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PROSPECTUS The
Morgan Stanley Capital Trusts may offer from time to time capital securities
guaranteed by Morgan Stanley. This prospectus describes the general terms
of these securities and the general manner in which we and the Morgan Stanley
Capital Trusts will offer the securities. The specific terms of any securities
we and the Morgan Stanley Capital Trusts offer will be included in a supplement
to this prospectus. The prospectus supplement will also describe the specific
manner in which we and the Morgan Stanley Capital Trusts will offer the
securities. This prospectus may not be used to sell securities unless accompanied
by a prospectus supplement. As used
in this prospectus, except as otherwise specified, the terms Morgan
Stanley, we, us and our refer to
Morgan Stanley excluding its consolidated subsidiaries. The
Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense. The
securities are not insured or protected by the Securities Investor Protection
Corporation or any other governmental agency. MORGAN STANLEY January 25, 2006 WHERE YOU CAN FIND MORE INFORMATION We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the SECs
public reference room at 100 F Street, N.E. Room
1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. In addition, the SEC maintains
a website that contains reports, proxy statements and other information that
we electronically file. The address of the SECs website is http://www.sec.gov. This
prospectus is part of a registration statement we filed with the SEC. This
prospectus omits some information contained in the registration statement
in accordance with SEC rules and regulations. You should review the information
and exhibits in the registration statement for further information on us
and our consolidated subsidiaries and the securities we and the Morgan Stanley
Capital Trusts are offering. Statements in this prospectus concerning any
document we filed as an exhibit to the registration statement or that we
otherwise filed with the SEC are not intended to be comprehensive and are
qualified by reference to these filings. You should review the complete document
to evaluate these statements. Our
common stock, par value $0.01 per share, is listed on the New York Stock
Exchange, Inc. and the Pacific Exchange, Inc. under the symbol MS. You
may inspect reports, proxy statements and other information concerning us
and our consolidated subsidiaries at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, and the Pacific Exchange,
Inc., 115 Sansome Street, San Francisco, California 94104. The
SEC allows us to incorporate by reference much of the information we file
with them, which means that we can disclose important information to you
by referring you to those publicly available documents. The information that
we incorporate by reference in this prospectus is considered to be part of
this prospectus. Because we are incorporating by reference future filings
with the SEC, this prospectus is continually updated and those future filings
may modify or supersede some of the information included or incorporated
by reference in this prospectus. This means that you must look at all of
the SEC filings that we incorporate by reference to determine if any of the
statements in this prospectus or in any document previously incorporated
by reference have been modified or superseded. This prospectus incorporates
by reference the documents listed below and any future filings we make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, other than information in the documents or filings that is deemed
to have been furnished and not filed, until we and the Morgan Stanley Capital
Trusts complete our offering of the securities to be issued under the registration
statement or, if later, the date on which any of our affiliates cease offering
and selling these securities: 2 31, 2005 for certain discontinued
operations and the transfer of the principal components of the residential
mortgage loan business from the Discover business to the Institutional
Securities business), October 31, 2005; November 14, 2005, November 22,
2005 (2 filings), December 2, 2005, December 12, 2005, December 20, 2005
(2 filings), December 21, 2005 and January 10, 2006. You
can request a copy of these documents, excluding exhibits not specifically
incorporated by reference into these documents, at no cost, by writing or
telephoning us at the following address: 3 There
are no separate financial statements of the Morgan Stanley Capital Trusts
in this prospectus. We do not believe these financial statements would be
material to holders of the capital securities because: We do
not expect any of the Morgan Stanley Capital Trusts will be subject to the
reporting requirements of the Securities Exchange Act of 1934. 4 MORGAN STANLEY Morgan
Stanley is a global financial firm that, through its subsidiaries and affiliates,
provides its products and services to a large and diversified group of clients
and customers, including corporations, governments, financial institutions
and individuals. Morgan Stanley was originally incorporated under the laws
of the State of Delaware in 1981, and its predecessor companies date back
to 1924. Morgan Stanley conducts its business from its headquarters in New
York, its regional offices and branches throughout the United States and
its principal offices in London, Tokyo, Hong Kong and other world financial
centers. Morgan Stanley maintains leading market positions in each of its
business segments Institutional Securities, Retail Brokerage, Asset
Management and Discover. Morgan
Stanleys Institutional Securities business includes: Morgan Stanleys Retail Brokerage
business includes: Morgan Stanleys Asset Management
business includes: Morgan Stanleys Discover business
includes: Morgan
Stanleys principal executive offices are at 1585 Broadway, New York,
New York 10036, and its telephone number is (212) 761-4000. Under this heading, Use
of Proceeds and
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Stock Dividends, the terms Morgan Stanley, we, us and our include
Morgan Stanley and its consolidated subsidiaries. 5 THE MORGAN STANLEY CAPITAL TRUSTS We created
the Morgan Stanley Capital Trusts, each of which is a Delaware statutory
trust, pursuant to trust agreements and the filing of certificates of trust
with the Delaware Secretary of State. We will execute amended and restated
trust agreements for the Morgan Stanley Capital Trusts, referred to in this
prospectus as the trust agreements, which will state the terms
and conditions for the Morgan Stanley Capital Trusts to issue and sell their
trust securities. We have filed a form of trust agreement as an exhibit to
the registration statement of which this prospectus forms a part. We, as
holder of the common securities, intend to select our employees, officers
or affiliates to serve as administrators of the Morgan Stanley Capital Trusts. Each
Morgan Stanley Capital Trust exists solely to Accordingly,
our junior subordinated debentures will be the sole assets of each Morgan
Stanley Capital Trust, and payments under the junior subordinated debentures
owned by each Morgan Stanley Capital Trust will be its sole source of revenues. We will
hold directly or indirectly all of the common securities of each of the Morgan
Stanley Capital Trusts. Unless otherwise specified in the applicable prospectus
supplement, the common securities will represent an aggregate liquidation
amount equal to at least 3% of each Morgan Stanley Capital Trusts total
capitalization. The capital securities will represent the remaining percentage
of each Morgan Stanley Capital Trusts total capitalization. The common
securities will have terms substantially identical to, and will rank equal
in priority of payment with, the capital securities. However, if there is
an event of default under, or if Morgan Stanley defaults in payments due
under, the junior subordinated debentures owned by a Morgan Stanley Capital
Trust, then distributions, redemption payments and liquidation payments must
be paid to the holders of the capital securities of that trust before any
payments are paid to the holders of the common securities of that trust.
