-----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, G8fFydxjvpzzzJQxULkPRjeaBaVHl0ocCgY+XIR1XNi0CNupgOz4zbueu0wLq4Hp tR/mXXBiq655J256MSUN1w== 0000950103-03-000152.txt : 20030129 0000950103-03-000152.hdr.sgml : 20030129 20030129150407 ACCESSION NUMBER: 0000950103-03-000152 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20030129 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: 03529827 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: 5TH 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 jan2703_424b3.txt Amendment No. 1 Dated January 23, 2003 to PROSPECTUS Dated June 11, 2002 Pricing Supplement No. 27 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-83616 Dated June 11, 2002 Dated January 23, 2003 Rule 424(b)(3) $225,000,000 Morgan Stanley MEDIUM-TERM NOTES, SERIES C Senior Notes ------------------- MPS(SM) due December 30, 2009 Linked to the Dow Jones Industrial Average(SM) Market Participation Securities with Minimum Return Protection(SM) ("MPS(SM)") Unlike ordinary debt securities, the MPS do not pay interest. Instead, at maturity you will receive for each $10 principal amount of MPS, the index-linked payment amount, which is equal to $10 multiplied by the product of the quarterly performance amounts of the Dow Jones Industrial Average(SM), which we refer to as the DJIA(SM), over the term of the MPS, as described in this pricing supplement. In no event, however, will the payment at maturity be less than $11.47, which we refer to as the minimum payment amount. The minimum payment amount (114.70% of the issue price) represents a yield to maturity of 2% per annum on each $10 principal amount of MPS. o The principal amount and issue price of each MPS is $10. o We will not pay interest on the MPS. o The minimum payment amount for each MPS at maturity is $11.47. o At maturity, you will receive for each MPS an index-linked payment amount equal to $10 multiplied by the product of the quarterly performance amounts of the DJIA for each of the 28 quarterly valuation periods during the term of the MPS. However, if the index-linked payment amount is less than the minimum payment amount of $11.47, you will receive the minimum payment amount for each MPS. o The quarterly performance amount in each quarterly valuation period is equal to (i) the closing value of the DJIA at the end of that quarterly valuation period divided by (ii) the closing value of the DJIA at the beginning of that quarterly valuation period, subject to a maximum quarterly performance amount of 1.10. o The maximum quarterly performance amount is equivalent to a return of the DJIA of 10% in that quarter. As a result of the maximum quarterly performance amount, the maximum amount payable at maturity for each MPS is $144.21. o Investing in the MPS is not equivalent to investing in the DJIA or its component stocks. o The MPS have been approved for listing on the American Stock Exchange LLC, subject to official notice of issuance. The AMEX listing symbol for the MPS is "DMJ." You should read the more detailed description of the MPS in this pricing supplement. In particular, you should review and understand the descriptions in "Summary of Pricing Supplement" and "Description of MPS." The MPS involve risks not associated with an investment in ordinary debt securities. See "Risk Factors" beginning on PS-10. ------------------- PRICE $10 PER MPS ------------------- Price to Agent's Proceeds to Public Commissions Company ------------ ----------- ------------ Per MPS............................ $10.00 $.375 $9.625 Total.............................. $225,000,000 $8,437,500 $216,562,500 If you purchase at least 100,000 MPS 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 MPS (98% of the issue price). In that case, the Agent's commissions will be $.175 per MPS. MORGAN STANLEY (This page intentionally left blank) PS-2 SUMMARY OF PRICING SUPPLEMENT The following summary describes the MPS 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 MPS are medium-term debt securities of Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). The return on the MPS is linked to the performance of the DJIA. These MPS combine features of debt and equity by offering at maturity repayment of the issue price, a minimum return and the opportunity to participate in the appreciation of the underlying DJIA as measured by the index-linked payment amount. Morgan Stanley has designed the MPS for investors who are willing to forego market floating interest payments on the MPS in exchange for the amount by which the index-linked payment amount or the minimum payment amount exceeds the par amount of the MPS. "Market Participation Securities with Minimum Return Protection" and "MPS" are our service marks. "Dow Jones(SM)," "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 MPS costs $10 We, Morgan Stanley, are offering Market Participation Securities with Minimum Return Protection(SM) due December 30, 2009 Linked to the Dow Jones Industrial Average, which we refer to as the MPS(SM). The principal amount and issue price of each MPS is $10. Payment at maturity Unlike ordinary debt securities, the MPS do not linked to the DJIA pay interest. Instead, at maturity, you will with minimum return receive for each $10 principal amount of MPS, $10 protection multiplied by the product of the quarterly performance amounts of the DJIA over the term of the MPS, as described below. In any quarterly valuation period, the maximum quarterly performance amount is 1.10 (corresponding to a 10% quarterly increase in the value of the DJIA). In no event, however, will the payment at maturity be less than $11.47, the minimum payment amount. 114.70% Minimum Repayment The minimum payment amount of $11.47 (114.70% of the issue price) represents a yield to maturity of 2% per annum on each $10 principal amount of MPS. Payment at Maturity Linked to the DJIA If the product of $10 multiplied by the product of the quarterly performance amounts of the DJIA over the term of the MPS, which we refer to as the index-linked payment amount, is greater than $11.47, you will receive the index-linked payment amount for each $10 principal amount of MPS. How the maturity The payment at maturity of the MPS, which we redemption amount refer to as the maturity redemption amount, will is determined be determined by the calculation agent for the MPS as follows: o First, determine the quarterly performance amount for each quarterly valuation period, which may be no greater than the maximum quarterly performance amount of 1.10. o Second, determine the index-linked payment amount by multiplying $10 by the product of the quarterly performance amounts. o Last, if the index-linked payment amount is less than $11.47 (the minimum payment amount), you will receive the minimum payment amount for each MPS. PS-3 If the index-linked payment amount is greater than the minimum payment amount, you will receive the index-linked payment amount for each MPS. To determine the quarterly performance amount in any quarterly valuation period, the calculation agent will divide the level of the DJIA on the last day of the quarterly valuation period by the level of the DJIA on the first day of the quarterly valuation period. However, in no event will the quarterly performance amount exceed 1.10 (or, measured in percentage terms, a 10% increase in the DJIA) in any quarterly valuation period, and as a consequence, you will not participate in any quarterly increase in the level of the DJIA to the extent that increase exceeds 10%. Each quarterly valuation period will begin on a period valuation date and end on the immediately subsequent period valuation date, except that the first quarterly valuation period will begin on January 23, 2003, the day we offered the MPS for initial sale to the public. The DJIA value for the first quarterly valuation date is 8,369.47, the closing value of the DJIA on January 23, 2003. The period valuation dates are the 30th of each March, June, September and December, beginning March 2003 through September 2009, and the final quarterly valuation date is December 28, 2009, in each case subject to adjustment as described in the section of this pricing supplement called "Description of MPS--Period Valuation Dates." The index-linked Because your participation in quarterly increases payment amount may be in the value of the DJIA is limited by the less than the simple price maximum quarterly performance amount of 1.10, or return of the DJIA 10% per quarter, the return on your investment in the MPS at maturity may be less than the return you would have received if you had invested $10 in an investment linked to the DJIA that measured the performance of the DJIA by comparing only the value of the DJIA at maturity with the value of the DJIA at the time we first offer the MPS for initial sale to the public, which we refer to as the simple index price return. The amount of the discrepancy, if any, between the index-linked payment amount and simple index price return will depend on how often and by how much any quarterly performance amounts exceed 1.10, or 10%, during the 28 quarterly valuation periods over the term of the MPS. Conversely, if the simple index price return over the term of the MPS is less than $11.47, the minimum payment amount of $11.47 per MPS will provide a higher return on your $10 investment than would an equal investment linked directly to the DJIA. Please review the examples beginning on PS-6, under "Hypothetical Payouts on the MPS," which explain in more detail how the index-linked payment amount is calculated and how the return on your investment in the MPS may be more or less than the simple index price return. You can review the historical values of the DJIA for each calendar quarter in the period from January 1, 1998 through January 23, 2003 in the section of this pricing supplement called "Description of MPS--Historical Information." You should also review the historical quarterly percent change for the DJIA as calculated for each calendar quarter in the period from January 1, 1950 through December 31, 2002 in Annex A to this pricing supplement. 