-----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, QNL7nmp2UZfV6il1PuZbobnhBGVnYavCYULGVk0dUm6plHYiJYMj9vePCdqgGNKB cPHHqeEeVrl7XZbQJQDhDA== 0000950103-03-001221.txt : 20030429 0000950103-03-001221.hdr.sgml : 20030429 20030429150523 ACCESSION NUMBER: 0000950103-03-001221 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20030429 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: 03669224 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 apr2503_424b3-1.txt PROSPECTUS Dated June 11, 2002 Pricing Supplement No. 38 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-83616 Dated June 11, 2002 Dated April 23, 2003 Rule 424(b)(3) $26,612,500 Morgan Stanley GLOBAL MEDIUM-TERM NOTES, SERIES C Senior Fixed Rate Notes --------------------------- PLUS due April 30, 2005 Mandatorily Exchangeable for an Amount Payable in U.S. Dollars Based on the Value of the DOW JONES INDUSTRIAL AVERAGE(SM) Performance Leveraged Upside Securities(SM) ("PLUS(SM)") Unlike ordinary debt securities, the PLUS do not pay interest and do not guarantee any return of principal at maturity. Instead, at maturity you will receive for each $21.29 principal amount of PLUS an amount in cash based upon the value of the Dow Jones Industrial Average(SM), which we refer to as the DJIA(SM), plus a supplemental amount if the value of the DJIA at maturity exceeds 8,515.66, the closing value of the DJIA on April 23, 2003, the day we offered the PLUS for initial sale to the public, subject to a maximum payment at maturity equal to $27.26 for each $21.29 principal amount of PLUS. o The principal amount and issue price of each PLUS is $21.29, which is equal to one four-hundredth of the closing value of the DJIA on April 23, 2003. o We will not pay interest on the PLUS. o At maturity, you will receive for each $21.29 principal amount of PLUS you hold an amount in cash equal to the final average index value divided by 400. In addition, if the final average index value exceeds 8,515.66, the closing value of the DJIA on April 23, 2003, you will receive a supplemental amount in cash equal to that excess amount divided by 400. The total payment to you for each $21.29 principal amount of PLUS will, however, be subject to a maximum payment at maturity equal to $27.26, or 128% of the issue price. o The final average index value will be the average closing value of the DJIA over a period of three trading days commencing on April 26, 2005. In no event will the supplemental amount be less than zero. o Investing in the PLUS is not equivalent to investing in the DJIA or its component stocks. o The PLUS have been approved for listing on the American Stock Exchange LLC, subject to official notice of issuance. The AMEX listing symbol for the PLUS is "DJP." You should read the more detailed description of the PLUS in this pricing supplement. In particular, you should review and understand the descriptions in"Summary of Pricing Supplement" and "Description of PLUS." The PLUS are riskier than ordinary debt securities. See "Risk Factors" beginning on PS-6. --------------------------- PRICE $21.29 PER PLUS --------------------------- Price to Agent's Proceeds to Public Commissions Company ----------- ----------- ----------- Per PLUS................. $21.29 $.35 $20.94 Total.................... $26,612,500 $437,500 $26,175,000 MORGAN STANLEY For a description of certain restrictions on offers, sales and deliveries of the PLUS and on the distribution of this pricing supplement and the accompanying prospectus supplement and prospectus and other offering material related to the PLUS, see "Supplemental Information Concerning Plan of Distribution" below. No action has been or will be taken by us, the Agent or any dealer that would permit a public offering of the PLUS or possession or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the PLUS in any jurisdiction, other than the United States, where action for that purpose is required. This pricing supplement and the accompanying prospectus supplement and prospectus may not be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. The PLUS may not be offered or sold to the public in Brazil. Accordingly, the offering of the PLUS has not been submitted to the Comissao de Valores Mobiliarios for approval. Documents relating to this offering, as well as the information contained herein and therein, may not be supplied to the public as a public offering in Brazil or be used in connection with any offer for subscription or sale to the public in Brazil. The PLUS have not been registered with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer, sales or deliveries of the PLUS, or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus, may be made in or from Chile except in circumstances which will result in compliance with any applicable Chilean laws and regulations. The PLUS may not be offered or sold in Hong Kong, by means of any document, other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong. The Agent has not issued and will not issue any advertisement, invitation or document relating to the PLUS, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to PLUS which are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder. The PLUS have not been registered with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or sold publicly in Mexico. This pricing supplement and the accompanying prospectus supplement and prospectus may not be publicly distributed in Mexico. This pricing supplement and the accompanying prospectus supplement and prospectus have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this pricing supplement and the accompanying prospectus supplement and prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the PLUS may not be circulated or distributed, nor may the PLUS be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the PLUS to the public in Singapore. PS-2 SUMMARY OF PRICING SUPPLEMENT The following summary describes the PLUS 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 PLUS offered are medium-term debt securities of Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). The return on the PLUS at maturity is linked to the performance of the Dow Jones Industrial Average, which we refer to as the DJIA. "Performance Leveraged Upside Securities" and "PLUS" 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 PLUS We, Morgan Stanley, are offering Performance costs $21.29 Leveraged Upside Securities(SM) due April 30, 2005, Mandatorily Exchangeable