Exhibit 10.1
 
Securities Purchase Agreement
 
Morgan Stanley
1585 Broadway
New York, NY 10036
Ladies and Gentlemen:
 
The undersigned investor (the “Investor”) hereby confirms its agreement with you
as follows:
 
1.           This Securities Purchase Agreement (the “Agreement”) is made as of
December 19, 2007 between Morgan Stanley, a Delaware corporation (the
“Company”), and the Investor listed on the signature page hereto.
 
2.           The Company is proposing to issue and sell to the Investor (the
“Offering”) its PEPS Units (the “Securities”), each of which is a unit with a
stated amount of $1,000 initially consisting of (a) a Stock Purchase Contract
relating to the common stock, par value $0.01 per share, of the Company (the
“Common Stock”) and (b) a trust preferred security of Morgan Stanley Capital
Trust A, Morgan Stanley Capital Trust B or Morgan Stanley Capital Trust C, each
a Delaware statutory trust.  The Securities are being offered to certain
qualified institutional buyers (“QIBs”) within the meaning of Rule 144A under
the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a
private placement exemption from registration under the Securities Act.
 
3.           The Securities shall have the terms described in the offering
memorandum dated December 19, 2007 relating to the offering of the Securities
(the “Offering Memorandum”) attached as an annex to the term sheet dated
December 19, 2007 (the “Term Sheet”) attached hereto as Annex B; terms used
herein and not otherwise defined are used herein as defined in the Offering
Memorandum.
 
4.           The Company and the Investor agree that, upon the terms and subject
to the conditions set forth herein, the Investor will purchase from the Company
and the Company will issue and sell to the Investor the aggregate stated amount
of Securities computed as set forth in Section 2.1 of the Annex referred to
below for the aggregate purchase price (the “Purchase Price”) equal to the
aggregate stated amount of such Securities.  The Securities shall be purchased
pursuant to the Terms and Conditions for Purchase of Securities attached hereto
as Annex A and incorporated herein by reference as if fully set forth
herein.  The Securities purchased by the Investor will be in the form of three
or more global certificates registered in the name of the Investor or its
nominee as designated by the Investor.  The Securities will be countersigned by
The Bank of New York, as stock purchase contract agent (the “Stock Purchase
Contract Agent”), at the written request of the Company.
 
 
 

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Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.
 

AGREED AND ACCEPTED: 
  Name of Investor: Best Investment Corporation, a limited liability company
incorporated in Beijing under the Chinese laws              
Morgan Stanley,
a Delaware corporation 
                    By: /s/ T.C. Kelleher   By: /s/ Gao Xiqing  
Name:
Title:
T.C. Kelleher
Chief Financial Officer
 
Name:
Title:
Mr. Gao Xiqing
Executive Director and President
                   
Address: Suite 936, No. 2 Building, No. 1 Complex, Nao Shi Kou Da Jie, Xicheng
District, Beijing, P.R. China
Contact Name: Mr. Gao Xiqing
Telephone: (86-10) 5836 5880
Email Address: xqg@china-inv.cn
 
Copies to:
 
Contact Name:  Hong Zhang
 
Telephone: (86-10) 5836 5903
 
Email Address: zhanghong@china-inv.cn
 

China Investment Corporation hereby (a) represents and warrants that the
representations and warranties of the Investor contained in this Agreement are
true and correct, (b) agrees to the agreements of the Guarantor contained in
this Agreement and (c) unconditionally and irrevocably guarantees the full
performance by the Investor of all of its obligations under this Agreement,
including the payment of the Purchase Price.
 
 
China Investment Corporation
 
By:
/s/ Lou Jiwei
  Name: Mr. Lou Jiwei   Title:  Chairman and CEO  

 
 
2

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ANNEX A TO THE SECURITIES PURCHASE AGREEMENT
 
TERMS AND CONDITIONS FOR PURCHASE OF SECURITIES
 
1.
Authorization and Sale of Securities.  The Company is proposing to sell a stated
amount of Securities determined as provided in Section 2.1 below.