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 maturity redemption amount. 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 index-linked payment amount and the quarterly performance amounts. PS-4 The MPS will be treated The MPS will be treated as "contingent payment as contingent payment debt instruments" for U.S. federal income tax debt instruments for purposes, as described in the section of this U.S. federal income tax pricing supplement called "Description of purposes MPS--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 MPS even though you will not receive any stated interest payments on the MPS. In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the MPS generally will be treated as ordinary income. Please read carefully the section of this pricing supplement called "Description of MPS--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. If you are a foreign investor, please read the section of this pricing supplement called "Description of MPS--United States Federal Income Taxation--Additional Non-U.S. Investor Tax Information." You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the MPS. Where you can find The MPS are senior notes issued as part of our more information on Series C medium-term note program. You can find a the MPS 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--Floating 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 MPS, you should read the "Description of MPS" section in this pricing supplement. You should also read about some of the risks involved in investing in MPS in the section called "Risk Factors." The tax treatment of investments in index-linked notes such as MPS differs from that of investments in ordinary debt securities. See the section of this pricing supplement called "Description of MPS--United States Federal Income Taxation." We urge you to consult with your investment, legal, tax, accounting and other advisors with regard to any proposed or actual investment in the MPS. 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-5 HYPOTHETICAL PAYOUTS ON THE MPS The Index-linked Payment Amount is based on the closing value of the DJIA on the Period Valuation Dates for each Quarterly Valuation Period. Because the value of the DJIA may be subject to significant fluctuations over the term of the MPS, it is not possible to present a chart or table illustrating a complete range of possible payouts at maturity. The examples of the hypothetical payout calculations that follow are intended to illustrate the effect of general trends in the closing value of the DJIA on the amount payable to you at maturity. However, the DJIA may not appreciate or depreciate over the term of the MPS in accordance with any of the trends depicted by the hypothetical examples below, and the size and frequency of any fluctuations in the value of the DJIA over the term of the MPS, which we refer to as the volatility of the DJIA, may be significantly different than the volatility of the DJIA implied by any of the examples. The Index-linked Payment Amount for each of the examples below is calculated using the following formula: Index-linked Payment = $10 x (Product of the Quarterly Performance Amounts) Amount where, DJIA value at end of Quarterly Valuation Period Quarterly Performance = lesser of -------------------------------- and 1.10 Amount DJIA value at start of Quarterly Valuation Period Beginning on PS-8, we have provided examples of the hypothetical payouts on the MPS. Below is a simplified example to illustrate how the Index-linked Payment Amount is calculated. For purposes of the following illustration, assume a hypothetical MPS with four Quarterly Valuation Periods and an index with an initial value of 100. If the index closing value at the end of each Quarterly Valuation Period is 103.36, 103.07, 114.77 and 103.21, respectively, the Quarterly Performance Amount for each of the Quarterly Valuation Periods would be as follows: Index Value Index Value Quarterly at start of Quarterly at end of Quarterly Index Performance Quarter Valuation Period Valuation Period Performance Amount ----------- --------------------- ------------------- ----------- ----------- 103.36 1st Quarter 100.00 103.36 ------ = 1.03360 1.03360 100.00 103.07 2nd Quarter 103.36 103.07 ------ = .99719 .99719 103.36 114.77 ------ (lesser of 3d Quarter 103.07 114.77 103.07 = 1.11352 1.10 1.11352 and 1.10) 103.21 4th Quarter 114.77 103.21 ------ = .89928 .89928 114.77
The Index-linked Payment Amount equals $10 times the product of the Quarterly Performance Amounts. Based on the Quarterly Performance Amounts in the above example, the Index-linked Payment Amount would be calculated as follows: $10 x (1.03360 x .99719 x 1.10 x .89928) = $10.19572 The Index-linked Payment Amount of $10.19572 represents an increase of 1.9572% above the issue price of the MPS. Because the Quarterly Performance Amount for the Quarterly Valuation Period ending in the third quarter was limited to 1.10, the return of the Index-linked Payment Amount as a percentage of the Issue Price is less than PS-6 the simple return of the index. The simple return of the index, which we refer to as the Simple Index Price Return, would measure the overall performance of the index by dividing the closing value of the index at the end of the final Quarterly Valuation Period by the closing value of the index on the day we offer the MPS for initial sale to the public and would be calculated as follows: 103.21 Simple Index Price Return = ---------- x $10 = $10.321 100.00 The Simple Index Price Return of $10.321 represents an increase of 3.2100% above a hypothetical $10 investment based on the Simple Index Price Return rather than the Index-linked Payment Amount. * * * The examples beginning on PS-8 are based on 28 Quarterly Valuation Periods and the following hypothetical terms and assume a DJIA value equal to 100.00 at the start of the first Quarterly Valuation Period: o Issue Price per MPS: $10.00 o Minimum Payment Amount: $11.47 o Maximum Quarterly Performance Amount: 1.10 (equivalent to a quarterly return of the DJIA of 10%). As you review the examples, please note that although the maximum Quarterly Performance Amount for any quarter is 1.10 (equivalent to a quarterly return of the DJIA of 10%), in measuring the index performance for the subsequent quarter we will use the actual value of the DJIA at the start of the Quarterly Valuation Period for that subsequent quarter rather than the index value that would have resulted from an increase of 10% in the level of the DJIA during the previous quarter. For example, in Example 2, the DJIA increases from 107 to 119 for the period beginning June 30, 2003 and ending September 30, 2003, resulting in a DJIA performance of 1.11215 (equivalent to an increase in the DJIA of 11.215% in that quarter) and a Quarterly Performance Amount of 1.10. Consequently, in the subsequent quarter the DJIA performance is measured using 119 as the starting value of the DJIA for that subsequent quarter rather than 117.70, the index value that would have resulted from an increase of 10% in the level of the DJIA during the previous quarter. Quarters which resulted in an increase in the level of the DJIA of 10% or greater are indicated in bold typeface below. PS-7 ------------------------------------------------------ Example 1 Hypothetical Ending DJIA MPS Quarterly Period Start Period End Index Value Performance Performance Amount January 23, 2003 March 30, 2003 103 1.03000 1.03000 March 30, 2003 June 30, 2003 105 1.01942 1.01942 June 30, 2003 September 30, 2003 114 1.08571 1.08571 September 30, 2003 December 30, 2003 110 0.96491 0.96491 December 30, 2003 March 30, 2004 118 1.07273 1.07273 March 30, 2004 June 30, 2004 126 1.06780 1.06780 June 30, 2004 September 30, 2004 123 0.97619 0.97619 September 30, 2004 December 30, 2004 128 1.04065 1.04065 December 30, 2004 March 30, 2005 134 1.04688 1.04688 March 30, 2005 June 30, 2005 133 0.99254 0.99254 June 30, 2005 September 30, 2005 135 1.01504 1.01504 September 30, 2005 December 30, 2005 143 1.05926 1.05926 December 30, 2005 March 30, 2006 135 0.94406 0.94406 March 30, 2006 June 30, 2006 142 1.05185 1.05185 June 30, 2006 September 30, 2006 150 1.05634 1.05634 September 30, 2006 December 30, 2006 154 1.02667 1.02667 December 30, 2006 March 30, 2007 166 1.07792 1.07792 March 30, 2007 June 30, 2007 161 0.96988 0.96988 June 30, 2007 September 30, 2007 170 1.05590 1.05590 September 30, 2007 December 30, 2007 177 1.04118 1.04118 December 30, 2007 March 30, 2008 173 0.97740 0.97740 March 30, 2008 June 30, 2008 184 1.06358 1.06358 June 30, 2008 September 30, 2008 192 1.04348 1.04348 September 30, 2008 December 30, 2008 195 1.01563 1.01563 December 30, 2008 March 30, 2009 200 1.02564 1.02564 March 30, 2009 June 30, 2009 201 1.00500 1.00500 June 30, 2009 September 30, 2009 206 1.02488 1.02488 September 30, 2009 December 28, 2009 209 1.01456 1.01456 ------------------------------------------------------ Simple Index Price Return: $20.90 Index-linked Payment Amount: $20.90 Minimum Payment Amount: $11.47 Maturity Redemption Amount: $20.90 ------------------------------------------------------
