-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D1N5jrsnkwqCEgdbuLtkeKHYvnks1oCZidUo5mvmrCHinSXyQC8mLUj1ouy/1+Tv 7yTNSphunJSPYQjw+mjR2w== 0000950103-02-000961.txt : 20020926 0000950103-02-000961.hdr.sgml : 20020926 20020926172142 ACCESSION NUMBER: 0000950103-02-000961 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20020926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY CENTRAL INDEX KEY: 0000895421 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 363145972 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-83616 FILM NUMBER: 02773561 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127614000 MAIL ADDRESS: STREET 1: 1221 SIXTH AVENUE STREET 2: 27TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER DISCOVER & CO DATE OF NAME CHANGE: 19960315 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER & CO DATE OF NAME CHANGE: 19980326 424B3 1 sep2402_424b3.txt PROSPECTUS Dated June 11, 2002 Pricing Supplement No. 13 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-83616 Dated June 11, 2002 Dated September 23, 2002 Rule 424(b)(3) $31,000,000 Morgan Stanley MEDIUM-TERM NOTES, SERIES C Senior Fixed Rate Notes -------------------- BRIDGES(SM) due June 30, 2009 Based on the Value of the Dow Jones Industrial Average(SM) The BRIDGES will pay the principal amount of $10 at maturity. In addition, the BRIDGES will also pay a supplemental amount if the average value of the Dow Jones Industrial Average(SM), which we refer to as the DJIA(SM), as determined on five specified determination dates during the life of the BRIDGES exceeds the initial index value. o The principal amount and issue price of each BRIDGES is $10. o We will not pay interest on the BRIDGES. o At maturity, you will receive the principal amount of $10 per BRIDGES plus a supplemental redemption amount equal to the product of (i) $10 times (ii) the percentage increase, if any, in the final average index value over the initial index value. o The initial index value equals 7872.15 , the closing value of the DJIA on September 23, 2002, the day we offered the BRIDGES for initial sale to the public. o The final average index value will equal the arithmetic average of the closing values of the DJIA on June 30, 2005, June 30, 2006, June 30, 2007, June 30, 2008 and June 26, 2009. o If the final average index value of the DJIA is less than or equal to the initial index value, you will receive only the principal amount of the BRIDGES and will not receive any supplemental redemption amount. o Investing in the BRIDGES is not equivalent to investing in the DJIA or its component stocks. o The BRIDGES have been approved for listing on the American Stock Exchange LLC, subject to official notice of issuance. The AMEX listing symbol for the BRIDGES is "BGD." You should read the more detailed description of the BRIDGES in this pricing supplement. In particular, you should review and understand the descriptions in "Summary of Pricing Supplement" and "Description of BRIDGES." The BRIDGES involve risks not associated with an investment in ordinary debt securities. See "Risk Factors" beginning on PS-5. -------------------- PRICE $10 PER BRIDGES -------------------- Price to Agent's Proceeds to Public Commissions Company -------- ----------- ----------- Per BRIDGES....................... $10 $.30 $9.70 Total............................. $31,000,000 $930,000 $30,070,000 If you purchase at least 100,000 BRIDGES in any single transaction and you comply with the holding period requirement described under "Supplemental Information Concerning Plan of Distribution" in this pricing supplement, the price will be $9.80 per BRIDGES (98% of the issue price). In that case, the Agent's commissions will be $.10 per BRIDGES. MORGAN STANLEY (This page intentionally left blank) PS-2 SUMMARY OF PRICING SUPPLEMENT The following summary describes the BRIDGES we are offering to you in general terms only. You should read the summary together with the more detailed information that is contained in the rest of this pricing supplement and in the accompanying prospectus and prospectus supplement. You should carefully consider, among other things, the matters set forth in "Risk Factors." The BRIDGES offered are medium-term debt securities of Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). The return on the BRIDGES is linked to the performance of the Dow Jones Industrial Average, which we refer to as the DJIA. These BRIDGES combine features of debt and equity by offering at maturity 100% protection of the issue price with the opportunity to participate in the upside potential of the underlying DJIA. "BRIDGES" is our service mark. "Dow Jones," "Dow Jones Industrial Average(SM)" and "DJIA(SM)" are service marks of Dow Jones & Company, Inc. and have been licensed for use by Morgan Stanley. Each BRIDGES costs $10 We, Morgan Stanley, are offering you BRIDGES due June 30, 2009 Based on the Value of the Dow Jones Industrial Average. The principal amount and issue price of each BRIDGES is $10. Payment at maturity Unlike ordinary debt securities, the BRIDGES do not pay interest. Instead, at maturity, you will receive the principal amount of $10 per BRIDGES, plus a supplemental redemption amount if the final average index value of the DJIA is greater than the initial index value. The initial index value is 7872.15, the closing value of the DJIA on September 23, 2002, the day we offered the BRIDGES for initial sale to the public. The final average index value is the arithmetic average of the closing values of the DJIA on each of the five determination dates during the life of the BRIDGES. 100% Principal Protection We will pay you at least $10 at maturity, plus the supplemental redemption amount, if any. The Supplemental Redemption Amount The supplemental redemption amount will be equal to the product of (i) $10 times (ii) the percentage increase, if any, in the final average index value over the initial index value. If the final average index value is greater than the initial index value, the supplemental redemption amount will be calculated as follows: Supplemental (Final Average Index Value - Initial Index Value) Redemption = $10 x ------------------------------------------------- Amount Initial Index Value