Unless otherwise specified in the applicable prospectus supplement, each
Morgan Stanley Capital Trust will have a term of approximately 50 years from
the initial issue date of its capital securities, but may dissolve earlier
as provided in the applicable trust agreement and described in the applicable
prospectus supplement. Unless otherwise specified in the applicable prospectus
supplement, the name and address of the Delaware trustee for each Morgan
Stanley Capital Trust will be The Bank of New York (Delaware), White Clay
Center, Route 273, Newark, Delaware 19711, and the name and address of the
property trustee, the guarantee trustee and the indenture trustee for each
Morgan Stanley Capital Trust will be The Bank of New York, 101 Barclay Street,
Floor 8 West, New York, New York 10286. The
capital securities will be guaranteed by us as described in this prospectus
and the applicable prospectus supplement. Only
we, as direct or indirect owner of the common securities, can remove or replace
the administrators. In addition, we can increase or decrease the number of
administrators. Also, we, as direct or indirect holder of the common securities,
will generally have the sole right to remove or replace the property trustee
and Delaware trustee. However, if a default with respect to the junior subordinated
debentures occurs, then, so long as that default is continuing, the holders
of a majority in liquidation amount of the outstanding capital securities
of that trust may remove and replace the property trustee and Delaware trustee
for that trust at any time. We will
pay all fees and expenses related to the organization of the Morgan Stanley
Capital Trusts and the offering of the capital securities. We will also pay
all ongoing costs and expenses of the Morgan Stanley Capital Trusts, except
each trusts obligations under the trust securities. 6 USE OF PROCEEDS The
Morgan Stanley Capital Trusts will use all proceeds from the sale of trust
securities to purchase junior subordinated debentures from us. Unless otherwise
set forth in the applicable prospectus supplement, we intend to use the net
proceeds from the sale of our junior subordinated debentures for general
corporate purposes, which may include, among other things: We anticipate
that we will raise additional funds from time to time through equity or debt
financing, including borrowings under revolving credit agreements, to finance
our businesses worldwide. CONSOLIDATED RATIOS OF EARNINGS
TO FIXED CHARGES AND The
following table sets forth Morgan Stanleys consolidated ratios of earnings
to fixed charges and earnings to fixed charges and preferred stock dividends
for the periods indicated. For
purposes of calculating the ratio of earnings to fixed charges and the ratio
of earnings to fixed charges and preferred stock dividends, earnings are
the sum of: less: For
purposes of calculating both ratios, fixed charges are the sum of: The
preferred stock dividend amounts represent pre-tax earnings required to cover
dividends on preferred stock. 7 DESCRIPTION OF CAPITAL SECURITIES Each
Morgan Stanley Capital Trust will issue only one series of capital securities
and one series of common securities. The trust agreement for each Morgan
Stanley Capital Trust will be qualified as an indenture under the Trust Indenture
Act of 1939. The capital securities will have terms and will be subject to
conditions as set forth in the trust agreement or made a part of the trust
agreement by the Trust Indenture Act. This summary of certain provisions
of the capital securities and each trust agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all the provisions of each trust agreement, including the definitions of
certain terms, and those provisions made part of each trust agreement by
the Trust Indenture Act. A form of the trust agreement to be used in connection
with the issuance of the capital securities and a form of the capital securities
are filed as exhibits to the registration statement that includes this prospectus.
Wherever particular defined terms of a trust agreement are referred to in
this prospectus, those defined terms are incorporated in this prospectus
by reference. A copy of the form of the trust agreement is available upon
request from the property trustee of the relevant trust. General The
capital securities will represent preferred undivided beneficial interests
in the assets of the applicable Morgan Stanley Capital Trust. The only assets
of a Morgan Stanley Capital Trust, and its only source of revenues, will
be the junior subordinated debentures purchased by the Morgan Stanley Capital
Trust with the proceeds from the sale of its trust securities. Accordingly,
distribution and other payment dates for the trust securities will correspond
with the interest and other payment dates for the junior subordinated debentures.
If we do not make payments on the junior subordinated debentures in accordance
with their terms, the Morgan Stanley Capital Trust will not have funds available
to pay distributions or other amounts payable on the trust securities issued
by that Morgan Stanley Capital Trust in accordance with their terms. The
capital securities issued by a Morgan Stanley Capital Trust will rank equally,
and payments will be made proportionately, with the common securities issued
by that Morgan Stanley Capital Trust except as described below under Subordination
of Common Securities and in the applicable prospectus supplement. Payments
on the capital securities will be fully and unconditionally guaranteed by
us to the extent described under Description of Guarantees and
in the applicable prospectus supplement. The
Morgan Stanley Capital Trusts may offer such aggregate offering price of
capital securities as may be authorized by them and by us from time to time
for issuance under the registration statement of which this prospectus is
a part. Each
Morgan Stanley Capital Trust will describe the specific terms of the capital
securities it is offering in the applicable prospectus supplement, including: 8 If indicated
in the applicable prospectus supplement, the terms of the trust agreement
for, and capital securities offered by, a Morgan Stanley Capital Trust may
differ from the terms summarized in this prospectus. Distributions Distributions
on the capital securities will be cumulative, unless otherwise indicated
in the applicable prospectus supplement. Distributions will accumulate from
and including the date of original issuance and will be payable on the dates
specified in the applicable prospectus supplement. The amount of distributions
payable for any period less than a full distribution period will be computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in that period, unless otherwise specified in
the applicable prospectus supplement. Distributions payable for each full
distribution period will be computed by dividing the annual rate by four,
unless otherwise specified in the applicable prospectus supplement. Subordination of Common Securities Payment
of distributions on, and other amounts payable under, the capital securities
and the common securities issued by a Morgan Stanley Capital Trust will be
made proportionately based on the liquidation amount of the capital securities
and the common securities. However, unless otherwise provided in the applicable
prospectus supplement, if on any distribution date or other payment date,
there exists with respect to the subordinated debentures owned by a Morgan
Stanley Capital Trust a default as a result of any failure by us to pay any
amounts in respect of the junior subordinated debentures when due (a debenture
default) or an event of default, no payment of any distribution on,
or other amounts payable under, the common securities will be made unless
cash payment in full of all accumulated amounts then due and payable with
respect to all of the Morgan Stanley Capital Trusts outstanding capital
securities has been made or provided for, and all funds immediately available
to the property trustee will first be applied to the cash payment in full
of all distributions on, and all other amounts with respect to, capital securities
then due and payable. In the
case of any event of default under the applicable trust agreement occurring
as a result of a debenture default or an event of default with respect to
the junior subordinated debentures owned by the Morgan Stanley Capital Trust,
the holders of the applicable Morgan Stanley Capital Trusts common
securities will have no right to act with respect to the event of default
under the applicable trust agreement until the effects with respect to the
capital securities of all such events of default have been cured, waived
or otherwise eliminated. Until all such events of default have been cured,
waived or otherwise eliminated, the property trustee will act solely on behalf
of the holders of the capital securities and not on behalf of the holders
of the common securities, and only the holders of the capital securities
will have the right to direct the property trustee to act on their behalf. Liquidation Distribution upon Dissolution Unless
otherwise specified in the applicable prospectus supplement, the amount payable
on capital securities in the event of any liquidation of a Morgan Stanley
Capital Trust will be the stated liquidation amount per capital security
plus accumulated and unpaid distributions, which, unless otherwise specified
in the applicable prospectus supplement, may be in the form of a distribution
of the junior subordinated debentures owned by the Morgan Stanley Capital
Trust. The
holders of all the outstanding common securities of a Morgan Stanley Capital
Trust will have the right at any time to dissolve the Morgan Stanley Capital
Trust and, after satisfaction of liabilities to creditors of the Morgan Stanley
Capital Trust as provided by applicable law, cause the junior subordinated
debentures owned by the Morgan Stanley Capital Trust to be distributed to
the holders of the capital securities and common securities in liquidation
of 9 the Morgan Stanley Capital Trust as
described in the applicable prospectus supplement. Other terms for the dissolution