------------------------------------------------------ Example 2 Hypothetical Ending DJIA MPS Quarterly Period Start Period End Index Value Performance Performance Amount January 23, 2003 March 30, 2003 104 1.04000 1.04000 March 30, 2003 June 30, 2003 107 1.02885 1.02885 June 30, 2003 September 30, 2003 119 1.11215 1.10000 September 30, 2003 December 30, 2003 108 0.90756 0.90756 December 30, 2003 March 30, 2004 118 1.09259 1.09259 March 30, 2004 June 30, 2004 126 1.06780 1.06780 June 30, 2004 September 30, 2004 124 0.98413 0.98413 September 30, 2004 December 30, 2004 130 1.04839 1.04839 December 30, 2004 March 30, 2005 125 0.96154 0.96154 March 30, 2005 June 30, 2005 131 1.04800 1.04800 June 30, 2005 September 30, 2005 136 1.03817 1.03817 September 30, 2005 December 30, 2005 161 1.18382 1.10000 December 30, 2005 March 30, 2006 136 0.84472 0.84472 March 30, 2006 June 30, 2006 130 0.95588 0.95588 June 30, 2006 September 30, 2006 142 1.09231 1.09231 September 30, 2006 December 30, 2006 156 1.09859 1.09859 December 30, 2006 March 30, 2007 175 1.12179 1.10000 March 30, 2007 June 30, 2007 157 0.89714 0.89714 June 30, 2007 September 30, 2007 165 1.05096 1.05096 September 30, 2007 December 30, 2007 180 1.09091 1.09091 December 30, 2007 March 30, 2008 175 0.97222 0.97222 March 30, 2008 June 30, 2008 181 1.03429 1.03429 June 30, 2008 September 30, 2008 189 1.04420 1.04420 September 30, 2008 December 30, 2008 195 1.03175 1.03175 December 30, 2008 March 30, 2009 200 1.02564 1.02564 March 30, 2009 June 30, 2009 205 1.02500 1.02500 June 30, 2009 September 30, 2009 208 1.01463 1.01463 September 30, 2009 December 28, 2009 209 1.00481 1.00481 ------------------------------------------------------ Simple Index Price Return: $20.90 Index-linked Payment Amount: $18.83 Minimum Payment Amount: $11.47 Maturity Redemption Amount: $18.83 ------------------------------------------------------ ------------------------------------------------ Example 3 Hypothetical Ending DJIA MPS Quarterly Period Start Period End Index Value Performance Performance Amount January 23, 2003 March 30, 2003 105 1.05000 1.05000 March 30, 2003 June 30, 2003 111 1.05714 1.05714 June 30, 2003 September 30, 2003 135 1.21622 1.10000 September 30, 2003 December 30, 2003 125 0.92593 0.92593 December 30, 2003 March 30, 2004 133 1.06400 1.06400 March 30, 2004 June 30, 2004 157 1.18045 1.10000 June 30, 2004 September 30, 2004 145 0.92357 0.92357 September 30, 2004 December 30, 2004 142 0.97931 0.97931 December 30, 2004 March 30, 2005 136 0.95775 0.95775 March 30, 2005 June 30, 2005 159 1.16912 1.10000 June 30, 2005 September 30, 2005 165 1.03774 1.03774 September 30, 2005 December 30, 2005 188 1.13939 1.10000 December 30, 2005 March 30, 2006 165 0.87766 0.87766 March 30, 2006 June 30, 2006 158 0.95758 0.95758 June 30, 2006 September 30, 2006 151 0.95570 0.95570 September 30, 2006 December 30, 2006 161 1.06623 1.06623 December 30, 2006 March 30, 2007 188 1.16770 1.10000 March 30, 2007 June 30, 2007 192 1.02128 1.02128 June 30, 2007 September 30, 2007 183 0.95313 0.95313 September 30, 2007 December 30, 2007 177 0.96721 0.96721 December 30, 2007 March 30, 2008 207 1.16949 1.10000 March 30, 2008 June 30, 2008 188 0.90821 0.90821 June 30, 2008 September 30, 2008 218 1.15957 1.10000 September 30, 2008 December 30, 2008 195 0.89450 0.89450 December 30, 2008 March 30, 2009 200 1.02564 1.02564 March 30, 2009 June 30, 2009 202 1.01000 1.01000 June 30, 2009 September 30, 2009 189 0.93564 0.93564 September 30, 2009 December 28, 2009 209 1.10582 1.10000 ------------------------------------------------ Simple Index Price Return: $20.90 Index-linked Payment Amount: $13.38 Minimum Payment Amount: $11.47 Maturity Redemption Amount: $13.38 ------------------------------------------------
In Examples 1, 2 and 3, the value of the DJIA increases 109% over the term of the MPS and ends above the initial value of 100. However, each example produces a different Maturity Redemption Amount because the hypothetical performance of the DJIA over the term of the MPS is different in each example. o In Example 1, the Quarterly Performance Amount never exceeds the 10% maximum Quarterly Performance Amount of 1.10, and consequently, the Index- linked Payment Amount of $20.90 equals the Simple Index Price Return of $20.90. The amount payable at maturity is the Index-linked Payment Amount of $20.90, representing a 109% increase above the issue price. o In Example 2, the value of the DJIA increases more than 10% in the quarters ending September 30, 2003, December 30, 2005 and March 30, 2007, and the Quarterly Performance Amounts for each of those periods is limited to the maximum of 1.10. Any significant decrease in the value of the DJIA (see, for example, the quarters ending March 30, 2006 and June 30, 2007) is not subject to a corresponding limit. Consequently, the Index-linked Payment Amount of $18.83 is less than the Simple Index Price Return of $20.90. Therefore, although the DJIA increases 109% over the term of the MPS, the amount payable at maturity of the MPS is the Index-linked Payment Amount of $18.83, representing an 88.3% increase above the issue price. o In Example 3, the value of the DJIA increases more than 10% in the quarters ending September 30, 2003, June 30, 2004, June 30, 2005, December 30, 2005, March 30, 2007, March 30, 2008, September 30, 2008 and December 28, 2009, and the Quarterly Performance Amounts for each of those periods is limited to the maximum of 1.10. Any significant decrease in the value of the DJIA (see, for example, the quarters ending March 30, 2006 and December 30, 2008) is not subject to a corresponding limit. Consequently, the Index-linked Payment Amount of $13.38 is less than the Simple Index Price Return of $20.90. Therefore, although the DJIA increases 109% over the term of the MPS, the amount payable at maturity of the MPS is the Index-linked Payment Amount of $13.38, representing a 33.8% increase above the issue price. PS-8 ------------------------------------------------------ Example 4 Hypothetical Ending DJIA MPS Quarterly Period Start Period End Index Value Performance Performance Amount January 23, 2003 March 30, 2003 105 1.05000 1.05000 March 30, 2003 June 30, 2003 98 0.93333 0.93333 June 30, 2003 September 30, 2003 93 0.94898 0.94898 September 30, 2003 December 30, 2003 96 1.03226 1.03226 December 30, 2003 March 30, 2004 90 0.93750 0.93750 March 30, 2004 June 30, 2004 87 0.96667 0.96667 June 30, 2004 September 30, 2004 88 1.01149 1.01149 September 30, 2004 December 30, 2004 90 1.02273 1.02273 December 30, 2004 March 30, 2005 87 0.96667 0.96667 March 30, 2005 June 30, 2005 80 0.91954 0.91954 June 30, 2005 September 30, 2005 81 1.01250 1.01250 September 30, 2005 December 30, 2005 77 0.95062 0.95062 December 30, 2005 March 30, 2006 78 1.01299 1.01299 March 30, 2006 June 30, 2006 75 0.96154 0.96154 June 30, 2006 September 30, 2006 82 1.09333 1.09333 September 30, 2006 December 30, 2006 80 0.97561 0.97561 December 30, 2006 March 30, 2007 82 1.02500 1.02500 March 30, 2007 June 30, 2007 90 1.09756 1.09756 June 30, 2007 September 30, 2007 87 0.96667 0.96667 September 30, 2007 December 30, 2007 85 0.97701 0.97701 December 30, 2007 March 30, 2008 81 0.95294 0.95294 March 30, 2008 June 30, 2008 80 0.98765 0.98765 June 30, 2008 September 30, 2008 78 0.97500 0.97500 September 30, 2008 December 30, 2008 78 1.00000 1.00000 December 30, 2008 March 30, 2009 82 1.05128 1.05128 March 30, 2009 June 30, 2009 83 1.01220 1.01220 June 30, 2009 September 30, 2009 80 0.96386 0.96386 September 30, 2009 December 28, 2009 85 1.06250 1.06250 ------------------------------------------------------ Simple Index Price Return: $8.50 Index-linked Payment Amount: $8.50 Minimum Payment Amount: $11.47 Maturity Redemption Amount: $11.47 ------------------------------------------------------