where, Initial Index Value = 7872.15 the arithmetic average of Final Average the DJIA closing values on Index Value = each of the Determination Dates as calculated by the Calculation Agent on the last Determination Date PS-3 Determination Dates = June 30, 2005, June 30, 2006, June 30, 2007, June 30, 2008, and June 26, 2009, in each case subject to adjustment in the event of certain market disruption events However, if the final average index value is less than or equal to the initial index value, the supplemental redemption amount will be zero. In that case, you will receive only the principal amount at maturity and will not receive any supplemental redemption amount. The payment to you of the principal amount and the supplemental redemption amount, if any, upon maturity of the BRIDGES will be determined in U.S. Dollars. You can review the historical values of the DJIA in the section of this pricing supplement called "Description of BRIDGES--Historical Information." The payment of dividends on the stocks that underlie the DJIA is not reflected in the level of the DJIA and, therefore, has no effect on the calculation of the payment at maturity. MS & Co. will be the We have appointed our affiliate, Morgan Stanley & calculation agent Co. Incorporated, which we refer to as MS & Co., to act as calculation agent for JPMorgan Chase Bank, the trustee for our senior notes. As calculation agent, MS & Co. will determine the final average index value, the percentage change in the DJIA and the supplemental redemption amount, if any, you will receive at maturity. Where you can find The BRIDGES are senior notes issued as part of more information on our Series C medium-term note program. You can the BRIDGES find a general description of our Series C medium-term note program in the accompanying prospectus supplement dated June 11, 2002. We describe the basic features of this type of note in the sections of the prospectus supplement called "Description of Notes--Fixed Rate Notes" and " --Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices." Because this is a summary, it does not contain all the information that may be important to you. For a detailed description of the terms of the BRIDGES, you should read the "Description of BRIDGES" section in this pricing supplement. You should also read about some of the risks involved in investing in BRIDGES in the section called "Risk Factors." The tax treatment of investments in index- linked notes such as BRIDGES differs from that of investments in ordinary debt securities. We urge you to consult with your investment, legal, tax, accounting and other advisors with regard to any proposed or actual investment in the BRIDGES. How to reach us You may contact your local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (212) 761-4000). PS-4 RISK FACTORS The BRIDGES are not secured debt and, unlike ordinary debt securities, the BRIDGES do not pay interest. Investing in the BRIDGES is not equivalent to investing directly in the DJIA. This section describes the most significant risks relating to the BRIDGES. You should carefully consider whether the BRIDGES are suited to your particular circumstances before you decide to purchase them. BRIDGES are not The terms of the BRIDGES differ from those of ordinary senior notes ordinary debt securities in that we will not pay interest on the BRIDGES. Because the supplemental redemption amount due at maturity may be equal to zero, the return on your investment in the BRIDGES (the effective yield to maturity) may be less than the amount that would be paid on an ordinary debt security. The return of only the principal amount of each BRIDGES at maturity will not compensate you for the effects of inflation and other factors relating to the value of money over time. BRIDGES may not pay If the final average index value is less than or more than the principal equal to the initial index value, you will amount at maturity receive only the principal amount of $10 for each BRIDGES you hold at maturity. BRIDGES may not There may be little or no secondary market for be actively traded the BRIDGES. Although the BRIDGES have been approved for listing on the American Stock Exchange LLC, which we refer to as the AMEX, it is not possible to predict whether the BRIDGES will trade in the secondary market. Even if there is a secondary market, it may not provide significant liquidity. MS & Co. currently intends to act as a market maker for the BRIDGES, but it is not required to do so. Market price of the Several factors, many of which are beyond our BRIDGES influenced by control, will influence the value of the BRIDGES, many unpredictable factors including: o the value of the DJIA at any time and on the specific determination dates o interest and yield rates in the market o the volatility (frequency and magnitude of changes in value) of the DJIA o economic, financial, political and regulatory or judicial events that affect the securities underlying the DJIA or stock markets generally and which may affect the final average index value o the time remaining to the maturity of the BRIDGES o the dividend rate on the stocks underlying the DJIA o our creditworthiness Some or all of these factors will influence the price that you will receive if you sell your BRIDGES prior to maturity. For example, you may have to sell your BRIDGES at a substantial discount from the principal amount if at the time of sale or on earlier determination dates the DJIA is at, below, or not sufficiently above the initial index value or if market interest rates rise. You cannot predict the future performance of the DJIA based on its historical performance. We cannot guarantee that the final average index value will be higher than the initial index value so that you will receive at maturity an amount in excess of the principal amount of the BRIDGES. Investing in the BRIDGES is Because the final average index value is based on not equivalent to investing