of a Morgan Stanley Capital Trust and the distribution or liquidation of
its assets to holders of trust securities will be set forth in the applicable
prospectus supplement. Capital Securities Events of Default;
Notice Unless
otherwise specified in the applicable prospectus supplement, any one of the
following events constitutes an event of default under a trust agreement,
which we refer to as a capital securities event of default, regardless
of the reason for the capital securities event of default and whether it
is voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body: Within
ten business days after the occurrence of any capital securities event of
default actually known to the property trustee, the property trustee will
transmit notice of the event of default to the holders of the applicable
trust securities and the administrators, unless the capital securities event
of default has been cured or waived. In addition, the property trustee will
notify each holder of the capital securities of any notice of default received
by it with respect to the junior subordinated debentures. We, as depositor,
and the administrators are required to file annually with the property trustee
a certificate as to whether or not the applicable Morgan Stanley Capital
Trust is in compliance with all the conditions and covenants under its trust
agreement. The
existence of a capital securities event of default does not entitle the holders
of capital securities to accelerate the maturity thereof. If a
debenture default or event of default has occurred and is continuing in respect
of the junior subordinated debentures owned by a Morgan Stanley Capital Trust,
the capital securities issued by that Morgan Stanley Capital Trust will have
a preference over the common securities issued by the Morgan Stanley Capital
Trust with respect to payments of any amounts in respect of the capital securities
as described above under
Subordination of Common Securities. Removal of Morgan Stanley Capital
Trustees; Appointment of Successors The
holders of at least a majority in aggregate liquidation amount of the outstanding
capital securities may remove the property trustee or the Delaware trustee
for cause or, if a default has occurred and is continuing with respect to
the junior subordinated debentures owned by the Morgan Stanley Capital Trust,
with or without cause. If 10 a property trustee or Delaware trustee
is removed by the holders of the outstanding capital securities, the successor
may be appointed by the holders of at least 25% in liquidation amount of
the outstanding capital securities. If a property trustee or Delaware trustee
resigns, the resigning property trustee or Delaware trustee will appoint
its successor. If a resigning property trustee or Delaware trustee fails
to appoint a successor, the holders of at least 25% in liquidation amount
of the outstanding capital securities may appoint a successor. If a successor
has not been appointed by the holders, any holder of capital securities or
common securities or the property trustee or the Delaware trustee may petition
a court of competent jurisdiction to appoint a successor. Any Delaware trustee
must meet the applicable requirements of Delaware law. Any property trustee
must be a national or state-chartered bank and at the time of appointment
have capital and surplus of at least $50,000,000. No resignation or removal
of a property trustee or Delaware trustee and no appointment of a successor
trustee shall be effective until the acceptance of appointment by the successor
trustee in accordance with the provisions of the applicable trust agreement. Merger or Consolidation of Morgan
Stanley Capital Trustees Any
entity into which a property trustee or Delaware trustee is merged or converted
or with which it is consolidated, or any entity resulting from any merger,
conversion or consolidation to which the property trustee or the Delaware
trustee is a party, or any entity succeeding to all or substantially all
the corporate trust business of the property trustee or the Delaware trustee,
will be the successor of that property trustee or Delaware trustee under
each trust agreement, provided it is otherwise qualified and eligible. Mergers, Consolidations, Amalgamations
or Replacements of the Morgan Stanley Capital Trusts A Morgan
Stanley Capital Trust may not merge with or into, consolidate or amalgamate
with, be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or
as otherwise set forth in the applicable trust agreement. A Morgan Stanley
Capital Trust may, at the request of the holders of its common securities
and with the consent of the holders of at least a majority in aggregate liquidation
amount of its outstanding capital securities, merge with or into, consolidate
or amalgamate with, be replaced by, or convey, transfer or lease its properties
and assets substantially as an entirety to, a trust organized as such under
the laws of any state of the United States, so long as 11 Notwithstanding the foregoing, a Morgan
Stanley Capital Trust may not, except with the consent of holders of 100%
in aggregate liquidation amount of the capital securities of that Morgan
Stanley Capital Trust, merge with or into, consolidate or amalgamate with,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any other entity or permit any other entity
to merge with or into, consolidate or amalgamate with, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Morgan Stanley Capital Trust or the successor entity
to be taxable as a corporation for U.S. federal income tax purposes. Voting Rights; Amendment of Trust
Agreements Except
as provided below and under Removal of Morgan Stanley Capital
Trustees; Appointment of Successors and Description of GuaranteesAmendments
and Assignment and as otherwise required by law and the applicable
trust agreement, the holders of the capital securities will have no voting
rights. Each
trust agreement may be amended from time to time by the holders of at least
a majority in aggregate liquidation amount of the common securities and the
property trustee, without the consent of the holders of the capital securities,
to: Any
amendment of the trust agreement without the consent of the holders of the
capital securities will become effective when notice of the amendment is
given to the holders of trust securities. Each
trust agreement may be amended by the holders of at least a majority in aggregate
liquidation amount of the common securities and the property trustee with: except that, without the consent of
each holder of trust securities affected, a trust agreement may not be amended
to: 12 So long
as any junior subordinated debentures are held by a Morgan Stanley Capital
Trust, the property trustee will not: without, in each case, obtaining the
prior approval of the holders of at least a majority in aggregate liquidation
amount of the outstanding capital securities, except that, if a consent under
the relevant indenture would require the consent of each holder of the junior
subordinated debentures affected, no consent will be given by the property
trustee without the prior consent of each holder of the capital securities. In addition
to obtaining the foregoing approvals of the holders of the capital securities,
before taking any of the foregoing actions, the property trustee will obtain
an opinion of counsel experienced in these matters to the effect that the
Morgan Stanley Capital Trust will not be taxable as a corporation for U.S.
federal income tax purposes on account of the action. The property trustee
may not revoke any action previously authorized or approved by a vote of
the holders of the capital securities issued by the Morgan Stanley Capital
Trust except by subsequent vote of the holders of the capital securities. Any
required approval of holders of capital securities may be given at a meeting
of holders of capital securities convened for that purpose or pursuant to
written consent. The property trustee will cause a notice of any meeting
at which holders of capital securities are entitled to vote, or of any matter
upon which action by written consent of the holders is to be taken, to be
given to each registered holder of capital securities in the manner set forth
in each trust agreement. No vote
or consent of the holders of capital securities will be required to redeem
and cancel the capital securities in accordance with the applicable trust
agreement. Any
capital securities that are owned by us, the Delaware trustee, the property
trustee, the administrators or any of our affiliates or affiliates of any
Delaware trustee or property trustee, will, for purposes of a vote or consent
under any of the circumstances described above, be treated as if they were
not outstanding. Expenses and Taxes In the
junior subordinated debentures owned by a Morgan Stanley Capital Trust, we,
as borrower, will agree to pay all debts and other obligations (other than
with respect to the capital securities issued by the Morgan Stanley Capital
Trust) and all costs and expenses of the Morgan Stanley Capital Trust (including
costs and expenses relating to the organization of the Morgan Stanley Capital
Trust, the fees and expenses of the Delaware trustee and property trustee
on behalf of the Morgan Stanley Capital Trust and the costs and expenses
relating to the operation of the Morgan Stanley Capital Trust) and to pay
any and all taxes and all costs and expenses with respect to those taxes
(other than U.S. withholding taxes) to which the Morgan Stanley Capital Trust
might become subject. The foregoing obligations under the junior subordinated
debentures owned by a Morgan Stanley Capital Trust are for the benefit of,
and shall be enforceable by, any person to whom any of those debts, obligations,
costs, expenses and 13 taxes payable by the Morgan Stanley
Capital Trust are owed, whether or not that person has received notice of
the debts, obligations, costs, expenses or taxes. Any such person may enforce
these obligations directly against us, and we will irrevocably waive any
right or remedy to require that person to take any action against a Morgan