------------------------------------------------------ Example 5 Hypothetical Ending DJIA MPS Quarterly Period Start Period End Index Value Performance Performance Amount January 23, 2003 March 30, 2003 102 1.02000 1.02000 March 30, 2003 June 30, 2003 110 1.07843 1.07843 June 30, 2003 September 30, 2003 113 1.02727 1.02727 September 30, 2003 December 30, 2003 132 1.16814 1.10000 December 30, 2003 March 30, 2004 141 1.06818 1.06818 March 30, 2004 June 30, 2004 145 1.02837 1.02837 June 30, 2004 September 30, 2004 164 1.13103 1.10000 September 30, 2004 December 30, 2004 163 0.99390 0.99390 December 30, 2004 March 30, 2005 152 0.93252 0.93252 March 30, 2005 June 30, 2005 183 1.20395 1.10000 June 30, 2005 September 30, 2005 192 1.04918 1.04918 September 30, 2005 December 30, 2005 205 1.06771 1.06771 December 30, 2005 March 30, 2006 191 0.93171 0.93171 March 30, 2006 June 30, 2006 219 1.14660 1.10000 June 30, 2006 September 30, 2006 223 1.01826 1.01826 September 30, 2006 December 30, 2006 217 0.97309 0.97309 December 30, 2006 March 30, 2007 214 0.98618 0.98618 March 30, 2007 June 30, 2007 197 0.92056 0.92056 June 30, 2007 September 30, 2007 173 0.87817 0.87817 September 30, 2007 December 30, 2007 183 1.05780 1.05780 December 30, 2007 March 30, 2008 155 0.84699 0.84699 March 30, 2008 June 30, 2008 171 1.10323 1.10000 June 30, 2008 September 30, 2008 171 1.00000 1.00000 September 30, 2008 December 30, 2008 148 0.86550 0.86550 December 30, 2008 March 30, 2009 122 0.82432 0.82432 March 30, 2009 June 30, 2009 132 1.08197 1.08197 June 30, 2009 September 30, 2009 128 0.96970 0.96970 September 30, 2009 December 28, 2009 125 0.97656 0.97656 ------------------------------------------------------ Simple Index Price Return: $12.50 Index-linked Payment Amount: $10.01 Minimum Payment Amount: $11.47 Maturity Redemption Amount: $11.47 ------------------------------------------------------
In Example 4, the value of the DJIA decreases over the term of the MPS and ends below the initial value of 100. The Quarterly Performance Amounts never exceed the 10% maximum Quarterly Performance Amount, and consequently, the Index-linked Payment Amount of $8.50 equals the Simple Index Price Return of $8.50. Although the DJIA decreases 15% over the term of the MPS, the amount payable at maturity of the MPS is the Minimum Payment Amount of $11.47, representing a 14.7% increase above the issue price. * * * In Example 5, the value of the DJIA increases over the term of the MPS and ends above the initial value of 100. The value of the DJIA increases more than 10% in the quarters ending December 30, 2003, September 30, 2004, June 30, 2005, June 30, 2006 and June 30, 2008, and the Quarterly Performance Amounts for each of those periods is limited to the maximum of 1.10. Any significant decrease in the value of the DJIA (see, for example, the quarters ending September 30, 2007, March 30, 2008, December 30, 2008 and March 30, 2009) is not subject to a corresponding limit. Consequently, the Index-linked Payment Amount of $10.01 is less than the Simple Index Price Return of $12.50. Therefore, although the DJIA increases 25% over the term of the MPS, the amount payable at maturity of the MPS is the Minimum Payment Amount of $11.47, representing a 14.7% increase above the issue price. PS-9 RISK FACTORS The MPS are not secured debt and, unlike ordinary debt securities, the MPS do not pay interest. Investing in the MPS is not equivalent to investing directly in the DJIA. This section describes the most significant risks relating to the MPS. You should carefully consider whether the MPS are suited to your particular circumstances before you decide to purchase them. MPS do not pay interest The terms of the MPS differ from those of like ordinary debt ordinary debt securities in that we will not pay securities interest on the MPS. Because the index-linked payment amount due at maturity may be no greater than the minimum payment amount of $11.47, representing an effective yield to maturity of 2% per annum on the issue price of each MPS, the return on your investment in the MPS may be less than the amount that would be paid on an ordinary debt security. The return of only the minimum payment amount at maturity will not compensate you for the effects of inflation and other factors relating to the value of money over time. We have designed the MPS for investors who are willing to forego market floating interest payments on the MPS in exchange for the amount by which the index-linked payment amount or the minimum payment amount exceeds the par amount of the MPS. MPS may not There may be little or no secondary market for be actively traded the MPS. Although the MPS 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 MPS 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 MPS, but it is not required to do so. Market price of the MPS Several factors, many of which are beyond our will be influenced by many control, will influence the value of the MPS, unpredictable factors including: o the value of the DJIA at any time and on each of the specific period valuation dates o the volatility (frequency and magnitude of changes in value) of the DJIA o interest and yield rates in the market o economic, financial, political and regulatory or judicial events that affect the securities underlying the DJIA or stock markets generally and that may affect the value of the DJIA on the specific period valuation dates o the time remaining to the maturity of the MPS 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 MPS prior to maturity. For example, you may have to sell your MPS at a substantial discount from the principal amount if market interest rates rise or if at the time of sale the index-linked payment amount calculated to that date is less than or equal to $10, indicating that the magnitude of the decreases in the value of the DJIA during previous quarterly valuation periods is greater than the increases in the value of the DJIA during previous quarterly valuation periods. Because of the compounding effect of previous quarterly performance amounts and the limited appreciation potential resulting from the maximum quarterly performance amount, the effect of several of these factors on the market price of the MPS, including the value of the DJIA at the time of any such sale and the volatility of the DJIA, will decrease over the term of the MPS. PS-10 You cannot predict the future performance and volatility of the DJIA based on its historical performance. We cannot guarantee that the quarterly performance of the DJIA will result in an index-linked payment amount in excess of the minimum payment amount. Investing in the MPS is not Because the index-linked payment amount is based equivalent to investing in on the compounded quarterly return of the DJIA on the DJIA 28 period valuation dates during the term of the MPS and your participation in quarterly increases is limited to 10%, it is possible for the return on your investment in the MPS (the effective yield to maturity) to be substantially less than the return of the DJIA over the term of the MPS. As demonstrated by Example 5 under "Hypothetical Payouts on the MPS" above, an investment in the MPS may not result in a gain in excess of the minimum payment amount even if the DJIA has appreciated more than 14.7% over the term of the MPS. Additionally, because of the effect of the maximum quarterly performance amount as demonstrated by Examples 2 and 3 under "Hypothetical Payouts on the MPS" above, an investment in the MPS may result in a return at maturity that is less than the simple index price return. The amount of the discrepancy, if any, between the index-linked payment amount and simple index price return will depend on how often and by how much any quarterly performance amount exceeds 1.10, or 10%, during the 28 quarterly valuation periods over the term of the MPS. The maximum quarterly performance amount will operate to limit your participation in the increase in the value of the DJIA during any quarterly valuation period to a maximum of 10%, while your exposure to any decline in the value of the DJIA during any quarterly valuation period will not be limited. It is possible that increases in the value of the DJIA during some quarterly valuation periods will be offset by declines in the value of the DJIA during other quarterly valuation periods during the term of the MPS. However, because of the limits on your participation in quarterly increases in the value of the DJIA resulting from the 10% maximum quarterly performance amount, it is possible that increases in the value of the DJIA that would otherwise offset declines in the value of the DJIA will not in fact do so. Consequently, as demonstrated in Example 5 above, it is possible that the index-linked payment amount may be less than $11.47 even if the DJIA increases more than 14.7% over the term of the MPS. In that case, you would receive the minimum payment amount, which represents a return on your investment that is less than the simple index price return on the DJIA. You can review the historical values of the DJIA for each calendar quarter in the period from January 1, 1998 through January 23, 2003 in the section of this pricing supplement called "Description of MPS--Historical Information." You should also review the historical quarterly percent change for the DJIA as calculated for each calendar quarter in the period from January 1, 1950 through December 31, 2002 in Annex A to this pricing supplement. Adjustments to the Dow Jones Indexes, a part of Dow Jones, is DJIA could responsible for calculating and maintaining the adversely affect the DJIA. You should not conclude that the inclusion value of the MPS 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 PS-11 may discontinue or suspend calculation or dissemination of the DJIA. Any of these actions could adversely affect the value of the MPS. 