for an Amount Payable in U.S. Dollars Based on the Value of the Dow Jones Industrial Average(SM), which we refer to as the PLUS(SM). The principal amount and issue price of each PLUS is $21.29, which is equal to one four-hundredth of the closing value of the DJIA on April 23, 2003, the day we offered the PLUS for initial sale to the public. No guaranteed return Unlike ordinary debt securities, the PLUS do not of principal; no interest pay interest and do not guarantee any return of principal at maturity. If the average closing value of the DJIA over a period of three trading days commencing on April 26, 2005 is less than the closing value of the DJIA on April 23, 2003, we will pay to you an amount in cash that is less than the issue price of the PLUS. Payment at maturity At maturity, you will receive for each $21.29 based on the DJIA principal amount of PLUS you hold an amount in cash equal to the final average index value divided by 400. In addition, if the final average index value exceeds 8,515.66, the closing value of the DJIA on April 23, 2003, you will receive a supplemental amount in cash equal to that excess amount divided by 400. The total payment to you for each $21.29 principal amount of PLUS will, however, be subject to a maximum payment at maturity equal to $27.26, or 128% of the issue price. The final average index value will be the average closing value of the DJIA over a period of three trading days commencing on April 26, 2005. Accordingly, if one four-hundredth of the final average index value is greater than one four-hundredth of the closing value of the DJIA on April 23, 2003, you will receive for each PLUS at maturity twice the amount of that excess. However, because the PLUS are subject to a maximum payment at maturity equal to $27.26, you will not receive more than $27.26 per PLUS, or 128% of the issue price. On PS-5, we have provided a graph titled "Hypothetical Payouts on the PLUS at Maturity," which illustrates the performance of the PLUS at maturity assuming a variety of hypothetical final average index values. The graph does not show every situation that may occur. You can review the historical values of the DJIA in the section of this pricing supplement called "Description of PLUS--Historical Information." The payment of dividends on the stocks that underlie the DJIA is not reflected in the level of the DJIA and, therefore, has no effect on the calculation of the payout at maturity. If a market disruption event occurs during the period of three trading days when the average closing value of the DJIA at maturity is to be determined, the maturity date of PS-3 the PLUS may be postponed. See the section of this pricing supplement called "Description of PLUS--Maturity Date." Investing in the PLUS is not equivalent to investing in the DJIA or its component stocks. Your return on the PLUS is The return investors realize on the PLUS is limited by the maximum limited by the maximum payment at maturity. The payment at maturity maximum payment at maturity of each PLUS is $27.26, or 128% of the issue price. 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 The Chase Manhattan Bank, the trustee for our senior notes. As calculation agent, MS & Co. will determine the final average index value and the supplemental amount, if any, that you will receive at maturity. Where you can find more The PLUS are senior notes issued as part of our information on the PLUS Series C medium-term note program. You can find a general description of our Series C medium-term note program in the accompanying prospectus supplement dated June 11, 2002. We describe the basic features of this type of note in the sections of the prospectus supplement called "Description of Notes--Fixed Rate Notes" and "--Exchangeable Notes." For a detailed description of the terms of the PLUS, you should read the section of this pricing supplement called "Description of PLUS." You should also read about some of the risks involved in investing in PLUS in the section of this pricing supplement called "Risk Factors." The tax and accounting treatment of investments in equity-linked notes such as the PLUS may differ from that of investments in ordinary debt securities or common stock. See the section of this pricing supplement called "Description of Notes--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 PLUS. How to reach us You may contact your local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (212) 761-4000). PS-4 HYPOTHETICAL PAYOUTS ON THE PLUS AT MATURITY For each PLUS, the following graph illustrates the payout on the PLUS at maturity for a range of hypothetical final average index values. The PLUS Zone illustrates the leveraging effect of the payment of the Supplemental Amount taking into account the maximum payment at maturity. The chart is based on the following terms: o Issue Price per PLUS: $21.29 o Initial Index Value: 8,515.66 o Maximum Payment at Maturity: $27.26 (128% of the Issue Price) The payouts on the PLUS at maturity reflected in the graph below are the lesser of (a) the sum of (i) the Final Average Index Value divided by 400 plus (ii) the Supplemental Amount, equal to the excess of the Final Average Index Value minus the Initial Index Value, divided by 400, and (b) the Maximum Payment at Maturity. [GRAPHIC OMITTED] PS-5 RISK FACTORS The PLUS are not secured debt, are riskier than ordinary debt securities and, unlike ordinary debt securities, the PLUS do not pay interest or guarantee any return of principal at maturity. The payment at maturity is linked to the performance of the DJIA, subject to a maximum payment at maturity. To the extent that the average closing value of the DJIA over a period of three trading days commencing on April 26, 2005 is less than the closing value of the DJIA on April 23, 2003, the day we offered the PLUS for initial sale to the public, the amount of cash that investors receive at maturity will be less than the issue price of the PLUS and investors will not receive any supplemental cash amount. Investing in the PLUS is not equivalent to investing directly in the DJIA or its component stocks. The return investors realize on the PLUS is limited by the maximum payment at maturity. This section describes the most significant risks relating to the PLUS. You should carefully consider whether the PLUS are suited to your particular circumstances before you decide to purchase them. PLUS do not pay interest or The terms of the PLUS differ from those