Stanley Capital Trust or any other person before proceeding against us. We
will also agree in the junior subordinated debentures owned by a Morgan Stanley
Capital Trust to execute additional agreements necessary or desirable to
give full effect to the foregoing. Payment and Paying Agency The
applicable prospectus supplement will specify the manner in which payments
in respect of the capital securities will be made. Unless otherwise specified
in the applicable prospectus supplement, the paying agent for capital securities
will initially be the property trustee and any co-paying agent chosen by
the property trustee and acceptable to the administrators. The paying agent
will be permitted to resign as paying agent upon 30 days
written notice to the property trustee and the administrators. If the property
trustee is no longer the paying agent, the property trustee will appoint a
successor (which must be a bank or trust company) reasonably acceptable to
the administrators to act as paying agent. Registrar and Transfer Agent Unless
otherwise specified in the applicable prospectus supplement, the property
trustee will act as registrar and transfer agent for the capital securities. Registration
of transfers and exchanges of capital securities will be effected without
charge by or on behalf of each Morgan Stanley Capital Trust, but the property
trustee may require payment to cover any tax or other governmental charges
that may be imposed in connection with any transfer or exchange. The Morgan
Stanley Capital Trusts will not be required to register or cause to be registered
the transfer of, or exchange or to cause to be exchanged, any capital securities
that have been called for redemption. Information Concerning the Property
Trustee The
property trustee, other than during the occurrence and continuance of a capital
securities event of default, undertakes to perform only those duties specifically
set forth in each trust agreement or provided by the Trust Indenture Act
and, after a capital securities event of default has occurred that has not
been cured or waived, must exercise the rights and powers vested in it by
the applicable trust agreement for the benefit of the holders of trust securities
using the same degree of care and skill as a prudent person would exercise
in the conduct of his or her own affairs. Subject to this provision, the
property trustee is under no obligation to exercise any of the rights or
powers vested in it by the applicable trust agreement, other than those vested
in it upon the occurrence of a capital securities event of default, at the
request of any holder of trust securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
in complying with the request or direction. For
information concerning the relationships between The Bank of New York, which
will initially be the property trustee, and us, see Description of
Junior Subordinated DebenturesInformation Concerning the Indenture
Trustee. Miscellaneous The
administrators and the property trustee of each Morgan Stanley Capital Trust
are authorized and directed to conduct the affairs of, and to operate, the
applicable Morgan Stanley Capital Trust in such a way that the Morgan Stanley
Capital Trust will not be deemed to be an investment company required
to be registered under the Investment Company Act or taxed as a corporation
for U.S. federal income tax purposes and so that the junior subordinated
debentures owned by the Morgan Stanley Capital Trust will be treated as indebtedness
of Morgan Stanley for U.S. federal income tax purposes. In this regard, the
property trustee and the holders of common securities are authorized to take
any action, not inconsistent with applicable law or the certificate of trust
or the trust agreement of the applicable Morgan Stanley Capital Trust, that
the property trustee and the holders of common securities determine in their
discretion to be necessary or desirable for those purposes, as long as the
action does not 14 materially adversely affect the interests
of the holders of the capital securities of the applicable Morgan Stanley
Capital Trust. Holders
of the trust securities have no preemptive or similar rights. The
Morgan Stanley Capital Trusts may not borrow money, issue debt or mortgage
or pledge any of their assets. Governing Law Each
trust agreement will be governed by, and construed in accordance with, the
laws of the State of Delaware. 15 DESCRIPTION OF JUNIOR SUBORDINATED
DEBENTURES The
junior subordinated debentures will constitute junior subordinated debt of
Morgan Stanley and will be issued under a junior subordinated indenture entered
into between us and The Bank of New York, as indenture trustee. The registration
statement of which this prospectus forms a part includes as exhibits a junior
subordinated indenture, dated as of October 1, 2004, between us and The Bank
of New York, as indenture trustee (the 2004 indenture), and four
forms of junior subordinated indenture that may be entered into in the future
between us and The Bank of New York, as indenture trustee. These indentures
are substantially similar in all respects, except as described
under Subordination and as otherwise described below. The
indenture governing the junior subordinated
debentures to be owned by a particular Morgan Stanley Capital Trust will
be identified in the prospectus supplement for the offering of the capital
securities to be issued by that Morgan Stanley Capital Trust. The indentures
contain, and the junior subordinated debentures, when issued, will contain,
additional important terms and provisions. The following summaries of certain
provisions of the indentures and the junior subordinated debentures do not
purport to be complete and are subject to the detailed provisions of the
indentures and junior subordinated debentures. Where appropriate, we use
parentheses to refer you to the particular sections of the relevant indenture.
Any reference to particular sections or defined terms of an indenture in
any statement under this heading qualifies the entire statement and incorporates
by reference the applicable section or definition into that statement. This
summary of the indentures and the junior subordinated debentures relates
to terms and conditions applicable to the junior subordinated debentures
generally. The particular terms of any series of junior subordinated debentures
will be summarized in the applicable prospectus supplement. If indicated
in the prospectus supplement, the terms of any series may differ from the
terms summarized below. General Each
series of junior subordinated debentures issued under an indenture will,
unless otherwise indicated in the applicable prospectus supplement, rank
equally with all other series of junior subordinated debentures issued under
that indenture and will be unsecured and subordinate and junior in right
of payment to the extent and in the manner set forth in that indenture to
all senior indebtedness of Morgan Stanley. See
Subordination. Most of our assets are owned by our subsidiaries.
Therefore, our rights and the rights of our creditors, including holders of
junior subordinated debentures, to participate in the assets of any subsidiary
upon the subsidiarys liquidation or recapitalization will be subject
to the prior claims of the subsidiarys creditors, except to the extent
that we ourselves may be a creditor with recognized claims against the subsidiary.
In addition, dividends, loans and advances to us from certain subsidiaries
are restricted by legal requirements, including (in the case of Morgan Stanley & Co.
Incorporated and Morgan Stanley DW Inc.) net capital requirements under the
Securities Exchange Act of 1934 and under rules of certain exchanges and other
regulatory bodies, and (in the case of Discover Bank, a Delaware-chartered
bank and our wholly-owned indirect subsidiary, and other bank subsidiaries)
by banking regulations. Except as otherwise provided in the applicable prospectus
supplement, the relevant indenture will not limit the incurrence or issuance
of other secured or unsecured debt of Morgan Stanley, including senior indebtedness,
whether under that indenture, any other existing indenture or any other indenture
that Morgan Stanley may enter into in the future, or otherwise afford holders
of junior subordinated debentures protection in the event of a highly leveraged
or similar transaction that may adversely affect the holders of the junior
subordinated debentures. See Subordination and the applicable prospectus
supplement relating to any offering of capital securities or junior subordinated
debentures. We may
issue junior subordinated debentures under an indenture from time to time
in one or more series pursuant to a supplemental indenture or a resolution
of our board of directors or a committee of our board of directors. The
applicable prospectus supplement will contain, where applicable, the following
terms of and other information relating to any offered junior subordinated
debentures: 16 17 Registration and Transfer of Junior
Subordinated Debentures Holders
may present junior subordinated debentures for exchange, and holders of registered
junior subordinated debentures may present these securities for transfer,
in the manner, at the places and subject to the restrictions stated in the
junior subordinated debentures and described in the applicable prospectus
supplement. We will provide these services without charge except for any
tax or other governmental charge payable in connection with these services
and subject to any limitations provided in the relevant indenture. Holders
may transfer junior subordinated debentures in bearer form and the related
coupons, if any, by delivery to the transferee. If any of the securities
are held in global form, the procedures for transfer of interests in those
securities will depend upon the procedures of the depositary for those global
securities. Subordination Holders
of the junior subordinated debentures should recognize that contractual provisions
in the relevant indenture may prohibit us from making payments on these securities.