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 investors in the MPS insofar as, for example, MS & Co. is not precluded from considering indices that are calculated and published by MS & Co. or any of its affiliates. If there is no appropriate successor index, at maturity the payout on the MPS 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 investor in the MPS, you will not have shareholder rights voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that underlie the DJIA. Adverse economic interests As calculation agent, our affiliate MS & Co. will of the calculation agent calculate the index-linked payment amount and the and its affiliates may quarterly performance amounts. Determinations affect determinations made by MS&Co., in its capacity as calculation agent, including with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the index value in the event of a discontinuance of the DJIA, may affect the equity-linked payment amount. See the sections of this pricing supplement called "Description of MPS--Market Disruption Event" and "--Discontinuance of the DJIA; Alteration of Method of Calculation." Hedging and trading We expect that MS & Co. and other affiliates will activity by the carry out hedging activities related to the MPS calculation agent and (and possibly to other instruments linked to the its affiliates could DJIA or its component stocks), including trading potentially adversely in the stocks underlying the DJIA as well as in affect the value of the other instruments related to the DJIA. MS & Co. DJIA 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 businesses. Any of these hedging or trading activities could potentially affect the value of the DJIA and, accordingly, could affect the payout to you on the MPS. The MPS will be treated You should also consider the tax consequences of as contingent payment investing in the MPS. The MPS will be treated as debt instruments for "contingent payment debt instruments" for U.S. U.S. federal income tax federal income tax purposes, as described in the purposes section of this pricing supplement called "Description of MPS--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 MPS even though you will not receive any stated interest payments on the MPS. In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the MPS generally will be treated as ordinary income. Please read carefully the section of this pricing supplement called "Description of MPS--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. If you are a foreign investor, please read the section of this pricing supplement called "Description of MPS--United States Federal Income Taxation--Additional Non-U.S. Investor Tax Information." You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the MPS. PS-12 DESCRIPTION OF MPS Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term "MPS" refers to each $10 principal amount of any of our MPS due December 30, 2009 Linked to 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...................... $225,000,000 Original Issue Date (Settlement Date). January 28, 2003 Maturity Date......................... December 30, 2009, subject to extension in the event of a Market Disruption Event on the final Period Valuation Date for calculating the Index-linked Payment Amount. If, due to a Market Disruption Event or otherwise, the final Period Valuation 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 final Period Valuation Date as postponed. See "--Period Valuation Dates" below. Specified Currency.................... U.S. dollars CUSIP................................. 61744Y173 Minimum Denominations................. $10 Issue Price........................... $10 (100%) Interest Rate......................... None Maturity Redemption Amount............ At maturity, you will receive for each MPS the Maturity Redemption Amount, equal to the greater of (i) the Index-linked Payment Amount and (ii) the Minimum Payment Amount. 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, which we refer to as DTC, of the Maturity Redemption Amount, on or prior to 10:30 a.m. on the Trading Day preceding the Maturity Date (but if such Trading Day is not a Business Day, prior to the close of business on the Business Day preceding the Maturity Date) and (ii) deliver the aggregate cash amount due with respect to the MPS to the Trustee for delivery to DTC, as holder of the MPS on the Maturity Date. We expect that such amount of cash will be distributed to investors on the Maturity Date in accordance with the standard rules and procedures of DTC and its direct and indirect participants. See "--Discontinuance of the DJIA; Alteration of Method of Calculation" below, and see "Series C Notes and Series C Units Offered on a Global Basis--Book-Entry, Delivery and Form" in the accompanying prospectus supplement. Minimum Payment Amount................ $11.47 PS-13 Index-linked Payment Amount........... The Index-linked Payment Amount is equal to (i) $10 times (ii) the product of the Quarterly Performance Amounts for each Quarterly Valuation Period over the term of the MPS. Quarterly Performance Amount.......... With respect to any Quarterly Valuation Period, the Quarterly Performance Amount will be equal to the lesser of (i) 1.10 and (ii) a fraction, the numerator of which will be the Index Value on the Period Valuation Date at the end of such Quarterly Valuation Period and the denominator of which will be the Index Value on the Period Valuation Date at the beginning of such Quarterly Valuation Period, provided that for the first Quarterly Valuation Period, the denominator will be 8,369.47, the Index Value on January 23, 2003, the day we offered the MPS for initial sale to the public. Quarterly Valuation Periods........... Each period from and including a Period Valuation Date to and including the immediately subsequent Period Valuation Date; provided that the first Quarterly Valuation Period will begin on January 23, 2003. The first Quarterly Valuation Period will be shorter than one calendar quarter. Period Valuation Dates................ The Period Valuation Dates will be (i) the 30th of each March, June, September and December, beginning March 2003 to and including September 2009, and (ii) December 28, 2009, in each such case subject to adjustment if such date is not a Trading Day or if a Market Disruption Event occurs on such date as described in the two following paragraphs. If any scheduled Period Valuation Date occurring from and including March 2003 to and including September 2009 is not a Trading Day or if a Market Disruption Event occurs on any such date, such Period Valuation 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 scheduled Period Valuation Dates occurring from and including March 2003 to and including September 2009 and on each of the five Trading Days immediately succeeding that scheduled Period Valuation Date, then (i) such fifth succeeding Trading Day will be deemed to be the relevant Period Valuation 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 December 28, 2009 (the final Period Valuation Date) is not a Trading Day or if there is a Market Disruption Event on such day, the final Period Valuation Date will be the immediately succeeding PS-14 Trading Day during which no Market Disruption Event shall have occurred. Index Value........................... The Index 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 Value will be based on the alternate calculation of the DJIA described under "--Discontinuance of the DJIA; Alteration of Method of Calculation." Trading Day........................... A day, as determined by the Calculation Agent, on which trading is generally conducted on the 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. The MPS will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC will be the only registered holder of the MPS. Your beneficial interest in the MPS will be evidenced solely by entries on the books of the securities intermediary acting on your behalf as a direct or indirect participant in DTC. For more information regarding book entry notes, please read "Series C Notes and Series C Units Offered on a Global Basis--Book-Entry, Delivery and Form" in the accompanying prospectus supplement and "Form of Securities-- Global Securities--Registered Global Securities" in the accompanying prospectus. 