of guarantee return of principal ordinary debt securities in that we will not pay you interest on the PLUS or pay you the principal amount of the PLUS at maturity. Instead, at maturity, you will receive for each $21.29 principal amount of PLUS you hold an amount in cash equal to the final average index value divided by 400. In addition, if the final average index value exceeds 8,515.66, the closing value of the DJIA on April 23, 2003, you will receive a supplemental amount in cash equal to that excess amount divided by 400. The total payment to you for each $21.29 principal amount of PLUS will, however, be subject to a maximum payment at maturity equal to $27.26, or 128% of the issue price. If the average closing value of the DJIA at maturity is less than the closing value of the DJIA on April 23, 2003, we will pay to you an amount in cash that is less than the issue price of the PLUS, and we will not pay any supplemental cash amount. In other words, if the final average index value divided by 400 is less than the issue price of the PLUS, you will lose money on your investment. See "Hypothetical Payouts on the PLUS at Maturity" on PS-5. Your appreciation The appreciation potential of the PLUS is potential is limited limited by the maximum payment at maturity of $27.26 per PLUS, or 128% of the issue price. As a result, you will not share in any appreciation of the DJIA above 128% of the value of the DJIA on April 23, 2003. See "Hypothetical Payouts on the PLUS at Maturity" on PS-5. Secondary trading There may be little or no secondary market for may be limited the PLUS. Although the PLUS 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 PLUS 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 PLUS but is not required to do so. Market price of the Several factors, many of which are beyond our PLUS may be influenced control, will influence the value of the PLUS. by many unpredictable We expect that generally the value of the DJIA factors on any day will affect the value of the PLUS more than any other single factor. However, because the PLUS may pay a supplemental cash amount and because the PLUS are subject to a maximum payment at maturity, the PLUS will trade differently from the DJIA. Other factors that may influence the value of the PLUS include: o the volatility (frequency and magnitude of changes in value) of the DJIA o the dividend rate on the stocks underlying the DJIA PS-6 o geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the stocks underlying the DJIA or stock markets generally and which may affect the value of the DJIA o interest and yield rates in the market o the time remaining until the PLUS mature o our creditworthiness Some or all of these factors will influence the price you will receive if you sell your PLUS prior to maturity. For example, you may have to sell your PLUS at a substantial discount from the principal amount if the value of the DJIA is at or below the closing value of the DJIA on April 23, 2003. You cannot predict the future performance of the DJIA based on its historical performance. The value of the DJIA may decrease so that you will receive at maturity a payment that is less than the principal amount of the PLUS and no supplemental cash amount. We cannot guarantee that the value of the DJIA will increase so that you will receive at maturity more than the principal amount of the PLUS or that the value of the DJIA will not increase beyond 128% of the initial index value. You will no longer share in the performance of the DJIA at index values above 128% of the initial index value. Adjustments to the DJIA Dow Jones Indexes, a part of Dow Jones, is could adversely affect the responsible for calculating and maintaining value of the PLUS the DJIA. You should not conclude that the inclusion of a stock in the DJIA is an investment recommendation by us of that stock. The editors of The Wall Street Journal, which is published by Dow Jones, can add, delete or substitute the stocks underlying the DJIA, and Dow Jones Indexes can make other methodological changes required by certain events relating to the underlying stocks, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the DJIA. Dow Jones may discontinue or suspend calculation or dissemination of the DJIA. Any of these actions could adversely affect the value of the PLUS. If Dow Jones were to discontinue or suspend calculation or publication of the DJIA, MS & Co., as the calculation agent, would have 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 PLUS 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 MS & Co. determines that there is no appropriate successor index, at maturity the payout on the PLUS 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 PLUS, 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 Because the calculation agent, MS & Co., is of the calculation agent our affiliate, the economic interests of the and its affiliates may affect calculation agent and its affiliates may be determinations adverse to your interests as an investor in the PLUS. As calculation agent, MS & Co. will calculate the final average index value and the supplemental cash amount, if any, we will pay to you at maturity. 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 any PS-7 index closing value in the event of a discontinuance of the DJIA, may affect the payout to you at maturity. See the sections of this pricing supplement called "Description of PLUS--Market Disruption Event" and "--Discontinuance of the DJIA; Alteration of Method of Calculation." Hedging and trading activity We expect that MS & Co. and other affiliates by the calculation agent and will carry out hedging activities related to its affiliates could potentially the PLUS (and possibly to other instruments adversely affect the value of linked to the DJIA or its component stocks), the DJIA including trading in the stocks underlying the DJIA as well as in other instruments related to the DJIA. MS & Co. and some of our other subsidiaries also trade the stocks underlying the DJIA and other financial instruments related to the DJIA on a regular basis as part of their general broker-dealer 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 PLUS. The characterization of the You should also consider the tax consequences PLUS for federal income tax of investing in the PLUS. There is no direct purposes is uncertain legal authority as to the proper tax treatment of the PLUS, and therefore significant aspects of their tax