The junior subordinated debentures are subordinate and junior in right of
payment, to the extent and in the manner stated in the indenture under which
the junior subordinated debentures are issued, to all of our senior indebtedness.
The 2004 indenture defines senior indebtedness as (i) obligations of, or
guaranteed or assumed by, Morgan Stanley for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments, including obligations
with respect to securities issued under the senior indenture or the senior
subordinated indentures of Morgan Stanley, and amendments, renewals, extensions,
modifications and refundings of any of that indebtedness or of those obligations,
(ii) capitalized lease obligations of Morgan Stanley, (iii) obligations of
Morgan Stanley issued or assumed as the deferred purchase price of property,
(iv) obligations of Morgan Stanley in respect of interest rate, foreign exchange
rate and commodity forward contracts, options and swaps and similar arrangements
and (v) all obligations of the type referred to in clauses (i) through (iv)
of other persons which Morgan Stanley has guaranteed or is responsible or
liable for as obligor or otherwise. The definition of senior indebtedness
set forth in the relevant indenture, if the junior subordinated debentures
are not issued under the 2004 indenture, will differ from the definition
set forth above and will be described in an applicable prospectus supplement.
Non-recourse obligations and any other obligations specifically designated
as being subordinate in right of payment to senior indebtedness are not senior
indebtedness as defined under the indentures. (Section 1.01) The
indentures do not restrict our ability to issue senior indebtedness. The
indentures provide that, unless all principal of and any premium or interest
on the senior indebtedness has been paid in full, or provision has been made
to make these payments in full, no payment of principal of, or any premium
or interest on, any junior subordinated debentures may be made in the event: 18 We currently
have outstanding four series of junior subordinated debentures, which were
issued under a junior subordinated indenture, dated March 1, 1998, between
us and The Bank of New York and purchased, respectively, by Morgan Stanley
Capital Trust II, Morgan Stanley Capital Trust III, Morgan Stanley Capital
Trust IV and Morgan Stanley Capital Trust V and have offered and sold an
additional series of junior subordinated debentures, to be issued under the
2004 indenture, to Morgan Stanley Capital Trust VI (the existing junior
subordinated debentures) with terms and conditions substantially similar
to those of the junior subordinated debentures described in this prospectus.
At November 30, 2005, there was $2,764 million aggregate principal amount
of such junior subordinated debentures outstanding and we expect to issue
approximately $889.2 million aggregate principal amount of additional
junior subordinated debentures on or around January 26, 2006. The currently
outstanding junior subordinated debentures contain certain acceleration provisions
that could be triggered prior to the acceleration provisions of the junior
subordinated debentures described in this prospectus. Accordingly, the four
series of junior subordinated debentures outstanding could become due and
payable prior to the junior subordinated debentures described in this prospectus.
In addition, if the existing junior subordinated debentures were to be included
in the definition of senior indebtedness pursuant to a supplemental indenture,
the junior subordinated debentures described in this prospectus would also
be subordinate and junior in right of payment, to the extent and in the manner
stated in the relevant indenture, to the existing junior subordinated debentures. Merger, Consolidation, Sale, Lease
or Conveyance The
relevant indenture provides that we will not merge or consolidate with any
other person and will not sell, lease or convey all or substantially all
of our assets to any other person, unless: There
are no covenants or other provisions in the relevant indenture that would
afford holders of junior subordinated debentures additional protection in
the event of a recapitalization transaction, a change of control of Morgan
Stanley or a highly leveraged transaction. The merger covenant described
above would only apply if the recapitalization transaction, change of control
or highly leveraged transaction were structured to include a merger or consolidation
of Morgan Stanley or a sale, lease or conveyance of all or substantially
all of our assets. However, we may provide specific protections, such as
a put right or increased interest, for particular junior subordinated debentures,
which we would describe in the applicable prospectus supplement. Events of Default and Defaults The
relevant indenture provides holders of junior subordinated debentures with
remedies if we fail to perform specific obligations, such as making payments
on the junior subordinated debentures, or if we become bankrupt. Holders
should review these provisions and understand which of our actions trigger
an event of default or a default and which actions do not. The relevant indenture
permits the issuance of junior subordinated debentures in one or more series,
and, in many cases, whether an event of default or a default has occurred
is determined on a series by series basis. 19 Events of Default.
An event of default is defined under the relevant indenture, with respect
to any series of junior subordinated debentures issued under that indenture,
as being:
Morgan Stanley
Capital Trust VII
Morgan Stanley
Capital Trust VIII
Morgan Stanley
Capital Trust IX
Morgan Stanley
Capital Trust X
CAPITAL SECURITIES
guaranteed by
Morgan Stanley
Morgan Stanley
1585 Broadway
New York, New York 10036
Attention: Investor Relations
(212) 761-4000
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Nine Months Ended
Fiscal Year
August
31, 2005
August
31, 2004
2004
2003
2002
2001
2000
Ratio of earnings to fixed
charges
1.3
1.5
1.5
1.5
1.4
1.3
1.5
Ratio of earnings to fixed
charges and
preferred
stock dividends
1.3
1.5
1.5
1.5
1.4
1.3
1.5
Defaults. A default is defined under the relevant indenture, with respect to any series of junior subordinated debentures issued under that indenture, as being:
Acceleration of Junior Subordinated Debentures upon an Event of Default and Other Remedies. The relevant indenture provides that:
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all those junior subordinated debentures and interest accrued thereon to be due and payable immediately. (Section 5.01)
There is no right of acceleration with respect to defaults, except for those defaults that are also events of default. If a default in the payment of principal of, or any interest on, any series of junior subordinated debentures issued under an indenture occurs and is continuing and we fail to pay the full amount then due and payable with respect to all junior subordinated debentures of the affected series immediately upon the demand of the indenture trustee, the indenture trustee is entitled to institute an action or proceeding to collect the amount due and unpaid. (Section 5.02)
If any default occurs and is continuing, the indenture trustee may pursue legal action to enforce the performance of any provision in the relevant indenture to protect the rights of the indenture trustee and the holders of the junior subordinated debentures. (Section 5.04)
Annulment of Acceleration and Waiver of Defaults. In some circumstances, if any and all defaults under the relevant indenture, other than the non-payment of the principal of the securities that has become due as a result of an acceleration, have been cured, waived or otherwise remedied, then the holders of a majority in aggregate principal amount of all series of affected junior subordinated debentures outstanding under that indenture, voting as one class, may waive past defaults of and annul past declarations of acceleration of the junior subordinated debentures. (Section 5.01)
Prior to the acceleration of any junior subordinated debentures issued under the relevant indenture, the holders of a majority in aggregate principal amount of all series of junior subordinated debentures outstanding under that indenture with respect to which a default has occurred and is continuing, voting as one class, may waive any past default, other than a default in the payment of principal or interest (unless such default has been cured and an amount sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the trustee) or a default in respect of a covenant or provision in that indenture that cannot be modified or amended without the consent of the holder of each junior subordinated debenture affected. (Section 5.10)
Indemnification of Trustee for Actions Taken on Your Behalf. The relevant indenture contains a provision entitling the indenture trustee, subject to the duty of the indenture trustee during a default to act with the required standard of care, to be indemnified by the holders of junior subordinated debentures issued under that indenture before proceeding to exercise any right or power at the request of holders. (Section 6.02) Subject to these provisions and some other limitations, the holders of a majority in aggregate principal amount of each series of outstanding junior subordinated debentures of each affected series, voting as one class, may direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the indenture trustee. (Section 5.09)
Limitation on Actions by You as an Individual Holder. The relevant indenture provides that no individual holder of junior subordinated debentures may institute any action against us under that indenture, except actions for payment of overdue principal and interest, unless the following actions have occurred:
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Annual Certification. The relevant indenture contains a covenant that we will file annually with the indenture trustee a certificate of no default or a certificate specifying any default that exists. (Section 3.05)
Discharge, Defeasance and Covenant Defeasance
We have the ability to eliminate most or all of our obligations on any series of junior subordinated debentures prior to maturity if we comply with the following provisions. (Section 10.01)
Discharge of Indenture. If at any time we have:
and if, in any such case, we also pay or cause to be paid all other sums payable by us under that indenture with respect to the series of junior subordinated debentures, then that indenture shall cease to be of further effect with respect to the junior subordinated debentures of such series, except as to certain rights with respect to the transfer and exchange of securities, rights of the holders to receive payment and certain other rights.
