance of our
obligations, the pledgees or secured parties may offer and sell the common stock
from time to time pursuant to this prospectus.
If so indicated in the prospectus supplement, we will authorize agents,
underwriters or dealers to solicit offers by some purchasers to purchase debt
securities or warrants, purchase contracts or units, as the case may be, 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 prospectus supplement, and the prospectus supplement will state the
commission payable for solicitation of these offers.
Each underwriter, agent or dealer participating in the offering of the
securities will represent and agree that it will comply with all applicable laws
and regulations in force in any jurisdiction in which it purchases, offers,
sells or delivers the securities or possesses or distributes the applicable
prospectus supplement or this prospectus and will obtain any consent, approval
or permission required by it for the purchase, offer or sale by it of the
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 of the securities,
and we shall not have responsibility for the underwriter's, agent's or dealer's
compliance with the applicable laws and regulations or obtaining any required
consent, approval or permission.
With respect to sales of securities in any jurisdictions outside of the
United States, purchasers of any such securities may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the issue price set forth on the cover page of the
applicable prospectus supplement.
72
Any underwriter, agent or dealer utilized in the initial offering of
securities will not confirm sales to accounts over which it exercises
discretionary authority without the prior specific written approval of its
customer.
MS & Co., MSIL and MSDWI 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., MSIL, MSDWI and other affiliates of Morgan
Stanley may offer and sell these securities in the course of their business as
broker dealers, subject, in the case of common stock, preferred stock and
depositary shares, to obtaining any necessary approval of the New York Stock
Exchange, Inc. for any of the offers and sales MS & Co. and MSDWI may make. MS &
Co., MSIL, MSDWI 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., MSIL, MSDWI and other
affiliates may use this prospectus in connection with these transactions. None
of MS & Co., MSIL, MSDWI 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.
Underwriters, agents and dealers participating in offerings of the
securities that are not our affiliates may presently or from time to time engage
in business transactions with us, including extending loans to us.
In the event that MS & Co., MSDWI or any other NASD member participates in
a public offering of these securities: (a) post-effective amendments or
prospectus supplements disclosing the actual price and selling terms will be
submitted to the NASD's Corporate Financing Department (the "Department") at the
same time they are filed with the SEC; (b) the Department will be advised if,
subsequent to the filing of the offering, any 5% or greater shareholder of ours
is or becomes an affiliate or associated person of an NASD member participating
in the distribution; and (c) all NASD members participating in the offering will
confirm their understanding of the requirements that have to be met in
connection with SEC Rule 415 and Notice-to-Members 88-101. Underwriting
discounts and commissions on securities sold in the initial distribution will
not exceed 8% of the offering proceeds.
LEGAL MATTERS
The validity of these securities will be passed upon for Morgan Stanley by
Davis Polk & Wardwell, or other counsel who is satisfactory to MS & Co., MSIL or
MSDWI, as the case may be, and who may be an officer of Morgan Stanley. Sidley
Austin LLP, will pass upon some legal matters relating to these securities for
the underwriters. Sidley Austin LLP has in the past represented Morgan Stanley
and continues to represent Morgan Stanley on a regular basis and in a variety of
matters.
EXPERTS
The consolidated financial statements and financial statement schedules of
Morgan Stanley and its subsidiaries at November 30, 2004 and 2003 and for each
of the three fiscal years in the period ended November 30, 2004, and
management's report on the effectiveness of internal control over financial
reporting, which are incorporated in this prospectus by reference to Exhibit No.
99.1 of Morgan Stanley's Current Report on Form 8-K filed October 12, 2005,
Schedule I of Morgan Stanley's Annual Report on Form 10-K for the fiscal year
ended November 30, 2004, filed on February 11, 2005 ("2004 Form 10-K") and Item
9A of the 2004 Form 10-K, respectively, have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their
reports, which are incorporated herein by reference (which reports (1) express
an unqualified opinion on the financial statements and financial statement
schedule and include an explanatory paragraph referring to the adoption of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment of FASB Statement No. 123,
in 2003, (2) express an unqualified opinion on management's assessment regarding
the effectiveness of internal control over financial reporting, and (3) express
an unqualified opinion on the effectiveness of internal control over financial
reporting) and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing).