the closing value of the DJIA on the five in the DJIA determination dates during the term of the BRIDGES, it is possible for the final average index value to be lower than the initial index value even if the value of the DJIA at maturity is higher than the initial index value. PS-5 We are not affiliated We are not affiliated with any of the issuers of with the issuers of the the stocks underlying the DJIA. We or our stocks underlying the DJIA subsidiaries may now or in the future engage in business with one or more of the issuers of the underlying stocks, including extending loans to, or making equity investments in, any of them or their affiliates or providing underwriting or advisory services to them, including merger and acquisition advisory services. In the course of our business, we or our affiliates may also acquire non-public information about one or more of these issuers. Neither we nor any of our affiliates undertakes to disclose any such information to you. Moreover, we have no ability to control the actions of the issuers of the underlying stocks, including any corporate actions of the type that would require Dow Jones Indexes to adjust the DJIA. We or our affiliates from time to time have published and in the future may publish research reports with respect to the underlying stocks. These research reports may or may not recommend that investors buy or hold the underlying stocks. The DJIA was compiled independently of any research recommendations and may not be consistent with any such recommendations. The issuers of the underlying stocks are not involved in the offering of the BRIDGES in any way and have no obligation to consider your interest as an owner of the BRIDGES in taking any corporate actions that might affect the value of your BRIDGES. None of the money you pay for the BRIDGES will go to the Dow Jones Company, Inc. ("Dow Jones") or the issuers of the underlying stocks. Adjustments to the DJIA Dow Jones Indexes, a part of Dow Jones, is could adversely affect responsible for calculating and maintaining the the value of the BRIDGES DJIA. You should not conclude that the inclusion of a stock in the DJIA is an investment recommendation by us of that stock. The editors of The Wall Street Journal, which is published by Dow Jones, can add, delete or substitute the stocks underlying the DJIA, and Dow Jones Indexes can make other methodological changes required by certain events relating to the underlying stocks, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the DJIA. Dow Jones may discontinue or suspend calculation or dissemination of the DJIA. Any of these actions could adversely affect the value of the BRIDGES. Dow Jones may discontinue or suspend calculation or publication of the DJIA at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued DJIA. MS & Co. could have an economic interest that is different than that of holders of the BRIDGES insofar as, for example, MS & Co. is not precluded from considering indices that are calculated and published by MS & Co. or another of its affiliates. If there is no appropriate successor index, at maturity the payout on the BRIDGES will be an amount based on the closing prices of the stocks underlying the DJIA at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating the DJIA last in effect prior to discontinuance of the DJIA. You have no As an owner of BRIDGES, you will not have voting shareholder rights rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that underlie the DJIA. PS-6 Adverse economic interests As calculation agent, our affiliate MS & Co. will of the calculation agent calculate the final average index value and the and its affiliates may supplemental redemption amount, if any, we will influence determinations pay to you at maturity. We expect that MS & Co. and other affiliates will carry out hedging activities related to the BRIDGES (and possibly to other instruments linked to the DJIA or its component stocks), including trading in the stocks underlying the DJIA as well as in other instruments related to the DJIA. Any of these hedging activities could influence MS & Co.'s determinations as calculation agent. MS & Co. and some of our other subsidiaries also trade the stocks underlying the DJIA and other financial instruments related to the DJIA on a regular basis as part of their general broker-dealer business. Any of these trading activities could potentially affect the value of the DJIA and, accordingly, could affect the payout to you on the BRIDGES. Tax treatment You should also consider the tax consequences of investing in the BRIDGES. The BRIDGES will be treated as "contingent payment debt instruments" for U.S. federal income tax purposes, as described in the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation." Under this treatment, if you are a U.S. taxable investor, you will be subject to annual income tax based on the comparable yield of the BRIDGES even though you will not receive any interest payments on the BRIDGES. In addition, any gain recognized by U.S. taxable investors on the sale or exchange of the BRIDGES generally will be treated as ordinary income. Please read carefully the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation" and the section called "United States Federal Taxation--Notes--Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices" in the accompanying prospectus supplement. You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the BRIDGES. PS-7 DESCRIPTION OF BRIDGES Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term "BRIDGES" refers to each $10 principal amount of any of our BRIDGES due June 30, 2009 Based on the Value of the Dow Jones Industrial Average. In this pricing supplement, the terms "we," "us" and "our" refer to Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). Principal Amount...................... $31,000,000 Original Issue Date (Settlement Date). September 26, 2002 Maturity Date......................... June 30, 2009, subject to extension in the event of a Market Disruption Event on the fifth Determination Date for calculating the Final Average Index Value. If, due to a Market Disruption Event or otherwise, the fifth Determination Date is postponed so that it falls less than two scheduled Trading Days prior to the scheduled Maturity Date, the Maturity Date will be the second scheduled Trading Day following that fifth Determination Date as postponed. See "--Determination Dates" below. Specified Currency.................... U.S. Dollars CUSIP................................. 