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 of a suspension, absence or material limitation of trading of stocks then constituting 20% or more of the level of the DJIA (or the 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 stocks then constituting 20% or more of the level of the DJIA (or the 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 or exchange traded funds related to the DJIA (or the Successor Index) PS-15 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 the purpose of determining whether a Market Disruption Event exists at any time, if trading in a security included in the DJIA is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the level of the DJIA shall be based on a comparison of (x) the portion of the level of the DJIA attributable to that security relative to (y) the overall level of the DJIA, in each case immediately before that suspension or limitation. 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 or exchange traded fund 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 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 MPS shall have occurred and be continuing, the amount declared due and payable for each MPS upon any acceleration of the MPS will be equal to the Maturity Redemption Amount determined as though the Index Value for any Period Valuation Date scheduled to occur on or after such date of acceleration were the Index Value on the date of acceleration. Therefore, the Quarterly Performance Amount for the then current Quarterly Valuation Period would be equal to the Index Value on the date of acceleration divided by the Index Value PS-16 on the Period Valuation Date at the beginning of such Quarterly Valuation Period, and the Quarterly Performance Amount for each remaining Quarterly Valuation Period would be equal to 1. If the maturity of the MPS 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 DTC of the Maturity Redemption Amount and the aggregate cash amount due with respect to the MPS 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 Index-linked Payment Amount and the Quarterly Performance Amount 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 MPS 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 MPS 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 investor in the MPS, including with respect to certain determinations and judgments that the Calculation Agent must make in determining any Index Value, the Index-linked Payment Amount, the Quarterly Performance Amount or whether a Market Disruption Event has 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 (the "WSJ"), which is published by Dow Jones, as PS-17 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 maturity redemption amount. The formula used to calculate divisor adjustments is: Adjusted Sum of Prices New Divisor = Current Divisor x ------------------------ Unadjusted Sum of Prices
Each component company of the DJIA as of January 7, 2003 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 Intel Corporation and Microsoft Corporation 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 PS-18
Issuer of Component Stock Symbol ----------------------------------------------- ------ 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
In this pricing supplement, unless the context requires otherwise, references to the DJIA will include any Successor Index. 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 Value will be determined by reference to the value of such Successor Index at the regular official weekday close of the principal trading session of the NYSE, the AMEX, the Nasdaq National Market or the relevant exchange or market for the Successor Index on the date that any Index 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 furnished to the Trustee, to Morgan Stanley and to DTC, as holder of the MPS, within three Trading Days of such selection. We expect that such notice will be passed on to you, as a beneficial owner of the MPS, in accordance with the standard rules and procedures of DTC and its direct and indirect participants. If Dow Jones discontinues publication of the DJIA prior to, and such discontinuance is continuing on, any Period Valuation 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 Value for such PS-19 date. The Index 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 MPS. 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 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 Index Value and the Index-linked Payment Amount 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 Values, as well as end-of-quarter Index Values, of the DJIA for each quarter in the period from January 1, 1998 through January 23, 2003. The Index Value on January 23, 2003 was 8,369.47. 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 or future volatility, and no assurance can be given as to the level of the DJIA on any Period Valuation Date. We cannot give you any assurance that the performance of the DJIA will result in an Index-linked Payment Amount in excess of $11.47. High Low Period End --------- --------- ---------- 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 PS-20
High Low Period End --------- --------- ---------- 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 ... 9,379.50 7,591.93 7,591.93 Fourth Quarter .. 8,931.68 7,286.27 8,341.63 2003: First Quarter (through January 23, 2003) 8,842.62 8,318.73 8,369.47
You should also review the historical quarterly performance of the DJIA for each calendar quarter in the period from January 1, 1950 through December 31, 2002 in Annex A to this pricing supplement. Use of Proceeds and Hedging........... The net proceeds we receive from the sale of the MPS 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 MPS. 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 MPS by taking positions in exchange traded funds on the DJIA. 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 Period Valuation Dates in order for you to receive at maturity a payment per MPS that exceeds the Minimum Payment Amount. Through our subsidiaries, we are likely to modify our hedge position throughout the life of the MPS, including on the Period Valuation Dates, by purchasing and selling the stocks underlying the DJIA, futures or options contracts or exchange traded funds on the DJIA or its component 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 Period Valuation 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 PS-21 assurance that we 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 MPS set forth on the cover of this pricing supplement. The Agent proposes initially to offer the MPS 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 MPS for purchasers of 100,000 or more MPS in any single transaction, subject to the holding period requirements described below. The Agent may allow a concession not in excess of 3.75% of the principal amount of the MPS to other dealers, including Morgan Stanley & Co. International Limited. We expect to deliver the MPS against payment therefor in New York, New York on January 28, 2003. 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 MPS in a single transaction at the reduced price, approximately 98% of the MPS purchased by the investor (the "Delivered MPS") will be delivered on the Settlement Date. The balance of approximately 2% of the MPS (the "Escrowed MPS") 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 MPS have held all of the Delivered MPS 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 MPS fails to satisfy the holding period requirement, as determined by the Agent, all of the investor's Escrowed MPS will be forfeited by the investor and not delivered to it. The Escrowed MPS will instead be delivered to the Agent for sale to investors. This forfeiture will have the effect of increasing the purchase price per MPS for such investors to 100% of the principal amount of the MPS. Should investors who are subject to the holding period requirement sell their MPS once the holding period is no longer applicable, the market price of the MPS may be adversely affected. See also "Plan of Distribution" in the accompanying prospectus supplement. In order to facilitate the offering of the MPS, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the MPS. Specifically, the Agent may sell more MPS than it is obligated to purchase in connection with the offering, creating a naked short position in the MPS for its own account. The Agent must close out any naked short position by purchasing the MPS 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 MPS in the open market after pricing that could adversely affect investors who purchase in PS-22 the offering. As an additional means of facilitating the offering, the Agent may bid for, and purchase, MPS in the open market to stabilize the price of the MPS. Any of these activities may raise or maintain the market price of the MPS above independent market levels or prevent or retard a decline in the market price of the MPS. 