 
2.    Agreement to Sell and Purchase the Securities.
 
2.1.
Upon the terms and subject to the conditions hereinafter set forth, at the
Closing (as defined in Section 3), the Company will sell to the Investor, and
the Investor will purchase from the Company, at the Purchase Price, a stated
amount of Securities calculated promptly after the Maximum Settlement Rate is
determined (as contemplated in the Offering Memorandum) so that the Ownership
Percentage for the Investor and China Investment Corporation (the “Guarantor”)
as of the Closing Date will equal 9.90%.  The term “Ownership Percentage” means
a fraction (i) the numerator of which is the sum of (a) the Maximum Settlement
Rate multiplied by the aggregate stated amount of Securities to be purchased by
the Investor divided by $1,000 and (b) all other shares of Common Stock
(including any shares of Common Stock underlying any securities convertible into
or exchangeable for Common Stock) then held by the Investor and the Guarantor
and any of their respective Controlled Affiliates, and (ii) the denominator of
which is the sum of (c) the numerator (excluding any shares that are already
outstanding and therefore covered by the following clause (d)) and (d) the total
shares outstanding of the Company’s Common Stock on November 30, 2007.
 
Notwithstanding the foregoing, if on the Closing Date, the Investor and the
Guarantor, and any of their respective Controlled Affiliates, directly or
indirectly own any shares of Common Stock or any securities convertible into or
exchangeable for Common Stock (any such shares or securities, “Other
Securities”), then the Investor and the Guarantor shall take such actions
necessary to reduce the amount of Other Securities directly or indirectly owned
by the Investor, the Guarantor and their Controlled Affiliates on or before
January 31, 2008, which date shall constitute an additional Closing Date
hereunder on which the Investor shall purchase, and the Company shall sell, an
additional amount of Securities at the aggregate Purchase Price therefor (plus
accrued and unpaid contract adjustment payments and distributions on the trust
preferred securities from the initial Closing Date), such that the Ownership
Percentage for the Investor and the Guarantor as of that additional Closing Date
is 9.9% and the Ownership Percentage Underlying The PEPS is at least 9.75%.  The
term “Ownership Percentage Underlying The PEPS” means a fraction (i) the
numerator of which is the Maximum Settlement Rate multiplied by the aggregate
stated amount of Securities to be purchased by the Investor divided by $1,000
and (ii) the denominator of which is the sum of the numerator and the total
shares outstanding of the Company’s Common Stock on November 30, 2007 or such
later date as the Company determines is practicable.
 
At the additional Closing Date as contemplated in the preceding paragraph, the
condition referred to in Section 3.3(d) shall be deemed to read:

 
 
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The representations and warranties of the Company contained in Sections 4.1,
4.2, 4.3, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 of this Agreement
shall be true and correct on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and the Investor shall
have received a certificate of a senior officer of the Company, dated as of the
Closing Date, certifying to that fact.
 
If any Securities are issued at any additional Closing Date, they shall after
issuance be treated for purposes of the Stock Issuance Agreements and
Transaction Agreements as though they had been issued at the initial Closing
Date.
 
2.2.
The Company and the Investor agree for United States tax purposes (in the
absence of an administrative pronouncement or judicial ruling to the contrary):

 
 
(i)
to treat the acquisition of a Security as an acquisition of the trust preferred
security and the stock purchase contract constituting such Security;

 
(ii)
to allocate 100% of the purchase price of a Security to the trust preferred
security;

 
(iii)
to treat the junior subordinated debentures as indebtedness of the Company for
U.S. federal income tax purposes which is not subject to the contingent payment
debt regulations; and

 
(iv)
to treat the Investor as the beneficial owner of (a) the junior subordinated
debenture or applicable ownership interest in the treasury portfolio that is
part of a Corporate Unit owned by the Investor or (b) the qualifying treasury
security that is a part of a Treasury Unit owned by the Investor.

3.    Closings and Delivery of Securities and Funds.
 
3.1
The completion of the purchase and sale of the Securities (the “Closing”) shall
occur on December 28, 2007 (the “Closing Date”), or as soon thereafter as the
conditions to Closing can be satisfied, at the offices of the Company’s
counsel.  At the Closing, (i) the Company shall cause the Stock Purchase
Contract Agent to deliver to the Investor the stated amount of Securities
computed as set forth in Section 2.1, and (ii) the Purchase Price for such
Securities shall be delivered by or on behalf of the Investor to the Company.

 
3.2
Payment by the Investor for the Securities shall be made by wire transfer of
immediately available funds to the Company and the Company shall instruct the
Stock Purchase Contract Agent to release the corresponding Securities to the
Investor.

 
3.3
The obligation of the Investor to pay the Purchase Price pursuant to this
Agreement shall be subject to the performance by the Company of its obligations
hereunder and to the following additional conditions:

 
 
a.
The Investor shall have received an opinion, dated the Closing Date, of Davis
Polk & Wardwell, counsel for the Company, substantially in the form set forth in
Exhibit

 
 
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A-1 to this Agreement, an opinion of Richards, Layton & Finger, substantially in
the form set forth in Exhibit A-2 to this Agreement, and an opinion from
internal counsel at the Company, in a form customary for transactions of this
nature, to the effect that the transactions contemplated hereby do not
contravene other agreements binding on the Company and its subsidiaries.