treatment are uncertain. Pursuant to the terms of the PLUS, you have agreed with us to treat a PLUS as a single financial contract, as described in the section of this pricing supplement called "Description of PLUS--United States Federal Income Taxation--General." If the Internal Revenue Service (the "IRS") were successful in asserting an alternative characterization for the PLUS, the timing and character of income or loss with respect to the PLUS may differ. We do not plan to request a ruling from the IRS regarding the tax treatment of the PLUS, and the IRS or a court may not agree with the tax treatment described in this pricing supplement. Please read carefully the section of this pricing supplement called "Description of PLUS--United States Federal Income Taxation." You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the PLUS. PS-8 DESCRIPTION OF PLUS Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term "PLUS" refers to each $21.29 principal amount of our PLUS due April 30, 2005, Mandatorily Exchangeable for an Amount Payable in U.S. Dollars Based on the Value of the Dow Jones Industrial Average(SM). In this pricing supplement, the terms "we," "us" and "our" refer to Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). Principal Amount...................... $26,612,500 Original Issue Date (Settlement Date)..................... April 28, 2003 Maturity Date......................... April 30, 2005, subject to extension in the event of a Market Disruption Event on any Determination Date. If due to a Market Disruption Event or otherwise, the third Determination Date for calculating the Final Average Index Value (the "Final Determination Date") is postponed so that it falls on or after April 29, 2005, the Maturity Date will be the second Trading Day following the Final Determination Date. See "--Final Average Index Value" below. Issue Price........................... $21.29 per PLUS Denominations......................... $21.29 and integral multiples thereof CUSIP................................. 61746B494 ISIN.................................. US61746B4941 Interest Rate......................... None Specified Currency.................... U.S. dollars Payment at Maturity................... At maturity, upon delivery of the PLUS to the Trustee, we will pay with respect to the $21.29 principal amount of each PLUS an amount in cash equal to the lesser of (a) the sum of (i) the Final Average Index Value divided by 400 plus (ii) the Supplemental Amount, if any, and (b) the Maximum Payment at Maturity. See "--Discontinuance of the DJIA; Alteration of Method of Calculation" below. We shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee and to the Depositary, which we refer to as DTC, of the amount of cash to be delivered with respect to the $21.29 principal amount of each PLUS, 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 such cash to the Trustee for delivery to DTC, as holder of the PLUS, on the Maturity Date. We expect 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 "--Book Entry Note or Certificated Note" below, and see "The Depositary" in the accompanying prospectus supplement. PS-9 Supplemental Amount .................. The amount, if any, by which the Final Average Index Value exceeds the Initial Index Value, divided by 400. In no event will the Supplemental Amount be less than zero. Maximum Payment at Maturity........... $27.26 Final Average Index Value............. The arithmetic average of the Index Closing Value on each of the first three Trading Days from and including April 26, 2005 on which no Market Disruption Event occurs (each, a "Determination Date"). Initial Index Value................... 8,515.66, which is the Index Closing Value on April 23, 2003. Index Closing Value................... The Index Closing Value on any Trading Day will equal the closing value of the DJIA or any Successor Index (as defined under "--Discontinuance of the DJIA; Alteration of Method of Calculation" below) published at the regular official weekday close of trading on that Trading Day. In certain circumstances, the Index Closing Value will be based on the alternate calculation of the DJIA described under "--Discontinuance of the DJIA; Alteration of Method of Calculation." Trading Day........................... A day, as determined by the Calculation Agent, on which trading is generally conducted on the New York Stock Exchange, Inc. (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 PLUS 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 PLUS. Your beneficial interest in the PLUS 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. In this pricing supplement, all references to actions taken by you or to be taken by you refer to actions taken or to be taken by DTC upon instructions from its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the PLUS, for distribution to participants in accordance with DTC's procedures. For more information regarding DTC and book entry notes, please read "The Depositary" 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................................. MS & Co. Calculation Agent..................... MS & Co. PS-10 All determinations made by the Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding on you and on us. All calculations with respect to the Final Average Index Value and the Supplemental Amount, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g. .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per PLUS will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upwards (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid on the aggregate number of PLUS 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 PLUS, including with respect to certain determinations and judgments that the Calculation Agent must make in determining any Index Closing Value 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. Market Disruption Event............... "Market Disruption Event" means, with respect to the DJIA: (i) a suspension, absence or material limitation of trading of stocks then constituting 20 percent or more of the level of the DJIA (or the Successor Index) on the Relevant Exchanges for such securities for more than two hours of trading 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 percent or more of the level of the DJIA (or the relevant Successor Index) during the last one-half hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate; or the suspension, absence or material limitation of trading on any major U.S. securities market for trading in futures or options contracts related to the DJIA (or the relevant Successor Index) for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such market, in each case as determined by the Calculation Agent in its sole discretion; and (ii) a determination by the Calculation Agent in its sole discretion that the event described in clause (i) above materially interfered with the ability of Morgan Stanley PS-11 or any of its affiliates to adjust or unwind all or a material portion of the hedge with respect to the PLUS. 