61744Y264 Minimum Denominations................. $10 Issue Price........................... 100% Interest Rate......................... None Maturity Redemption Amount............ At maturity, you will receive for each BRIDGES $10 (the principal amount of each BRIDGES) plus the Supplemental Redemption Amount, if any. Supplemental Redemption Amount........ We will pay you a Supplemental Redemption Amount per BRIDGES at maturity equal to the greater of (i) zero and (ii) the product of $10 times the DJIA Percent Change. The Calculation Agent will calculate the Supplemental Redemption Amount on the fifth Determination Date. We shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Maturity Redemption Amount on or prior to 11:00 a.m. on the Trading Day preceding the Maturity Date and (ii) deliver the aggregate cash amount due with respect to the BRIDGES to the Trustee for delivery to the holders on the Maturity Date. See "Discontinuance of the DJIA; Alteration of Method of Calculation" below. PS-8 DJIA Percent Change................... The DJIA Percent Change is a fraction, the numerator of which will be the Final Average Index Value minus the Initial Index Value and the denominator of which will be the Initial Index Value. The DJIA Percent Change is described by the following formula: Final Average Index Value - Initial Index Value ----------------------------------------------- Initial Index Value
Initial Index Value................... 7872.15, the Index Closing Value on September 23, 2002, the day we offered the BRIDGES for initial sale to the public. Final Average Index Value............. The arithmetic average of the Index Closing Values on each of the Determination Dates, as determined by the Calculation Agent. Index Closing Value................... The Index Closing Value on any Trading Day will equal the closing value of the DJIA or any Successor Index (as defined under "--Discontinuance of the DJIA; Alteration of Method of Calculation" below) published at the regular official weekday close of trading on that Trading Day. In certain circumstances, the Index Closing Value will be based on the alternate calculation of the DJIA described under "--Discontinuance of the DJIA; Alteration of Method of Calculation." In this "Description of BRIDGES," references to the DJIA will include any Successor Index, unless the context requires otherwise. Determination Dates................... The Determination Dates will be June 30, 2005, June 30, 2006, June 30, 2007, June 30, 2008 and June 26, 2009, in each such case subject to adjustment for Market Disruption Events as described in the two following paragraphs. If any of the first four scheduled Determination Dates is not a Trading Day or if a Market Disruption Event occurs on any such date, such Determination Date will be the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred; provided that if a Market Disruption Event occurs on any of the first four scheduled Determination Dates and on each of the five Trading Days immediately succeeding that scheduled Determination Date, then (i) such fifth succeeding Trading Day will be deemed to be the relevant Determination Date, notwithstanding the occurrence of a Market Disruption Event on such day, and (ii) with respect to any such fifth Trading Day on which a Market Disruption Event occurs, the Calculation Agent will determine the value of the DJIA on such fifth Trading Day in accordance with the formula for calculating the value of the DJIA last in effect prior to the commencement of the Market Disruption Event, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such Trading Day of each security most recently comprising the DJIA. If June 26, 2009 (the fifth scheduled Determination Date) is not a Trading Day or if there is a Market Disruption Event on such day, the PS-9 fifth Determination Date will be the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred. Trading Day........................... A day, as determined by the Calculation Agent, on which trading is generally conducted on the New York Stock Exchange, Inc. ("NYSE"), the AMEX, the Nasdaq National Market, the Chicago Mercantile Exchange and the Chicago Board of Options Exchange and in the over-the-counter market for equity securities in the United States. Book Entry Note or Certificated Note.. Book Entry Senior Note or Subordinated Note...... Senior Trustee............................... JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) Agent................................. Morgan Stanley & Co. Incorporated and its successors ("MS & Co."). Market Disruption Event............... "Market Disruption Event" means, with respect to the DJIA, the occurrence or existence on any Trading Day of a suspension, absence or material limitation of trading of six or more of the stocks then constituting the DJIA (or the relevant Successor Index) on the Relevant Exchanges for such securities for the same period of trading longer than two hours or during the one-half hour period preceding the close of the principal trading session on such Relevant Exchange; or a breakdown or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported trading prices for six or more of the stocks then constituting the DJIA (or the relevant Successor Index) during the last one-half hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate; or the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts related to the DJIA (or the relevant Successor Index) for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such market, in each case as determined by the Calculation Agent in its sole discretion. For purposes of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract will not constitute a Market Disruption Event, (3) limitations pursuant to the rules of any Relevant Exchange similar to NYSE Rule 80A (or any applicable rule or regulation enacted or promulgated by any other self-regulatory organization or any government agency of scope similar to NYSE Rule 80A as determined by the Calculation Agent) on trading during significant market fluctuations will constitute a suspension, absence or material limitation of trading, (4) a suspension of trading in futures or options contracts on the DJIA by the primary securities market trading in such contracts by reason of (a) a price change exceeding limits set by such exchange or market, (b) an imbalance of orders PS-10 relating to such contracts or (c) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or material limitation of trading in futures or options contracts related to the DJIA and (5) a "suspension, absence or material limitation of trading" on any Relevant Exchange or on the primary market on which futures or options contracts related to the DJIA are traded will not include any time when such market is itself closed for trading under ordinary circumstances. Relevant Exchange..................... "Relevant Exchange" means the primary U.S. organized exchange or market of trading for any security then included in the DJIA or any Successor Index. Alternate Exchange Calculation in Case of an Event of Default ....... In case an event of default with respect to the BRIDGES shall have occurred and be continuing, the amount declared due and payable for each BRIDGES upon any acceleration of the BRIDGES will be equal to $10 plus the Supplemental Redemption Amount, if any, determined as though the Index Closing Value for any Determination Date scheduled to occur on or after such date of acceleration were the Index Closing Value on the date of acceleration. If the maturity of the BRIDGES is accelerated because of an event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Maturity Redemption Amount as promptly as possible and in no event later than two Business Days after the date of acceleration. Calculation Agent..................... MS & Co. All determinations made by the Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding on you and on us. All calculations with respect to the Final Average Index Value and the Supplemental Redemption Amount, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per BRIDGES will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid on the aggregate number of BRIDGES will be rounded to the nearest cent, with one- half cent rounded upward. Because the Calculation Agent is our affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests as an owner of the BRIDGES, including with respect to certain determinations and judgments that the Calculation Agent must make in determining any Index Closing Value, the Final Average Index Value, the DJIA Percent Change, the Supplemental Redemption Amount or whether a Market Disruption Event has PS-11 occurred. See "--Discontinuance of the DJIA; Alteration of Method of Calculation" and "--Market Disruption Event" below. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. The DJIA.............................. We have derived all information contained in this pricing supplement regarding the DJIA, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by, Dow Jones. The DJIA is calculated and maintained by Dow Jones Indexes and published by Dow Jones. We make no representation or warranty as to the accuracy or completeness of such information. The DJIA is a price-weighted index comprised of 30 common stocks selected at the discretion of the editors of The Wall Street Journal ("WSJ"), which is published by Dow Jones, as representative of the broad market of U.S. industry. There are no pre-determined criteria for selection of a component stock except that component companies represented by the DJIA should be established U.S. companies that are leaders in their industries. The DJIA serves as a measure of the entire U.S. market such as financial services, technology, retail, entertainment and consumer goods and is not limited to traditionally defined industrial stocks. Changes in the composition of the DJIA are made entirely by the editors of the WSJ without consultation with the component companies represented in the DJIA, any stock exchange, any official agency or us. In order to maintain continuity, changes to the component stocks included in the DJIA tend to be made infrequently and generally occur only after corporate acquisitions or other dramatic shifts in a component company's core business. When one component stock is replaced, the entire index is reviewed. As a result, multiple component changes are often implemented simultaneously. The component stocks of the DJIA may be changed at any time for any reason. The DJIA is price weighted rather than market capitalization weighted. Therefore, the component stock weightings are affected only by changes in the stocks' prices, in contrast with the weightings of other indices that are affected by both price changes and changes in the number of shares outstanding. The value of the DJIA is the sum of the primary exchange prices of each of the 30 common stocks included in the DJIA, divided by a divisor. The divisor is changed in accordance with a mathematical formula to adjust for stock dividends, splits, spin-offs and other corporate actions such as rights offerings and extraordinary dividends. Normal cash dividends are not taken into account in the calculation of the DJIA. The current divisor of the DJIA is published daily in the WSJ and other publications. While this methodology reflects current practice in calculating the DJIA, no assurance can be given that Dow Jones will not modify or change this methodology in a manner that may affect the amounts payable on the BRIDGES at maturity. The formula used to calculate divisor adjustments is: PS-12 New Divisor = Current Divisor x Adjusted Sum of Prices ------------------------ Unadjusted Sum of Prices