 
 
b.
On the Closing Date, the Investor shall have received a registration rights
agreement (the “Registration Rights Agreement”), including customary
representations, warranties, covenants, black-outs and expense and
indemnification provisions, relating to the resale of the Securities and any
Common Stock issuable upon settlement of the Securities executed by the Company,
in form and substance reasonably satisfactory to the Investor.

 
 
c.
The shares of Common Stock issuable upon settlement of the Stock Purchase
Contracts shall have been duly authorized for listing, subject to official
notice of issuance, on the New York Stock Exchange.

 
 
d.
The representations and warranties of the Company contained in this Agreement
shall be true and correct on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and the Investor shall
have received a certificate of a senior officer of the Company, dated as of the
Closing Date, certifying to that fact.

 
 
e.
Any approvals or authorizations of, filings and registrations with, and
notifications to, all governmental or regulatory authorities (collectively,
“Governmental Entities”) required for the Closing shall have been obtained or
made and shall be in full force and effect and all waiting periods required by
law shall have expired; and no provision of any applicable law or regulation and
no judgment, injunction, order or decree shall prohibit the Closing, and no
Governmental Entity shall have instituted an investigation or proceeding that
could result in such a judgment, injunction, order or decree.

 
 
f.
Insofar as the Offering Memorandum and the Term Sheet describe the Securities
Issuance Agreements (as defined below), such agreements accurately reflect, in
all material respects, such description and are, to the extent not so described,
in form and substance reasonably satisfactory to the Investor.

 
3.4
The Company’s obligation to issue and sell Securities to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) the accuracy of the representations and warranties made by the
Investor and the fulfillment of those undertakings of the Investor to be
fulfilled prior to the Closing and (b) any approvals or authorizations of,
filings and registrations with, and notifications to, all Governmental Entities
required for the Closing shall have been obtained or made and shall be in full
force and effect and all waiting periods required by law shall have expired; and
no provision of any applicable law or regulation and no judgment, injunction,
order or decree shall prohibit the Closing, and no Governmental Entity shall
have instituted an investigation or proceeding that could result in such a
judgment, injunction, order or decree.

 
 
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3.5
The Investor shall remit by wire transfer the amount of funds equal to the
Purchase Price for the Securities being purchased by such Investor to an account
designated by the Company prior to the Closing Date.

 
4.     Representations, Warranties and Covenants of the Company.  The Company
hereby represents and warrants to, and covenants with, the Investor, that,
except as otherwise disclosed in the Company’s Annual Report on Form 10-K for
the fiscal year ended November 30, 2006 or its other reports and forms filed
with the Securities and Exchange Commission (the “Commission”) under
Sections 12, 13, 14 or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) after November 30, 2006 (excluding disclosures of risks included
in any forward-looking statement disclaimers or other statements that are
similarly non-specific and are predictive and forward-looking in nature) (the
“SEC Reports”) and before the date of this Agreement:
 
4.1
Organization, Authority and Significant Subsidiaries.  The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and authority to own its
properties and conduct its business as currently conducted, and, except as would
not be reasonably likely to have a Material Adverse Effect, has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business so as to require such qualification;
each subsidiary of the Company that is a “significant subsidiary” within the
meaning of Rule 1-01(w) of Regulation S-X under the Securities Act (individually
a “Significant Subsidiary” and collectively the “Significant Subsidiaries”) has
been duly organized and is validly existing in good standing under the laws of
its jurisdiction of organization.

 
4.2
Capitalization.  As of August 31, 2007: (1) the Company has 3,500,000,000
authorized shares of Common Stock; (2) the Company has 1,062,450,986 issued
and  outstanding shares of Common Stock; (3) all of the issued shares of capital
stock of the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; and (4) all of the issued shares of capital stock
of each Significant Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims.  As of
November 30, 2007, the Company has 1,056,289,659 issued and outstanding shares
of Common Stock.

 
4.3
Authorization, Enforceability of Securities Issuance Agreements and Transaction
Documents.  The Company has the power and authority to enter into the Securities
Issuance Agreements and Transaction Documents and to carry out its obligations
hereunder and thereunder.  The execution, delivery and performance of the
Securities Issuance Agreements and Transaction Documents by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company.
 