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 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 (x) a price change exceeding limits set by such exchange or market, (y) an imbalance of orders relating to such contracts or (z) 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 (or any combination thereof) 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 PLUS shall have occurred and be continuing, the amount declared due and payable per PLUS upon any acceleration of the PLUS shall be determined by the Calculation Agent and shall be an amount in cash equal to the lesser of (a) the sum of (i) the Index Closing Value as of the date of acceleration divided by 400 plus (ii) the Supplemental Amount, if any, calculated using as the Final Average Index Value the Index Closing Value as of the date of acceleration and (b) the Maximum Payment at Maturity. PS-12 If the maturity of the PLUS 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 cash amount due with respect to the PLUS as promptly as possible and in no event later than two Business Days after the date of acceleration. 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 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 PS-13 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 April 22, 2003 and its corresponding stock ticker symbol is set forth in the following table. The common stocks of twenty-eight of the DJIA component companies are traded on the NYSE, and the common stocks of Intel Corporation and Microsoft Corporation are traded on the Nasdaq National Market. Issuer of Component Stock Symbol --------------------------------------------------- ------ Alcoa Inc.......................................... AA Altria Group, Inc.................................. MO American Express Company........................... AXP AT&T Corp.......................................... T The Boeing Company................................. BA Caterpillar Inc.................................... CAT Citigroup Inc...................................... C The Coca-Cola Company.............................. KO E.I. du Pont de Nemours and Company................ DD Eastman Kodak Company.............................. EK Exxon Mobil Corporation............................ XOM General Electric Company........................... GE General Motors Corporation......................... GM Hewlett-Packard Company............................ HPQ The Home Depot, Inc................................ HD Honeywell International Inc........................ HON Intel Corporation.................................. INTC International Business Machines Corporation........ IBM International Paper Company........................ IP J.P. Morgan Chase & Co............................. JPM Johnson & Johnson.................................. JNJ McDonald's Corporation............................. MCD Merck & Co., Inc................................... MRK Microsoft Corporation.............................. MSFT 3M Company......................................... MMM 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 PS-14 index being referred to herein as a "Successor Index"), then any subsequent Index Closing Value will be determined by reference to the value of such Successor Index at the 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 Closing Value is to be determined. Upon any selection by the Calculation Agent of a Successor Index, the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to Morgan Stanley and to DTC, as holder of the PLUS, within three Trading Days of such selection. We expect that such notice will be passed on to you, as a beneficial owner of the PLUS, 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, the date that any Index Closing Value is to be determined and MS & Co., as the Calculation Agent, determines that no Successor Index is available at such time, then, on such date, the Calculation Agent will determine the Index Closing Value 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 on such date of each security most recently comprising the DJIA on the Relevant Exchange. Notwithstanding these alternative arrangements, discontinuance of the publication of the DJIA may adversely affect the value of the PLUS. If at any time the method of calculating the DJIA or a Successor Index, or the value thereof, is changed in a material respect, or if the DJIA or a Successor Index is in any other way modified so that such index does not, in the opinion of MS & Co., as the Calculation Agent, fairly represent the value of the DJIA or such Successor Index had such changes or modifications not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York City on each date on which the Index Closing Value is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to the DJIA or such Successor Index, as the case may be, as if such changes or modifications had not been made, and calculate the Final Average Index Value with reference to the DJIA or such Successor Index, as adjusted. Accordingly, if the method of calculating the DJIA or a Successor Index is modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent will adjust such index in order to arrive at a value of the DJIA or such Successor Index as if it had not been modified (e.g., as if such split had not occurred). PS-15 Historical Information................ The following table sets forth the high and low Index Closing Values, as well as end-of-quarter Index Closing Values, of the DJIA for each quarter in the period from January 1, 1998 through April 23, 2003. The Index Closing Value on April 23, 2003 was 8,515.66. We obtained the information in the table below from Bloomberg Financial Markets, and we believe such information to be accurate. The value of the DJIA may decrease so that you will receive a payment at maturity that is less than the principal amount of the PLUS. We cannot give you any assurance that the value of the DJIA will increase so that at maturity you will receive a payment in excess of the principal amount of the PLUS, or that the value of the DJIA will not increase beyond 128% of the Initial Index Value. Because your return is linked to the value of the DJIA at maturity, there is no guaranteed return of principal. If the Final Average Index Value divided by 400 is less than the Issue Price of the PLUS, you will lose money on your investment. 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 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................. 8,842.62 7,524.06 7,992.13 Second Quarter (through April 23, 2003)............. 8,515.66 8,069.86 8,515.66