Each component company of the DJIA as of September 23, 2002 and its corresponding stock ticker symbol is set forth in the following table. Twenty-eight of the DJIA component companies are traded on the NYSE, and the other two companies are traded on the Nasdaq National Market. Issuer of Component Stock Symbol ------------------------------------------------ ------ Alcoa Inc....................................... AA American Express Company........................ AXP AT&T Corp....................................... T The Boeing Company.............................. BA Caterpillar Inc................................. CAT Citigroup Inc................................... C The Coca-Cola Company........................... KO E.I. du Pont de Nemours and Company............. DD Eastman Kodak Company........................... EK Exxon Mobil Corporation......................... XOM General Electric Company........................ GE General Motors Corporation...................... GM Hewlett-Packard Company......................... HPQ The Home Depot, Inc............................. HD Honeywell International Inc..................... HON Intel Corporation............................... INTC International Business Machines Corporation..... IBM International Paper Company..................... IP J.P. Morgan Chase & Co.......................... JPM Johnson & Johnson............................... JNJ McDonald's Corporation.......................... MCD Merck & Co., Inc................................ MRK Microsoft Corporation........................... MSFT 3M Company...................................... MMM Philip Morris Companies Inc..................... MO The Procter & Gamble Company.................... PG SBC Communications Inc.......................... SBC United Technologies Corporation................. UTX Wal-Mart Stores, Inc............................ WMT The Walt Disney Company......................... DIS
Discontinuance of the DJIA; Alteration of Method of Calculation......................... If Dow Jones discontinues publication of the DJIA and Dow Jones or another entity publishes a successor or substitute index that MS & Co., as the Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued DJIA (such index being referred to herein as a "Successor Index"), then any subsequent Index Closing Value will be determined by reference to the value of such Successor Index at the close of trading on the NYSE, the AMEX, the Nasdaq National Market or the relevant exchange or market for the Successor Index on the date that any Index Closing Value is to be determined. Upon any selection by the Calculation Agent of a Successor Index, the Calculation Agent will cause written notice thereof to be PS-13 furnished to the Trustee, to Morgan Stanley and to the holders of the BRIDGES within three Trading Days of such selection. If Dow Jones discontinues publication of the DJIA prior to, and such discontinuance is continuing on, any Determination Date and MS & Co., as the Calculation Agent, determines, in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent will determine the Index Closing Value for such date. The Index Closing Value will be computed by the Calculation Agent in accordance with the formula for calculating the DJIA last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) at the close of the principal trading session of the Relevant Exchange on such date of each security most recently comprising the DJIA without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements, discontinuance of the publication of the DJIA may adversely affect the value of the BRIDGES. If at any time the method of calculating the DJIA or a Successor Index, or the value thereof, is changed in a material respect, or if the DJIA or a Successor Index is in any other way modified so that such index does not, in the opinion of MS & Co., as the Calculation Agent, fairly represent the value of the DJIA or such Successor Index had such changes or modifications not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York City on each date on which the Index Closing Value is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to the DJIA or such Successor Index, as the case may be, as if such changes or modifications had not been made, and the Calculation Agent will calculate the Final Average Index Value with reference to the DJIA or such Successor Index, as adjusted. Accordingly, if the method of calculating the DJIA or a Successor Index is modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent will adjust such index in order to arrive at a value of the DJIA or such Successor Index as if it had not been modified (e.g., as if such split had not occurred). Historical Information................ The following table sets forth the high and low Index Closing Values, as well as end-of-quarter Index Closing Values, of the DJIA for each quarter in the period from January 1, 1997 through September 23, 2002. The Index Closing Value on September 23, 2002 was 7872.15. We obtained the information in the table below from Bloomberg Financial Markets, and we believe such information to be accurate. The historical values of the DJIA should not be taken as an indication of future performance, and no assurance can be given as to the level of the DJIA on any Determination Date. The value of the DJIA may be lower on the Determination Dates than on the date of this pricing supplement so that you will receive only the principal amount of the PS-14 BRIDGES at maturity. We cannot give you any assurance that the average value of the DJIA on the Determination Dates will be higher than the Initial Index Value so that you will receive a payment in excess of the principal amount of the BRIDGES at maturity. High Low Period End --------- --------- ---------- 1997: First Quarter............. 7,085.16 6,442.49 6,583.48 Second Quarter............ 7,796.51 6,391.69 7,672.79 Third Quarter............. 8,259.31 7,622.42 7,945.26 Fourth Quarter............ 8,178.31 7,161.15 7,908.25 1998: First Quarter............. 8,906.43 7,580.42 8,799.81 Second Quarter............ 9,211.84 8,627.93 8,952.02 Third Quarter............. 