As of the date of execution of the Securities Issuance Agreements and the
Transaction Documents, as the case may be, neither the execution, delivery and
performance by the Company hereof and thereof, nor the consummation of the
transactions contemplated

 

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    hereby and thereby, nor compliance by the Company with any of the provisions
thereof, will (1) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
Significant Subsidiary under any of the terms, conditions or provisions of
(A) its certificate of incorporation or by-laws or (B) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Company or any Significant Subsidiary is a party or by
which it may be bound, or to which the Company or any Significant Subsidiary or
any of the properties or assets of the Company or any Significant Subsidiary may
be subject, or (C) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any statute, rule or regulation or
any judgment, ruling, order, writ, injunction or decree applicable to the
Company or any Significant Subsidiary or any of their respective properties or
assets except, in the case of clauses (B) and (C), for those occurrences that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
 
Other than in connection or in compliance with the provisions of the Securities
Act and the securities or blue sky laws of the various states, to the best
knowledge of the Company, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation of the transactions contemplated by the Transaction Documents.
 
As used herein, (a) the term “Securities Issuance Agreements” refers
collectively to (i) the trust agreement that will govern the Trusts, (ii) the
indentures, and supplements thereto, that will govern each series of the
Company’s junior subordinated debt securities held by the Trusts, (iii) the
junior subordinated debentures, (iv) the Stock Purchase Contracts pursuant to
which the Company will sell the Common Stock to the Investor and (v) the
purchase contract and pledge agreements pursuant to which the Trust Preferred
Securities will be held as collateral in favor of the Company and (b) the term
“Transaction Documents” refers collectively to this Agreement and the
Registration Rights Agreement.

     

4.4
Company Financial Statements.   The consolidated financial statements of the
Company and its consolidated subsidiaries included or incorporated by reference
in the SEC Reports present fairly in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates indicated therein and the consolidated results of their operations for the
periods specified therein; and except as stated therein, such financial
statements were prepared in conformity with GAAP applied on a consistent basis
(except as may be noted therein).
 
Deloitte & Touche LLP, who have certified certain financial statements of the
Company and its subsidiaries, are independent public accountants as required by
the Act and the rules and regulations of the Commission.

 
 
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    The Company and its subsidiaries do not have any liabilities or obligations
(accrued, absolute, contingent or otherwise), other than liabilities or
obligations (i) reflected on, reserved against, or disclosed in the notes to,
the Company’s consolidated balance sheet included in the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2007, (ii) disclosed
in the Company’s Current Reports on Form 8-K filed on November 8, 2007 and
November 9, 2007 or in the press release and related financial supplement
referred to in Section 17 below or (iii)  that could not, individually or in the
aggregate, reasonably be expected to have a Material  Adverse  Effect.

     

4.5
No Material Adverse Effect.  Since August 31, 2007 and except as described in
the SEC Reports and the press release being issued on the date hereof as
contemplated by Section 17 hereof, no event or circumstance has occurred that,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect.

 
4.6
Proceedings.  Except as disclosed in the SEC Reports, there are no litigation or
similar proceedings pending or, to the Company’s knowledge, threatened to which
the Company or any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.

 
4.7
Compliance with Laws; Permits.   The Company and each of its Significant
Subsidiaries have conducted their businesses in compliance with all applicable
federal, state and foreign laws, regulations and applicable stock exchange
requirements, except where (i) the failure to be in compliance could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect or (ii) the necessity of compliance, or the failure to comply,
therewith is being contested in good faith by appropriate proceedings.
 
The Company and each of its Significant Subsidiaries have all permits, licenses,
authorizations, orders and approvals of, and have made all filings, applications
and registrations with, any Governmental Entities that are required in order to
carry on their business as presently conducted, except where the failure to have
such permits, licenses, authorizations, orders and approvals or the failure to
make such filings, applications and registrations, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect;
and all such permits, licenses, certificates of authority, orders and approvals
are in full force and effect and, to the knowledge of the Company, no suspension
or cancellation of any of them is threatened, and all such filings, applications
and registrations are current, except  where such absence, suspension or
cancellation, individually or in the aggregate, could not reasonably be expected
to have a Material  Adverse Effect.

 
4.8
Authorization of Stock Purchase Contracts and Common Stock.   As of the Closing
Date, the Stock Purchase Contracts will be duly authorized by all necessary
corporate action on the part of the Company and will be valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally and

 
 
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    general equitable principles, regardless of whether such enforceability is
considered in a proceeding at law or in equity (“Bankruptcy Exceptions”).
 