Defeasance of a Series of Securities at Any Time. We may also discharge all of our obligations, other than as to transfers and exchanges, under any series of junior subordinated debentures at any time, which we refer to as defeasance.
We may be released with respect to any outstanding series of junior subordinated debentures from the covenants described above limiting consolidations, mergers, asset sales and leases, and elect not to comply with that section without creating an event of default or a default. Discharge under these procedures is called covenant defeasance.
Defeasance or covenant defeasance may be effected only if, among other things:
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in the case of a defeasance, this opinion must be based on a ruling of the Internal Revenue Service or a change in U.S. federal income tax law occurring after the date of this prospectus, since that result would not occur under current tax law;
Modification of Indentures
Modification Without Consent of Holders. We and the indenture trustee may enter into supplemental indentures without the consent of the holders of junior subordinated debentures issued under the relevant indentures to:
Modification with Consent of Holders. We and the trustee, with the consent of the holders of not less than a majority in aggregate principal amount of each affected series of junior subordinated debentures outstanding under the relevant indenture, voting as one class, may add any provisions to, or change in any manner or eliminate any of the provisions of, that indenture or modify in any manner the rights of the holders of those junior subordinated debentures. However, except as specified in the applicable prospectus supplement, we and the trustee may not make any of the following changes to any outstanding junior subordinated debenture without the consent of each holder that would be affected by such change:
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If the junior subordinated debentures are owned by a Morgan Stanley Capital Trust, none of the modifications described above may be made without the prior written consent of all the holders of capital securities of the Morgan Stanley Capital Trust. (Section 8.02)
Modification of Subordination Provisions. We may not amend an indenture to alter the subordination of any outstanding junior subordinated debentures without the written consent of each potentially adversely affected holder of senior indebtedness then outstanding. (Section 8.06)
Information Concerning the Indenture Trustee
We and our subsidiaries maintain credit facilities and other ordinary banking relationships with The Bank of New York.
Governing Law
The junior subordinated debentures and the indentures will be governed by, and construed in accordance with, the laws of the State of New York.
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DESCRIPTION OF GLOBAL SECURITIES
We may issue the registered junior subordinated debentures and capital securities in the form of one or more fully registered global securities that will be deposited with a depositary or its nominee identified in the applicable prospectus supplement and registered in the name of that depositary or its nominee. In those cases, one or more registered global securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate principal or face amount of the securities to be represented by registered global securities. Unless and until it is exchanged in whole for securities in definitive registered form, a registered global security may not be transferred except as a whole by and among the depositary for the registered global security, the nominees of the depositary or any successors of the depositary or those nominees.
The specific terms of the depositary arrangement with respect to any portion of a series of securities to be represented by a registered global security will be described in the prospectus supplement relating to that series. We anticipate that the following provisions will apply to all depositary arrangements.
Ownership of beneficial interests in a registered global security will be limited to persons, called participants, that have accounts with the depositary or persons that may hold interests through participants. Upon the issuance of a registered global security, the depositary will credit, on its book-entry registration and transfer system, the participants accounts with the respective principal or face amounts of the securities beneficially owned by the participants. Any dealers, underwriters or agents participating in the distribution of the securities will designate the accounts to be credited. Ownership of beneficial interests in a registered global security will be shown on, and the transfer of ownership interests will be effected only through, records maintained by the depositary, with respect to interests of participants, and on the records of participants, with respect to interests of persons holding through participants. The laws of some states may require that some purchasers of securities take physical delivery of these securities in definitive form. These laws may impair your ability to own, transfer or pledge beneficial interests in registered global securities.
So long as the depositary, or its nominee, is the registered owner of a registered global security, that depositary or its nominee, as the case may be, will be considered the sole owner or holder of the securities represented by the registered global security for all purposes under the relevant indenture. Except as described below, owners of beneficial interests in a registered global security will not be entitled to have the securities represented by the registered global security registered in their names, will not receive or be entitled to receive physical delivery of the securities in definitive form and will not be considered the owners or holders of the securities under the relevant indenture. Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for that registered global security and, if that person is not a participant, on the procedures of the participant through which the person owns its interest, to exercise any rights of a holder under the relevant indenture. We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take any action that a holder is entitled to give or take under the relevant indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests to give or take that action, and the participants would authorize beneficial owners owning through them to give or take that action or would otherwise act upon the instructions of beneficial owners holding through them.
Payments of principal of, and premium, if any, and interest on, junior subordinated debentures, and any payments to holders with respect to capital securities, represented by a registered global security registered in the name of a depositary or its nominee will be made to the depositary or its nominee, as the case may be, as the registered owner of the registered global security. None of Morgan Stanley, the indenture trustee, the Delaware trustee, the property trustee or any other agent of Morgan Stanley, agent of the applicable Morgan Stanley Capital Trust or agent of any of the aforementioned trustees, as the case may be, will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
We and the Morgan Stanley Capital Trusts expect that the depositary for any securities represented by a registered global security, upon receipt of any payment of principal, premium, interest or other distribution with respect to underlying securities to holders in respect of the registered global security, will immediately credit
25
participants accounts in amounts proportionate to their respective beneficial interests in the registered global security as shown on the records of the depositary. We and the Morgan Stanley Capital Trusts also expect that payments by participants to owners of beneficial interests in the registered global security held through participants will be governed by standing customer instructions and customary practices, as is now the case with the securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of those participants.
If the depositary for any securities represented by a registered global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency registered under the Securities Exchange Act of 1934, and a successor depositary registered as a clearing agency under the Securities Exchange Act of 1934 is not appointed by us or the applicable Morgan Stanley Capital Trust, as the case may be, within 90 days, we or the applicable Morgan Stanley Capital Trust, as the case may be, will issue the securities in definitive form in exchange for the registered global security. In addition, we or the applicable Morgan Stanley Capital Trust, as the case may be, may at any time and in our sole discretion determine not to have any of the securities of a series represented by one or more registered global securities. We understand, however, that, under current industry practices, the depositary would notify its participants of our request, but will only withdraw beneficial interests from a global security at the request of each participant. We would issue definitive certificates in exchange for any such interests withdrawn. Any securities issued in definitive form in exchange for a registered global security will be registered in the name or names as the depositary instructs the relevant trustee or other relevant agent of Morgan Stanley, the applicable Morgan Stanley Capital Trust or that trustee. It is expected that those instructions will be based upon directions received by the depositary from participants with respect to ownership of beneficial interests in the registered global security.