9,337.97 7,539.07 7,842.62 Fourth Quarter............ 9,374.27 7,632.53 9,181.43 1999: First Quarter............. 10,006.78 9,120.67 9,786.16 Second Quarter............ 11,107.19 9,832.51 10,970.80 Third Quarter............. 11,326.04 10,213.48 10,337.00 Fourth Quarter............ 11,497.12 10,019.71 11,497.12 2000: First Quarter............. 11,722.98 9,796.03 10,921.90 Second Quarter............ 11,287.08 10,299.24 10,447.90 Third Quarter............. 11,310.64 10,481.47 10,650.90 Fourth Quarter............ 10,977.21 9,975.02 10,786.80 2001: First Quarter............. 10,983.63 9,389.48 9,878.78 Second Quarter............ 11,337.92 9,485.71 10,502.40 Third Quarter............. 10,610.00 8,235.81 8,847.56 Fourth Quarter............ 10,136.99 8,836.83 10,021.50 2002: First Quarter............. 10,635.25 9,618.24 10,403.90 Second Quarter ........... 10,381.73 9,120.11 9,243.26 Third Quarter (through September 23, 2002)....... 9,379.50 7,702.34 7,872.15
Use of Proceeds and Hedging........... The net proceeds we receive from the sale of the BRIDGES will be used for general corporate purposes and, in part, by us or by one or more of our subsidiaries in connection with hedging our obligations under the BRIDGES. See also "Use of Proceeds" in the accompanying prospectus. On the date of this pricing supplement, we, through our subsidiaries or others, hedged our anticipated exposure in connection with the BRIDGES by taking positions in the stocks underlying the DJIA, in futures or options contracts on the DJIA or its component securities listed on major securities markets, or other instruments. Purchase activity could potentially have increased the value of the DJIA, and therefore effectively have increased the level of the DJIA that must prevail on the Determination Dates in order for you to receive at maturity a payment that exceeds the principal amount of the BRIDGES. Through our subsidiaries, we are likely to modify our hedge position throughout the life of the BRIDGES, including on the Determination Dates, by purchasing and selling the stocks underlying the DJIA, futures or options contracts on the DJIA or its component PS-15 stocks listed on major securities markets or positions in any other available securities or instruments that we may wish to use in connection with such hedging activities, including by selling all or part of our hedge position on one or more of the Determination Dates. Although we have no reason to believe that our hedging activity has had, or will in the future have, a material impact on the value of the DJIA, we cannot give any assurance that we did not, or in the future will not, affect such value as a result of our hedging activities. Supplemental Information Concerning Plan of Distribution.................. Under the terms and subject to conditions contained in the U.S. distribution agreement referred to in the prospectus supplement under "Plan of Distribution," the Agent, acting as principal for its own account, has agreed to purchase, and we have agreed to sell, the principal amount of BRIDGES set forth on the cover of this pricing supplement. The Agent proposes initially to offer the BRIDGES directly to the public at the public offering price set forth on the cover page of this pricing supplement; provided that the price will be $9.80 per BRIDGES for purchasers of 100,000 or more BRIDGES in any single transaction, subject to the holding period requirements described below. The Agent may allow a concession not in excess of 3% of the principal amount of the BRIDGES to other dealers. We expect to deliver the BRIDGES against payment therefor in New York, New York on September 26, 2002. After the initial offering, the Agent may vary the offering price and other selling terms from time to time. Where an investor purchases 100,000 or more BRIDGES in a single transaction at the reduced price, approximately 98% of the BRIDGES purchased by the investor (the "Delivered BRIDGES") will be delivered on the Settlement Date. The balance of approximately 2% of the BRIDGES (the "Escrowed BRIDGES") purchased by the investor will be held in escrow at MS & Co. for the benefit of the investor and delivered to such investor if the investor and any accounts in which the investor may have deposited any of its Delivered BRIDGES have held all of the Delivered BRIDGES for 30 calendar days following the Original Issue Date or any shorter period deemed appropriate by the Agent. If an investor or any account in which the investor has deposited any of its Delivered BRIDGES fails to satisfy the holding period requirement, as determined by the Agent, all of the investor's Escrowed BRIDGES will be forfeited by the investor and not delivered to it. The Escrowed BRIDGES will instead be delivered to the Agent for sale to investors. This forfeiture will have the effect of increasing the purchase price per BRIDGES for such investors to 100% of the principal amount of the BRIDGES. Should investors who are subject to the holding period requirement sell their BRIDGES once the holding period is no longer applicable, the market price of the BRIDGES may be adversely affected. See also "Plan of Distribution" in the accompanying prospectus supplement. In order to facilitate the offering of the BRIDGES, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the BRIDGES. Specifically, the Agent may sell more PS-16 BRIDGES than it is obligated to purchase in connection with the offering, creating a naked short position in the BRIDGES for its own account. The Agent must close out any naked short position by purchasing the BRIDGES in the open market. A naked short position is more likely to be created if the Agent is concerned that there may be downward pressure on the price of the BRIDGES 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 Agent may bid for, and purchase, BRIDGES in the open market to stabilize the price of the BRIDGES. Any of these activities may raise or maintain the market price of the BRIDGES above independent market levels or prevent or retard a decline in the market price of the BRIDGES. The Agent is