73
With respect to the unaudited interim financial information for the periods
ended February 28, 2005 and February 29, 2004, May 31, 2005 and May 31, 2004 and
August 31, 2005 and August 31, 2004, which is incorporated herein by reference,
Deloitte & Touche LLP, an independent registered public accounting firm, have
applied limited procedures in accordance with the standards of the Public
Company Accounting Oversight Board (United States) for a review of such
information. However, as stated in their reports included in Morgan Stanley's
Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2005 and
in Exhibit Nos. 99.2 and 99.3 of Morgan Stanley's Current Report on Form 8-K
filed October 12, 2005, and incorporated by reference herein, they did not audit
and they do not express an opinion on the interim financial information.
Accordingly, the degree of reliance on their reports 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 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.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which we refer to as a "plan," should consider the fiduciary
standards of ERISA in the context of the plan's particular circumstances before
authorizing an investment in these 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.
In addition, we and certain of our subsidiaries and affiliates, including
MS & Co. and MSDWI, may be each considered "parties in interest" within the
meaning of ERISA or "disqualified persons" within the meaning of the Code with
respect to many plans, as well as many individual retirement accounts and Keogh
plans (also "plans"). ERISA Section 406 and Code Section 4975 generally prohibit
transactions between plans and parties in interest or disqualified persons.
Prohibited transactions within the meaning of ERISA or the Code would likely
arise, for example, if these securities are acquired by or with the assets of a
plan with respect to which MS & Co., MSDWI or any of their affiliates is a
service provider or other party in interest, unless the securities are acquired
pursuant to an exemption from the "prohibited transaction" rules. A violation of
these "prohibited transaction" rules could result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for those persons,
unless exemptive relief is available under an applicable statutory or
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 these
securities. Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts) and PTCE 84-14 (for
certain transactions determined by independent qualified asset managers).
Because we may be considered a party in interest with respect to many
plans, unless otherwise specified in the applicable prospectus supplement, these
securities may not be purchased, held or disposed of 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 such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14
or such purchase, holding or disposition is otherwise not prohibited. Unless
otherwise specified in the applicable prospectus supplement, any purchaser,
including any fiduciary purchasing on behalf of a plan, transferee or holder of
these securities will be deemed to have represented, in its corporate and its
fiduciary capacity, by its purchase and holding thereof that either (a) it is
not a plan or a Plan Asset Entity, is not purchasing such securities on behalf
of or with "plan assets" of any plan, or with any assets of a governmental or
church plan that is subject to any federal, state or local law that is
substantially similar to the provisions of Section 406 of ERISA or Section 4975
of the Code or (b) its purchase, holding and disposition are eligible for
exemptive relief or such purchase, holding or disposition are not
74
prohibited by ERISA or Section 4975 of the Code (or in the case of a
governmental or church plan, any substantially similar federal, state or local
law).
Under ERISA, assets of a plan may include assets held in the general
account of an insurance company which has issued an insurance policy to such
plan or assets of an entity in which the plan has invested. Accordingly,
insurance company general accounts that include assets of a plan must ensure
that one of the foregoing exemptions is available. 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 these securities on behalf
of or with "plan assets" of any plan consult with their counsel regarding the
availability of exemptive relief under PTCEs 96-23, 95-60, 91-38, 90-1 or 84-14.
Purchasers of these securities have exclusive responsibility for ensuring
that their purchase, holding and disposition of the securities do not violate
the prohibited transaction rules of ERISA or the Code or similar regulations
applicable to governmental or church plans, as described above.
75
Morgan Stanley