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" No action has been or will be taken by us, the Agent or any dealer that would permit a public offering of MPS or possession or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the MPS in any jurisdiction, other than the United States, where action for that purpose is required. No offers, sales or deliveries of MPS, or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the MPS, may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable laws and regulations and will not impose any obligations on the Agent or any dealer. The Agent has represented and agreed, and any dealer through which we may offer the MPS has represented and agreed, that it (i) will comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers the MPS or possesses or distributes this pricing supplement and the accompanying prospectus supplement and prospectus and (ii) will obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the MPS 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 MPS. We shall not have responsibility for the Agent's or any dealer's compliance with the applicable laws and regulations or obtaining any required consent, approval or permission. 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 MPS. The license agreement between Dow Jones and Morgan Stanley provides that the following language must be set forth in this pricing supplement: The MPS 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 MPS or any member of the public regarding the advisability of investing in securities generally or in the MPS 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 PS-23 Average(SM) which is determined, composed and calculated by Dow Jones without regard to Morgan Stanley or the MPS. Dow Jones has no obligation to take the needs of Morgan Stanley or the owners of the MPS 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 MPS to be issued or in the determination or calculation of the equation by which the MPS are to be converted into cash. Dow Jones has no obligation or liability in connection with the administration, marketing or trading of the MPS. 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 MPS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW 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(SM)," "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 MPS due December 30, 2009 Linked to 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 MPS. 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 MPS. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and PS-24 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 MPS 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 MPS 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 MPS 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 MPS, no more than 15% of the Plan's assets should be invested in MPS. 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 MPS have exclusive responsibility for ensuring that their purchase and holding of the MPS do not violate the prohibited transaction or other rules of ERISA or the Code. United States Federal Income Taxation.............................. The MPS 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 full description of the U.S. federal income tax consequences of ownership and disposition of a contingent payment debt instrument. In summary, U.S. taxable investors will, regardless of their method of accounting for U.S. federal income tax purposes, be required to accrue original issue discount ("OID") as interest income on the MPS on a constant yield basis in each year that they hold the MPS, despite the fact that no stated interest will actually be paid on the MPS. As a result, U.S. taxable investors will be required to pay taxes annually on the amount of accrued OID, even though no cash is paid on the MPS from which to pay such taxes. In addition, any gain recognized by U.S. taxable investors on the sale or exchange, PS-25 or at maturity, of the MPS will generally be treated as ordinary income. The rate of accrual of OID on the MPS is the yield at which we would issue a fixed rate debt instrument with terms similar to those of the MPS (our "comparable yield") and is determined at the time of the issuance of the MPS. We have determined that the "comparable yield" is an annual rate of 4.58% compounded annually. Based on our determination of the comparable yield, the "projected payment schedule" for a MPS (assuming an issue price of $10) consists of a projected amount equal to $13.6353 due at maturity. The following table states the amount of OID that will be deemed to have accrued with respect to a MPS during each accrual period, based upon our determination of the comparable yield and the projected payment schedule: TOTAL OID OID DEEMED TO DEEMED TO HAVE ACCRUED ACCRUE FROM ORIGINAL DURING ISSUE DATE (PER ACCRUAL MPS) AS OF END PERIOD (PER OF ACCRUAL ACCRUAL PERIOD MPS) PERIOD -------------- ----------- --------------- Original Issue Date through December 31, 2003 $ 0.4224 $ 0.4224 January 1, 2004 through December 31, 2004 $ 0.4774 $ 0.8998 January 1, 2005 through December 31, 2005 $ 0.4992 $ 1.3990 January 1, 2006 through December 31, 2006 $ 0.5221 $ 1.9211 January 1, 2007 through December 31, 2007 $ 0.5460 $ 2.4671 January 1, 2008 through December 31, 2008 $ 0.5710 $ 3.0381 January 1, 2009 through December 30, 2009 $ 0.5972 $ 3.6353
The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. taxable investors' OID accruals and adjustments in respect of the MPS, and we make no representation regarding the actual amounts of payments on a MPS. Additional Non-U.S. Investor Tax Information The following discussion is based on the opinion of Davis Polk & Wardwell, our special tax counsel, and only applies to Non-U.S. Investors. As used herein, the term "Non-U.S. Investor" means a beneficial owner of an MPS that is, for U.S. federal income tax purposes: o a nonresident alien individual; o a foreign corporation; or PS-26 o a foreign trust or estate. The following discussion does not apply, however, to Non-U.S. Investors that are subject to special rules under the U.S. federal income tax laws, such as: o nonresident alien individuals who have lost their United States citizenship or who have ceased to be taxed as United States resident aliens; o partnerships; o corporations that are treated as foreign personal holding companies, controlled foreign corporations or passive foreign investment companies; o certain other Non-U.S. Investors that are owned or controlled by persons subject to U.S. federal income tax; and o investors for whom income or gain in respect of an MPS are effectively connected with a trade or business in the United States. This discussion is based on the Code, administrative pronouncements, judicial decisions and currently effective and proposed U.S. Treasury Regulations, changes to any of which may affect the tax consequences described herein. If you are considering the purchase of MPS you should consult your tax advisors with regard to the application of the U.S. federal income tax laws to your particular situation as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Tax Treatment upon Maturity, Sale, Exchange or Disposition of an MPS. Subject to the discussion below concerning backup withholding, payments on an MPS by us or a paying agent to a Non-U.S. Investor, and gain realized by a Non-U.S. Investor on the sale, exchange or other disposition of such MPS, will not be subject to U.S. federal income or withholding tax, provided that: o such Non-U.S. Investor does not own, actually or constructively, 10 percent or more of the total combined voting power of all classes of stock of Morgan Stanley entitled to vote, is not a controlled foreign corporation related, directly or indirectly, to Morgan Stanley through stock ownership, and is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; o the certification required by Section 871(h) or Section 881(c) of the Code has been provided with respect to the beneficial owner, as discussed below; and o such Non-U.S. Investor is not an individual who has a "tax home" (as defined in Section 911(d)(3) of the Code) or an office or other fixed place of business in the United States. Certification Requirements. Sections 871(h) and 881(c) of the Code require that, in order to obtain an exemption from withholding tax in respect of payments on the MPS that are, for U.S. federal income tax purposes, treated as interest, the beneficial PS-27 owner of an MPS certifies on Internal Revenue Service Form W-8BEN, under penalties of perjury, that it is not a "United States person" within the meaning of Section 7701(a)(30) of the Code. If you are a prospective investor, you should consult your tax advisor regarding the reporting requirements, including reporting requirements for foreign partnerships and their partners. Estate Tax. Under Section 2105(b) of the Code, an MPS held by an individual who is not a citizen or resident of the United States at the time