not required to engage in these activities, and may end any of these activities at any time. See "--Use of Proceeds and Hedging" above. License Agreement between Dow Jones and Morgan Stanley.................... Dow Jones and Morgan Stanley have entered into a non-exclusive license agreement providing for the license to Morgan Stanley, and certain of its affiliated or subsidiary companies, in exchange for a fee, of the right to use the DJIA, which is owned and published by Dow Jones, in connection with securities, including the BRIDGES. The license agreement between Dow Jones and Morgan Stanley provides that the following language must be set forth in this pricing supplement: The BRIDGES are not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones makes no representation or warranty, express or implied, to the owners of the BRIDGES or any member of the public regarding the advisability of investing in securities generally or in the BRIDGES particularly. Dow Jones' only relationship to Morgan Stanley is the licensing of certain trademarks, trade names and service marks of Dow Jones and of the Dow Jones Industrial Average(SM) which is determined, composed and calculated by Dow Jones without regard to Morgan Stanley or the BRIDGES. Dow Jones has no obligation to take the needs of Morgan Stanley or the owners of the BRIDGES into consideration in determining, composing or calculating the Dow Jones Industrial Average(SM). Dow Jones is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the BRIDGES to be issued or in the determination or calculation of the equation by which the BRIDGES are to be converted into cash. Dow Jones has no obligation or liability in connection with the administration, marketing or trading of the BRIDGES. DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE BRIDGES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW PS-17 JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND MORGAN STANLEY. "Dow Jones," "Dow Jones Industrial Average(SM)" and "DJIA(SM)" are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by Morgan Stanley. Morgan Stanley's BRIDGES due June 30, 2009 Based on the Value of the Dow Jones Industrial Average(SM) are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in the BRIDGES. 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"), (a "Plan") should consider the fiduciary standards of ERISA in the context of the Plan's particular circumstances before authorizing an investment in the BRIDGES. 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 Morgan Stanley DW Inc. (formerly Dean Witter Reynolds Inc.) ("MSDWI"), may each be considered a "party in interest" within the meaning of ERISA, or a "disqualified person" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also "Plans"). Unless an exemption applies, prohibited transactions within the meaning of ERISA or the Code could arise, for example, if the BRIDGES 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. We have obtained from the Department of Labor an exemption from the prohibited transaction rules that will in most cases cover the purchase and holding of BRIDGES by a Plan for whom we or one of our affiliates is a service provider. In order for this exemption to apply, the decision to invest in the BRIDGES must be made by a Plan fiduciary, or a Plan participant (in the case of Plans that provide for participant-directed investments), who is independent from us and from our affiliates. At the time of a Plan's acquisition of any PS-18 BRIDGES, no more than 15% of the Plan's assets should be invested in BRIDGES. The exemption described above was issued by the Department of Labor pursuant to its "Expedited Exemption Procedure" under Prohibited Transaction Class Exemption 96-62. Copies of both the proposed and final exemption are available from us upon request. Purchasers of the BRIDGES have exclusive responsibility for ensuring that their purchase and holding of the BRIDGES do not violate the prohibited transaction or other rules of ERISA or the Code. United States Federal Income Taxation.............................. The BRIDGES will be treated as "contingent payment debt instruments" for U.S. federal income tax purposes. Investors should refer to the discussion under "United States Federal Taxation-- Notes--Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices" in the accompanying prospectus supplement for a description of the U.S. federal income tax consequences of ownership and disposition of the BRIDGES. In connection with the discussion thereunder, we have determined that the "comparable yield" is an annual rate of 4.83% compounded annually. Based on our determination of the comparable yield, the "projected payment schedule" for a BRIDGES (assuming a principal amount of $10) consists of a projected amount equal to $13.76 due at maturity. The following table states the amount of interest that will be deemed to have accrued with respect to a BRIDGES during each accrual period, based upon our determination of the comparable yield and the projected payment schedule: TOTAL INTEREST DEEMED TO INTEREST HAVE ACCRUED DEEMED TO FROM ORIGINAL ACCRUE ISSUE DATE (PER DURING BRIDGES) AS OF ACCRUAL END OF PERIOD (PER ACCRUAL ACCRUAL PERIOD BRIDGES) PERIOD -------------- ----------- --------------- Original Issue Date through December 31, 2002............. $ 0.13 $ 0.13 January 1, 2003 through December 31, 2003............. $ 0.49 $ 0.62 January 1, 2004 through December 31, 2004............. $ 0.51 $ 1.13 January 1, 2005 through December 31, 2005............. $ 0.54 $ 1.67 January 1, 2006 through December 31, 2006............. $ 0.56 $ 2.23 January 1, 2007 through December 31, 2007............. $ 0.59 $ 2.82 January 1, 2008 through December 31, 2008............. $ 0.62 $ 3.44 January 1, 2009 through June 30, 2009................. $ 0.32 $ 3.76
PS-19 The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. Holders' interest accruals and adjustments in respect of the BRIDGES, and we make no representation regarding the actual amounts of payments on a BRIDGES. PS-20 -----END PRIVACY-ENHANCED MESSAGE-----