The securities may also be issued in the form of one or more bearer global securities that will be deposited with a common depositary for Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream Banking, société anonyme, or with a nominee for the depositary identified in the prospectus supplement relating to those securities. The specific terms and procedures, including the specific terms of the depositary arrangement, with respect to any securities to be represented by a bearer global security will be described in the prospectus supplement relating to those securities.
26
DESCRIPTION OF GUARANTEES
Morgan Stanley will execute and deliver a guarantee concurrently with the issuance by each Morgan Stanley Capital Trust of its capital securities for the benefit of the holders from time to time of those capital securities. The guarantee trustee will hold the guarantee for the benefit of the holders of the related Morgan Stanley Capital Trusts capital securities. Morgan Stanley will qualify each of the guarantees as an indenture under the Trust Indenture Act. The guarantees will be subject to, and governed by, the Trust Indenture Act. This summary of certain provisions of the guarantees does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of each guarantee, including the definitions of terms, and those provisions made part of each guarantee by the Trust Indenture Act. A form of guarantee is filed as an exhibit to the registration statement that includes this prospectus. A copy of the form of the guarantee is available upon request from the guarantee trustee. If indicated in the applicable prospectus supplement, the terms of a particular guarantee may differ from the terms discussed below.
General
Morgan Stanley will irrevocably and unconditionally agree to pay in full, to the extent set forth in the guarantee, the guarantee payments to the holders of the capital securities covered by the guarantee, as and when due, regardless of any defense, right of set-off or counterclaim that the Morgan Stanley Capital Trust that issued the capital securities may have or assert other than the defense of payment. The following payments constitute guarantee payments with respect to capital securities that, to the extent not paid by or on behalf of the Morgan Stanley Capital Trust, will be subject to the applicable guarantee:
Our obligation to make a guarantee payment may be satisfied by direct payment of the required amounts by us to the holders of the capital securities or by causing the applicable Morgan Stanley Capital Trust to pay those amounts to the holders.
Each guarantee will be an irrevocable guarantee of the related Morgan Stanley Capital Trusts payment obligations described above under the capital securities covered by the guarantee, but will apply only to the extent that the Morgan Stanley Capital Trust has funds sufficient to make such payments, and is not a guarantee of collection.
If we do not make payments on the junior subordinated debentures owned by a Morgan Stanley Capital Trust, the Morgan Stanley Capital Trust will not be able to pay any amounts payable in respect of its capital securities and will not have funds legally available for that purpose. In that event, holders of the capital securities would not be able to rely upon the guarantee for payment of those amounts. Each guarantee will have the same ranking as the junior subordinated debentures owned by the Morgan Stanley Capital Trust that issues the capital securities covered by the guarantee. See Status of the Guarantees. No guarantee will limit the incurrence or issuance of other secured or unsecured debt of Morgan Stanley.
27
Status of the Guarantees
Each guarantee will constitute an unsecured obligation of Morgan Stanley and will rank equal to the junior subordinated debentures owned by the Morgan Stanley Capital Trust that issues the capital securities covered by the guarantee.
Each guarantee will constitute a guarantee of payment and not of collection. Any holder of capital securities covered by the guarantee may institute a legal proceeding directly against us to enforce its rights under the guarantee without first instituting a legal proceeding against any other person or entity. Each guarantee will be held by the guarantee trustee for the benefit of the holders of the related capital securities. Each guarantee will not be discharged except by payment of the guarantee payments in full to the extent not paid by or on behalf of the Morgan Stanley Capital Trust or, if applicable, distribution to the holders of the capital securities of the junior subordinated debentures owned by the Morgan Stanley Capital Trust.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect the rights of holders of the capital securities issued by the Morgan Stanley Capital Trust, in which case no approval will be required, the guarantee that covers the capital securities may not be amended without the prior approval of the holders of at least a majority of the aggregate liquidation amount of the outstanding capital securities covered by the guarantee. The manner of obtaining any such approval will be as set forth under Description of Capital SecuritiesVoting Rights; Amendment of Trust Agreements and in the applicable prospectus supplement. All guarantees and agreements contained in each guarantee will bind the successors, assigns, receivers, trustees and representatives of Morgan Stanley and will inure to the benefit of the holders of the then outstanding capital securities covered by the guarantee.
Events of Default
An event of default under a guarantee will occur upon the failure of Morgan Stanley to perform any of its payment obligations under that guarantee, or to perform any non-payment obligation if the non-payment default remains unremedied for 30 days. If an event of default under a guarantee occurred and is continuing, the guarantee trustee will enforce the guarantee for the benefit of the holders of capital securities covered by the guarantee. The holders of a majority in aggregate liquidation amount of the outstanding capital securities covered by the guarantee have the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee trustee in respect of the guarantee or to direct the exercise of any right or power conferred upon the guarantee trustee under the guarantee.
Any holder of capital securities covered by the guarantee may institute a legal proceeding directly against Morgan Stanley to enforce its rights under the guarantee without first instituting a legal proceeding against the applicable Morgan Stanley Capital Trust, the guarantee trustee or any other person or entity.
We, as guarantor, are required to file annually with the guarantee trustee a certificate as to whether or not we are in compliance with all the conditions and covenants under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance of an event of default under the guarantee, undertakes to perform only those duties as are specifically set forth in the guarantee and, after the occurrence of an event of default with respect to the guarantee that has not been cured or waived, must exercise the rights and powers vested in it by the guarantee using the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the guarantee trustee is under no obligation to exercise any of the rights or powers vested in it by the guarantee at the request of any holder of the capital securities covered by the guarantee unless it is offered reasonable indemnity, including reasonable advances requested by it, against the costs, expenses and liabilities that might be incurred in complying with the request or direction.
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For information concerning the relationship between The Bank of New York, which will initially be the guarantee trustee, and Morgan Stanley, see Description of Junior Subordinated DebenturesInformation Concerning the Indenture Trustee.
Termination of the Guarantee
Each guarantee will terminate upon full payment of the redemption price of all of the capital securities covered by the guarantee, upon full payment of the amounts payable with respect to the capital securities upon liquidation of the related Morgan Stanley Capital Trust or upon distribution of the junior subordinated debentures owned by the Morgan Stanley Capital Trust to the holders of all the capital securities covered by the guarantee. Each guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the capital securities covered by the guarantee must repay any sums with respect to the capital securities or the guarantee.
Governing Law
Each guarantee will be governed by, and construed in accordance with, the laws of the State of New York.
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PLAN OF DISTRIBUTION
We may sell junior subordinated debentures and a Morgan Stanley Capital Trust may sell capital securities in three ways: (1) through agents, (2) through underwriters and (3) through dealers. The agents, underwriters or dealers in the United States will include Morgan Stanley & Co. Incorporated, which we refer to as MS & Co., and/or Morgan Stanley DW Inc., which we refer to as MSDWI, or other affiliates of ours, and the agents, underwriters or dealers outside the United States will include Morgan Stanley & Co. International Limited, which we refer to as MSIL, or other affiliates of ours.
We and/or the applicable Morgan Stanley Capital Trust may designate agents from time to time to solicit offers to purchase these securities. We will name any such agent, who may be deemed to be an underwriter as that term is defined in the Securities Act of 1933, and state any commissions we are to pay to that agent in the applicable prospectus supplement. That agent will be acting on a reasonable efforts basis for the period of its appointment or, if indicated in the applicable prospectus supplement, on a firm commitment basis.