of his or her death will not be subject to U.S. federal estate tax as a result of such individual's death, provided that the individual does not own, actually or constructively, 10 percent or more of the total combined voting power of all classes of stock of Morgan Stanley entitled to vote and, at the time of such individual's death, payments with respect to such MPS would not have been effectively connected with the conduct by such individual of a trade or business in the United States. Information Reporting and Backup Withholding. Information returns may be filed with the U.S. Internal Revenue Service (the "IRS") in connection with the payments on the MPS at maturity as well as in connection with the proceeds from a sale, exchange or other disposition. The Non-U.S. Investor may be subject to U.S. backup withholding on such payments or proceeds, unless the Non-U.S. Investor complies with certification requirements to establish that it is not a United States person, as described above. The certification requirements of Sections 871(h) and 881(c) of the Code, described above, will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a Non-U.S. Investor will be allowed as a credit against the Non-U.S. Investor's U.S. federal income tax liability and may entitle the Non-U.S. Investor to a refund, provided that the required information is furnished to the IRS. PS-28 Annex A Historical DJIA Quarterly Performance (January 1950 to December 2002) The following table sets forth the index value for the DJIA at the end of each calendar quarter from March 1950 through December 2002 and the index percent change over each quarter. The DJIA value at the beginning of the quarter ending March 1950 was 200.10. You cannot predict the future performance of the DJIA based on its historical performance, and no assurance can be given as to the level of the DJIA on any period closing date or at the maturity of the MPS. The results produced by the DJIA for these periods are not necessarily indicative of the results for any other historical period. Quarters which resulted in an increase in the level of the DJIA of 10% or greater are indicated in bold typeface below. Quarter DJIA Percentage Quarter DJIA Percentage Ending Value Change Ending Value Change - ----------------------------------------------------------------------------------- March 1950 206.00 2.95% September 1956 475.25 -3.56% June 1950 209.10 1.50% December 1956 499.46 5.09% September 1950 226.30 8.23% March 1957 474.80 -4.94% December 1950 235.40 4.02% June 1957 503.28 6.00% March 1951 247.93 5.32% September 1957 456.29 -9.34% June 1951 242.63 -2.14% December 1957 435.68 -4.52% September 1951 271.15 11.75% March 1958 446.75 2.54% December 1951 269.22 -0.71% June 1958 478.17 7.03% March 1952 269.45 0.09% September 1958 532.08 11.27% June 1952 274.25 1.78% December 1958 583.64 9.69% September 1952 270.60 -1.33% March 1959 601.70 3.09% December 1952 291.89 7.87% June 1959 643.59 6.96% March 1953 279.86 -4.12% September 1959 631.67 -1.85% June 1953 268.25 -4.15% December 1959 679.35 7.55% September 1953 264.03 -1.57% March 1960 616.58 -9.24% December 1953 280.89 6.39% June 1960 640.61 3.90% March 1954 300.88 7.12% September 1960 580.13 -9.44% June 1954 336.89 11.97% December 1960 615.88 6.16% September 1954 361.72 7.37% March 1961 676.62 9.86% December 1954 404.38 11.79% June 1961 683.95 1.08% March 1955 409.69 1.31% September 1961 701.20 2.52% June 1955 451.37 10.17% December 1961 731.13 4.27% September 1955 466.61 3.38% March 1962 706.95 -3.31% December 1955 488.39 4.67% June 1962 561.28 -20.61% March 1956 511.78 4.79% September 1962 578.98 3.15% June 1956 492.77 -3.71% December 1962 652.10 12.63% - -----------------------------------------------------------------------------------
Quarter DJIA Percentage Quarter DJIA Percentage Ending Value Change Ending Value Change - ---------------------------------------------------------------------------------- March 1963 682.51 4.66% September 1969 813.08 -6.88% June 1963 706.87 3.57% December 1969 800.35 -1.57% September 1963 732.78 3.67% March 1970 785.56 -1.85% December 1963 762.94 4.12% June 1970 683.52 -12.99% March 1964 813.28 6.60% September 1970 760.67 11.29% June 1964 831.50 2.24% December 1970 838.91 10.29% September 1964 875.36 5.27% March 1971 904.36 7.80% December 1964 874.12 -0.14% June 1971 891.13 -1.46% March 1965 889.04 1.71% September 1971 887.18 -0.44% June 1965 868.02 -2.36% December 1971 890.19 0.34% September 1965 930.57 7.21% March 1972 940.69 5.67% December 1965 969.25 4.16% June 1972 929.02 -1.24% March 1966 924.76 -4.59% September 1972 953.26 2.61% June 1966 870.09 -5.91% December 1972 1,020.01 7.00% September 1966 774.21 -11.02% March 1973 951.00 -6.77% December 1966 785.68 1.48% June 1973 891.70 -6.24% March 1967 865.97 10.22% September 1973 947.09 6.21% June 1967 860.25 -0.66% December 1973 850.85 -10.16% September 1967 926.65 7.72% March 1974 846.68 -0.49% December 1967 905.10 -2.33% June 1974 802.41 -5.23% March 1968 840.67 -7.12% September 1974 607.87 -24.24% June 1968 897.80 6.80% December 1974 616.24 1.38% September 1968 935.79 4.23% March 1975 768.15 24.65% December 1968 943.75 0.85% June 1975 878.99 14.43% March 1969 935.47 -0.88% September 1975 793.88 -9.68% June 1969 873.18 -6.66% December 1975 858.71 8.17% - ----------------------------------------------------------------------------------
Quarter DJIA Percentage Quarter DJIA Percentage Ending Value Change Ending Value Change - ----------------------------------------------------------------------------------- March 1976 999.45 16.39% December 1982 1,046.55 16.77% June 1976 1,002.78 0.33% March 1983 1,130.03 7.98% September 1976 990.19 -1.26% June 1983 1,221.95 8.13% December 1976 1,004.65 1.46% September 1983 1,233.12 0.91% March 1977 919.13 -8.51% December 1983 1,258.64 2.07% June 1977 916.30 -0.31% March 1984 1,164.89 -7.45% September 1977 847.11 -7.55% June 1984 1,132.41 -2.79% December 1977 831.17 -1.88% September 1984 1,206.70 6.56% March 1978 757.36 -8.88% December 1984 1,211.56 0.40% June 1978 818.95 8.13% March 1985 1,266.78 4.56% September 1978 865.82 5.72% June 1985 1,335.46 5.42% December 1978 805.01 -7.02% September 1985 1,328.63 -0.51% March 1979 862.18 7.10% December 1985 1,546.67 16.41% June 1979 841.98 -2.34% March 1986 1,818.61 17.58% September 1979 878.58 4.35% June 1986 1,892.72 4.08% December 1979 838.74 -4.53% September 1986 1,767.58 -6.61% March 1980 787.75 -6.32% December 1986 1,895.95 7.26% June 1980 867.92 10.46% March 1987 2,304.70 21.56% September 1980 932.42 7.43% June 1987 2,418.50 4.94% December 1980 963.98 3.38% September 1987 2,596.30 7.35% March 1981 1,003.87 4.14% December 1987 1,938.80 -25.32% June 1981 976.87 -2.69% March 1988 1,988.06 2.54% September 1981 849.98 -12.99% June 1988 2,141.71 7.73% December 1981 875.00 2.94% September 1988 2,112.70 -1.35% March 1982 822.77 -5.97% December 1988 2,168.60 2.65% June 1982 811.94 -1.32% March 1989 2,293.62 5.77% September 1982 896.25 10.38% June 1989 2,440.06 6.38% - -----------------------------------------------------------------------------------
Quarter DJIA Percentage Quarter DJIA Percentage Ending Value Change Ending Value Change - ---------------------------------------------------------------------------------- September 1989 2,692.82 10.36% June 1996 5,654.63 1.21% December 1989 2,753.20 2.24% September 1996 5,882.17 4.02% March 1990 2,707.21 -1.67% December 1996 6,448.27 9.62% June 1990 2,880.69 6.41% March 1997 6,583.48 2.10% September 1990 2,452.48 -14.86% June 1997 7,672.79 16.55% December 1990 2,633.66 7.39% September 1997 7,945.26 3.55% March 1991 2,913.86 10.64% December 1997 7,908.25 -0.47% June 1991 2,906.75 -0.24% March 1998 8,799.81 11.27% September 1991 3,016.77 3.78% June 1998 8,952.02 1.73% December 1991 3,168.83 5.04% September 1998 7,842.62 -12.39% March 1992 3,235.47 2.10% December 1998 9,181.43 17.07% June 1992 3,318.52 2.57% March 1999 9,786.16 6.59% September 1992 3,271.66 -1.41% June 1999 10,970.80 12.11% December 1992 3,301.11 0.90% September 1999 10,336.95 -5.78% March 1993 3,435.11 4.06% December 1999 11,497.12 11.22% June 1993 3,516.08 2.36% March 2000 10,921.92 -5.00% September 1993 3,555.12 1.11% June 2000 10,447.89 -4.34% December 1993 3,754.09 5.60% September 2000 10,650.92 1.94% March 1994 3,635.96 -3.15% December 2000 10,786.85 1.28% June 1994 3,624.96 -0.30% March 2001 9,878.78 -8.42% September 1994 3,843.19 6.02% June 2001 10,502.40 6.31% December 1994 3,834.44 -0.23% September 2001 8,847.56 -15.76% March 1995 4,157.69 8.43% December 2001 10,021.50 13.27% June 1995 4,556.10 9.58% March 2002 10,403.94 3.82% September 1995 4,789.08 5.11% June 2002 9,243.26 -11.16% December 1995 5,117.12 6.85% September 2002 7,591.93 -17.87% March 1996 5,587.14 9.19% December 2002 8,341.63 9.87% - ---------------------------------------------------------------------------------- Total Periods 212 Total Periods with a quarterly increase greater than 10% 26 ----------------------------------------
A-2 -----END PRIVACY-ENHANCED MESSAGE-----