Use of Proceeds and Hedging........... The net proceeds we receive from the sale of the PLUS 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 PLUS. See also "Use of Proceeds" in the accompanying prospectus. PS-16 On the date of this pricing supplement, we, through our subsidiaries or others, hedged our anticipated exposure in connection with the PLUS by taking positions in futures contracts on the DJIA. Purchase activity could potentially have increased the value of the DJIA, and therefore effectively increased the level to which the DJIA must rise before you would receive at maturity a payment that exceeds the principal amount of the PLUS. Through our subsidiaries, we are likely to modify our hedge position throughout the life of the PLUS by purchasing and selling the stocks underlying the DJIA, futures or options contracts 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 any such securities on the Determination Dates. Although we have no reason to believe that our hedging activity has had, or in the future will have, a material impact on the value of the DJIA, we cannot give any 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 PLUS set forth on the cover of this pricing supplement. The Agent proposes initially to offer the PLUS directly to the public at the public offering price set forth on the cover page of this pricing supplement plus accrued interest, if any, from the Original Issue Date. The Agent may allow a concession not in excess of 1.644% of the principal amount of the PLUS to other dealers, which may include Morgan Stanley & Co. International Limited and Bank Morgan Stanley AG. We expect to deliver the PLUS against payment therefor in New York, New York on April 28, 2003. After the initial offering of the PLUS, the Agent may vary the offering price and other selling terms from time to time. In order to facilitate the offering of the PLUS, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the PLUS or the level of the DJIA. Specifically, the Agent may sell more PLUS than it is obligated to purchase in connection with the offering or may sell individual stocks underlying the DJIA it does not own, creating a naked short position in the PLUS or the individual stocks underlying the DJIA, respectively, for its own account. The Agent must close out any naked short position by purchasing the PLUS or the individual stocks underlying the DJIA 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 PLUS or the individual stocks underlying the DJIA in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the Agent may bid for, and purchase, PLUS or the individual stocks underlying the DJIA in the open market to stabilize the price of the PLUS. Any of these activities may raise or maintain the market price of the PLUS above independent market levels or prevent or retard a decline in the market price of the PLUS. The Agent is not required to engage in these activities, and may end any of these activities at any time. See "--Use of Proceeds and Hedging" above. PS-17 General No action has been or will be taken by us, the Agent or any dealer that would permit a public offering of the PLUS or possession or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the PLUS in any jurisdiction, other than the United States, where action for that purpose is required. No offers, sales or deliveries of the PLUS, or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the PLUS, 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 us, the Agent or any dealer. The Agent has represented and agreed, and each dealer through which we may offer the PLUS 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 PLUS 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 PLUS 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 PLUS. 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. Brazil The PLUS may not be offered or sold to the public in Brazil. Accordingly, the offering of the PLUS has not been submitted to the Comissao de Valores Mobiliarios for approval. Documents relating to this offering, as well as the information contained herein and therein, may not be supplied to the public as a public offering in Brazil or be used in connection with any offer for subscription or sale to the public in Brazil. Chile The PLUS have not been registered with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer, sales or deliveries of the PLUS, or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus, may be made in or from Chile except in circumstances which will result in compliance with any applicable Chilean laws and regulations. Hong Kong The PLUS may not be offered or sold in Hong Kong, by means of any document, other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong. The PS-18 Agent has not issued and will not issue any advertisement, invitation or document relating to the PLUS, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to PLUS which are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder. Mexico The PLUS have not been registered with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or sold publicly in Mexico. This pricing supplement and the accompanying prospectus supplement and prospectus may not be publicly distributed in Mexico. Singapore This pricing supplement and the accompanying prospectus supplement and prospectus have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this pricing supplement and the accompanying prospectus supplement and prospectus and any other document or material used in connection with the offer or sale, or invitation for subscription or purchase, of the PLUS may not be circulated or distributed, nor may the PLUS be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the PLUS to the public in Singapore. 