If any underwriters are utilized in the sale of these securities, we and/or the applicable Morgan Stanley Capital Trust, as the case may be, will enter into an underwriting agreement with the underwriters at the time of sale to them and the names of the underwriters and the terms of the transaction will be set forth in the applicable prospectus supplement, which will be used by the underwriters to make resales of the securities in respect of which this prospectus is delivered to the public.
If a dealer is utilized in the sale of these securities, we and/or the applicable Morgan Stanley Capital Trust, as the case may be, will sell the securities to the dealer, as principal, and will name the dealer in the applicable prospectus supplement. The dealer may then resell the securities to the public at varying prices to be determined by such dealer at the time of resale.
In order to facilitate the offering of these securities, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of these securities or any other securities the prices of which may be used to determine payments on these securities. Specifically, the underwriters may sell more securities than they are obligated to purchase in connection with the offering, creating a short position for their own accounts. A short sale is covered if the short position is no greater than the number or amount of securities available for purchase by the underwriters under any overallotment option. The underwriters can close out a covered short sale by exercising the overallotment option or purchasing these securities in the open market. In determining the source of securities to close out a covered short sale, the underwriters will consider, among other things, the open market price of these securities compared to the price available under the overallotment option. The underwriters may also sell these securities or any other securities in excess of the overallotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of these securities in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, these securities or any other securities in the open market to stabilize the price of these securities or of any other securities. Finally, in any offering of the securities through a syndicate of underwriters or dealer group, the agent acting on behalf of the underwriting syndicate or for itself may also reclaim selling concessions allowed to an underwriter or a dealer for distributing these securities in the offering, if the agent repurchases previously distributed securities to cover syndicate short positions or to stabilize the price of these securities. Any of these activities may raise or maintain the market price of these securities above independent market levels or prevent or retard a decline in the market price of these securities. The underwriters are not required to engage in these activities and may end any of these activities at any time.
If so indicated in the applicable prospectus supplement, one or more firms, including MS & Co., MSDWI and MSIL, which we refer to as remarketing firms, acting as principals for their own accounts or as agents for us and/or a Morgan Stanley Capital Trust, as the case may be, may offer and sell these securities as part of a remarketing upon their purchase, in accordance with their terms. We will identify any remarketing firm, the terms of its agreement, if any, with us and/or a Morgan Stanley Capital Trust, as the case may be, and its compensation in the applicable prospectus supplement.
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Remarketing firms, agents, underwriters and dealers may be entitled under agreements with us and/or a Morgan Stanley Capital Trust to indemnification by us and/or a Morgan Stanley Capital Trust, against some civil liabilities, including liabilities under the Securities Act of 1933, and may be customers of, engage in transactions with, or perform services for, us and/or a Morgan Stanley Capital Trust in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we and/or a Morgan Stanley Capital Trust will authorize agents, underwriters or dealers to solicit offers by some purchasers to purchase these securities from us at the public offering price stated in the prospectus supplement under delayed delivery contracts providing for payment and delivery on a specified date in the future. These contracts will be subject to only those conditions described in the applicable prospectus supplement, and the prospectus supplement will state the commission payable for solicitation of these offers.
Any underwriter, agent or dealer utilized in the initial offering of securities will not confirm sales to accounts over which it exercises discretionary authority without the prior specific written approval of its customer.
MS & Co., MSDWI and MSIL are wholly owned subsidiaries of Morgan Stanley. Each initial offering of securities will be conducted in compliance with the requirements of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which is commonly referred to as the NASD, regarding a NASD member firms distributing the securities of an affiliate. Following the initial distribution of any of these securities, MS & Co., MSDWI, MSIL and other affiliates of Morgan Stanley may offer and sell these securities in the course of their business as broker-dealers, subject to obtaining any necessary approval of the New York Stock Exchange, Inc. for any of the offers and sales. MS & Co., MSDWI, MSIL and other affiliates may act as principals or agents in these transactions and may make any sales at varying prices related to prevailing market prices at the time of sale or otherwise. MS & Co., MSDWI, MSIL and other affiliates may use this prospectus in connection with these transactions. None of MS & Co., MSDWI, MSIL or any other affiliate is obligated to make a market in any of these securities and may discontinue any market-making activities at any time without notice.
Underwriters, agents and dealers participating in offerings of the securities that are not affiliates of Morgan Stanley or the applicable Morgan Stanley Capital Trust may presently or from time to time engage in business transactions with us, including extending loans to us.
In the event that MS & Co., MSDWI or any other NASD member participates in a public offering of these securities: (a) post-effective amendments or prospectus supplements disclosing the actual price and selling terms will be submitted to the NASDs Corporate Financing Department (the Department) at the same time they are filed with the SEC; (b) the Department will be advised if, subsequent to the filing of the offering, any 5% or greater shareholder of ours is or becomes an affiliate or associated person of an NASD member participating in the distribution; and (c) all NASD members participating in the offering will confirm their understanding of the requirements that have to be met in connection with SEC Rule 415 and Notice-to-Members 88-101. Underwriting discounts and commissions on securities sold in the initial distribution will not exceed 8% of the offering proceeds.
LEGAL MATTERS
The validity of the capital securities will be passed upon for the Morgan Stanley Capital Trusts by Richards, Layton & Finger, P.A., or other counsel who is satisfactory to MS & Co. and/or MSDWI, as the case may be, and who may be an officer of Morgan Stanley. The validity of the junior subordinated debentures and the guarantees will be passed upon for Morgan Stanley by Davis Polk & Wardwell, or other counsel who is satisfactory to MS & Co. and/or MSDWI, as the case may be, and who may be an officer of Morgan Stanley. Certain legal matters relating to the securities will be passed upon for the underwriters by Sidley Austin LLP. Sidley Austin LLP has in the past represented Morgan Stanley and continues to represent Morgan Stanley and its affiliates on a regular basis and in a variety of matters.
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EXPERTS
The consolidated financial statements and financial statement schedules of Morgan Stanley and its subsidiaries, at November 30, 2004 and 2003 and for each of the three fiscal years in the period ended November 30, 2004, and managements report on the effectiveness of internal control over financial reporting, which are incorporated in this prospectus by reference to Exhibit 99.1 to Morgan Stanleys Current Report on Form 8-K filed October 12, 2005, Schedule I of Morgan Stanleys Annual Report on Form 10-K for the fiscal year ended November 30, 2004, filed on February 11, 2005 (2004 Form 10-K) and Item 9A of the 2004 Form 10-K, respectively, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference (which reports (1) express an unqualified opinion on the financial statements and financial statement schedule and include an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards (SFAS) No. 123 Accounting for Stock-Based Compensation, as amended by SFAS No. 148 Accounting for Stock-Based Compensation Transition and Disclosure, an amendment of FASB Statement No. 123, in 2003, (2) express an unqualified opinion on managements assessment regarding the effectiveness of internal control over financial reporting, and (3) express an unqualified opinion on the effectiveness of internal control over financial reporting), and have been so included in reliance upon the respective reports of such firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods ended February 28, 2005 and February 29, 2004, May 31, 2005 and May 31, 2004 and August 31, 2005 and August 31, 2004, which is incorporated herein by reference, Deloitte & Touche LLP, an independent registered public accounting firm, have applied limited procedures in accordance with standards of the Public Company Accounting Oversight Board (United States) for a review of such information. However, as stated in their reports included in Morgan Stanleys Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2005 and in Exhibits 99.2 and 99.3 to the Current Report on Form 8-K filed October 12, 2005, and incorporated by reference herein, they did not audit and they do not express an opinion on such interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the unaudited interim financial information because those reports are not reports or a part of the registration statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Securities Act of 1933.
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Morgan Stanley