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 PLUS. The license agreement between Dow Jones and Morgan Stanley provides that the following language must be set forth in this pricing supplement: The PLUS 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 PLUS or any member of the public regarding the advisability of investing in securities generally or in the PLUS particularly. Dow Jones' only relationship to Morgan Stanley is the licensing of certain trademarks, trade names and service marks of Dow Jones and of the Dow Jones Industrial Average(SM) which is determined, composed and calculated by Dow Jones without regard to Morgan Stanley or the PLUS. Dow Jones has no obligation to take the needs of Morgan Stanley or the owners of the PLUS into consideration in determining, composing or calculating the Dow Jones Industrial Average(SM). Dow Jones is not responsible for and has PS-19 not participated in the determination of the timing of, prices at, or quantities of the PLUS to be issued or in the determination or calculation of the equation by which the PLUS are to be converted into cash. Dow Jones has no obligation or liability in connection with the administration, marketing or trading of the PLUS. 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 PLUS, 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 PLUS due April 30, 2005 Based on the Value of the Dow Jones Industrial Average(SM) are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in the PLUS. 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 PLUS. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan. In addition, we and certain of our subsidiaries and affiliates, including MS & Co. and Morgan Stanley DW Inc. (formerly Dean Witter Reynolds Inc.) ("MSDWI"), may each be considered a "party in interest" within the meaning of ERISA, or a "disqualified person" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also "Plans"). Prohibited transactions within the meaning of ERISA or the Code PS-20 would likely arise, for example, if the PLUS 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, unless the PLUS are acquired pursuant to an exemption from the "prohibited transaction" rules. A violation of these "prohibited transaction" rules may result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption. The U.S. Department of Labor has issued five prohibited transaction class exemptions ("PTCEs") that may provide exemptive relief for direct or indirect prohibited transactions resulting from the purchase or holding of the PLUS. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified asset managers). Because we may be considered a party in interest with respect to many Plans, the PLUS may not be purchased or held by any Plan, any entity whose underlying assets include "plan assets" by reason of any Plan's investment in the entity (a "Plan Asset Entity") or any person investing "plan assets" of any Plan, unless such purchaser or investor is eligible for exemptive relief, including relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or such purchase and holding is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, or investor in the PLUS will be deemed to have represented, in its corporate and fiduciary capacity, by its purchase and holding thereof that it either (a) is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or with "plan assets" of any Plan or (b) is eligible for exemptive relief or such purchase or holding is not prohibited by ERISA or Section 4975 of the Code. Under ERISA, assets of a Plan may include assets held in the general account of an insurance company which has issued an insurance policy to such plan or assets of an entity in which the Plan has invested. Accordingly, insurance company general accounts that include assets of a Plan must ensure that one of the foregoing exemptions is available. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the PLUS on behalf of or with "plan assets" of any Plan consult with their counsel regarding the availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. Certain plans that are not subject to ERISA, including plans maintained by state and local governmental entities, are nonetheless subject to investment restrictions under the terms of applicable local law. Such restrictions may preclude the purchase of the PLUS. PS-21 Purchasers of the PLUS have exclusive responsibility for ensuring that their purchase and holding of the PLUS do not violate the prohibited transaction rules of ERISA or the Code, or any requirements applicable to government or other benefit plans that are not subject to ERISA or the Code. United States Federal Income Taxation.............................. The following summary is based on the advice of Davis Polk & Wardwell, our special tax counsel ("Tax Counsel"), and is a general discussion of the principal potential U.S. federal income tax consequences to initial investors in the PLUS that (i) purchase the PLUS at their Issue Price and (ii) will hold the PLUS as capital assets within the meaning of Section 1221 of the Code. This summary is based on the Code, administrative pronouncements, judicial decisions and currently effective and proposed Treasury regulations, changes to any of which subsequent to the date of this pricing supplement may affect the tax consequences described herein. This summary does not address all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor's individual circumstances or to investors subject to special treatment under the U.S. federal income tax laws (e.g., certain financial institutions, tax-exempt organizations, dealers in options or securities, or persons who hold the PLUS as part of a hedging transaction, straddle, conversion or other integrated transaction). As the law applicable to the U.S. federal income taxation of instruments such as the PLUS is technical and complex, the discussion below necessarily represents only a general summary. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed. General Pursuant to the terms of the PLUS, we and every investor in the PLUS agree (in the absence of an administrative determination or judicial ruling to the contrary) to characterize a PLUS for all tax purposes as a single financial contract with respect to the DJIA that (1) requires the investor to pay us at inception an amount equal to the purchase price of the PLUS and (2) entitles the investor to receive at maturity an amount in cash based upon the performance of the DJIA. The characterization of the PLUS described above is not, however, binding on the IRS or the courts. No statutory, judicial or administrative authority directly addresses the characterization of the PLUS (or of similar instruments) for U.S. federal income tax purposes, and no ruling is being requested from the IRS with respect to their proper characterization and treatment. Due to the absence of authorities that directly address the PLUS (or similar instruments), Tax Counsel is unable to render an opinion as to their proper characterization for U.S. federal income tax purposes. As a result, significant aspects of the U.S. federal income tax consequences of an investment in the PLUS are not certain, and no assurance can be given that the IRS or the courts will agree with the characterization and tax treatment described herein. Accordingly, you are urged to consult your tax advisor regarding the U.S. federal income tax consequences of an investment in the PLUS (including possible alternative characterizations of the PLUS) and regarding any tax consequences arising under the laws of any state, local or foreign PS-22 taxing jurisdiction. Unless otherwise stated, the following discussion is based on the characterization described above. U.S. Holders As used herein, the term "U.S. Holder" means a beneficial owner of PLUS that for U.S. federal income tax purposes is: o a citizen or resident of the United States; o a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or any political subdivision thereof; or o an estate or trust the income of which is subject to United States federal income taxation regardless of its source. Tax Treatment of the PLUS Tax basis. A U.S. Holder's tax basis in the PLUS will equal the amount paid by the U.S. Holder to acquire the PLUS. Settlement of the PLUS at maturity. Upon receipt of cash at maturity, a U.S. Holder generally will recognize long-term capital gain or loss equal to the difference between the amount of cash received and the U.S. Holder's basis in the PLUS. Sale or exchange of the PLUS. Upon a sale or exchange of the PLUS prior to their maturity, a U.S. Holder will generally recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange and the U.S. Holder's basis in the PLUS sold or exchanged. This gain or loss will generally be long-term capital gain or loss if the U.S. Holder held the PLUS for more than one year at the time of disposition. Possible Alternative Tax Treatments of an Investment in the PLUS Due to the absence of authorities that directly address the proper tax treatment of the PLUS, no assurance can be given that the IRS will accept, or that a court will uphold, the characterization and treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning PLUS under Treasury regulations governing contingent payment debt instruments (the "Contingent Payment Regulations"). If the IRS were successful in asserting that the Contingent Payment Regulations applied to the PLUS, the timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue original issue discount on the PLUS every year at a "comparable yield" determined at the time of their issuance. Furthermore, any gain realized by a U.S. Holder at maturity, upon early retirement of the PLUS pursuant to our call right, or upon a sale or other disposition of the PLUS would generally be treated as ordinary income, and any loss realized at maturity would be treated as ordinary loss to the extent of the U.S. Holder's prior accruals of original issue discount, and as capital loss thereafter. PS-23 Even if the Contingent Payment Regulations do not apply to the PLUS, other alternative federal income tax characterizations of the PLUS are possible which, if applied, could also affect the timing and the character of the income or loss with respect to the PLUS. It is possible, for example, that a PLUS could be treated as a unit consisting of a loan and a forward contract, in which case a U.S. Holder would be required to accrue interest income or original issue discount on a current basis. Accordingly, prospective investors are urged to consult their tax advisors regarding all aspects of the U.S. federal income tax consequences of an investment in the PLUS. Backup Withholding and Information Reporting A U.S. Holder of the PLUS may be subject to information reporting and to backup withholding in respect of amounts paid to the U.S. Holder, unless the U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder's U.S. federal income tax liability, provided the required information is furnished to the IRS. Non-U.S. Holders The discussion under this heading applies to you only if you are a "Non-U.S. Holder." This discussion does not describe all of the U.S. federal income tax consequences that may be relevant to an investor in light of its particular circumstances or to investors that are subject to special rules, such as Non-U.S. Holders, as defined below, that are owned or controlled by persons subject to U.S. federal income tax or for whom income or gain in respect of the PLUS are effectively connected with a trade or business in the United States. A Non-U.S. Holder is a beneficial owner of PLUS that for U.S. federal income tax purposes is: o a nonresident alien individual; o a foreign corporation; or o a foreign trust or estate. A Non-U.S. Holder of the PLUS will not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder, except that gain from the sale or exchange of the PLUS or their settlement at maturity may be subject to U.S. federal income tax if such Non-U.S. Holder is a non-resident alien individual and is present in the United States for 183 days or more during the taxable year of the sale or exchange (or settlement at maturity) and certain other conditions are satisfied. Information returns may be filed with the U.S. Internal Revenue Service (the "IRS") in connection with the payment on the PLUS at maturity as well as in connection with the proceeds from a sale, exchange or other disposition. A Non-U.S. Holder will be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certain PS-24 certification procedures establishing that it is not a U.S. person for U.S. federal income tax purposes (e.g., by providing a completed IRS Form W-8BEN certifying, under penalties of perjury, that such Non-U.S. Holder is not a U.S. person) or otherwise establishes an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder's U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is furnished to the IRS. PS-25 -----END PRIVACY-ENHANCED MESSAGE-----