The issuance of the shares of the Common Stock underlying the Stock Purchase
Contracts has been duly authorized by all necessary corporate action on the part
of the Company and upon the issuance of the Common Stock underlying the Stock
Purchase Contracts, such shares of Common Stock will (A) be duly authorized by
all necessary corporate action on the part of the Company, (B) be validly
issued, fully paid and nonassessable, (C) not have been issued in violation of
any preemptive or other similar right, and (D) if such shares are treasury
shares, be free of any adverse claim.

     

4.9
Authorization of the Securities.  As of the Closing Date, the Securities will be
duly authorized by all necessary corporate action on the part of the issuing
parties; and when executed and delivered by the issuing parties, will constitute
the valid and binding obligations of the issuing parties, enforceable against
each of the issuing parties in accordance with their terms, except as the
enforcement thereof may be limited by the Bankruptcy Exceptions.

 
4.10
The Trusts.  As of the Closing Date:
 
(1)    Each of the Trusts will be duly created as a statutory trust and will be
validly existing in good standing under the laws of the State of Delaware; each
Trust will be classified as a grantor trust and will not be classified as an
association taxable as a corporation for United States federal income tax
purposes; each Trust will have the power and authority necessary to own or hold
its properties and to conduct the businesses in which such Trust is engaged.
 
(2)    The trust agreement for each Trust will have been duly authorized by the
Company and will have been duly executed and delivered by the Company, as
sponsor and depositor, and, assuming due authorization, execution and delivery
of each trust agreement by the applicable trustees, each trust agreement will be
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except to the extent that enforcement thereof may
be limited by Bankruptcy Exceptions.
 
(3)    The trust preferred securities of each Trust will have been duly
authorized by such Trust and, when issued and delivered against payment of the
consideration described in this Agreement, will be validly issued and fully paid
and non-assessable undivided beneficial interests in the assets of such Trust,
will be entitled to the benefits of each applicable trust agreement and will
conform in all material respects to the descriptions thereof contained in the
Offering Memorandum; the issuance of the trust preferred securities of each
Trust will not be subject to preemptive or other similar rights; and the
Investor will be entitled to the same limitation of personal liability under
Delaware law as extended to stockholders of private corporations for profit.
 
(4)    The common securities issuable by each Trust to the

 
 
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    Company will have been duly authorized by the Trust and, when issued and
delivered by each Trust to the Company will be validly issued and (subject to
the terms of the relevant trust agreement) fully paid undivided beneficial
interests in the assets of each Trust; the issuance by each Trust of common
securities is not subject to preemptive or other similar rights; and upon
consummation of the Closing all of the issued and outstanding common securities
of each Trust will be directly or indirectly owned by the Company free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or equity.

     

4.11
Authorization of the Junior Subordinated Indentures.  As of the Closing Date,
each junior subordinated indenture of the Company, and each supplement thereto
under which a junior subordinated debt security is delivered to a Trust, will
have been duly authorized, executed and delivered by the Company and will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by the Bankruptcy Exceptions.

 
4.12
Authorization of Junior Subordinated Debt Securities.  As of the Closing Date,
each junior subordinated debt security delivered to a Trust will have been duly
authorized by the Company and duly executed and delivered by the Company to a
Trust, and when authenticated, issued and delivered in the manner provided for
in each applicable junior subordinated indenture or supplement thereto, will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that the
enforcement thereof may be limited by the Bankruptcy Exceptions, and will be in
the form contemplated by, and entitled to the benefits of, the applicable
indenture or supplement thereto.

 
4.13
Authorization of Guarantee Agreements.  As of the Closing Date, each guarantee
agreement of the Company with respect to trust preferred securities of a Trust
will have been duly authorized by the Company,  and will have been duly executed
and delivered by the Company and, assuming due authorization, execution and
delivery by the applicable guarantee trustee, will constitute a valid and
legally binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement thereof may be
limited by the Bankruptcy Exceptions.

 
4.14
Authorization of the Purchase Contract and Pledge Agreements.  As of the Closing
Date, each purchase contract and pledge agreement entered into by the Company
with respect to the Stock Purchase Contracts will have been duly authorized by
the Company, will be validly executed and delivered by the Company and assuming
due authorization, execution and delivery of such purchase contract and pledge
agreement by the other parties thereto, will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that the enforcement thereof may be limited by
the Bankruptcy Exceptions.

 
4.15
Authorization of the Registration Rights Agreement.  As of the Closing Date, the
Registration Rights Agreement will have been duly authorized by the Company, and
will be validly executed and delivered by the Company and assuming due
authorization, execution and delivery of such agreement by the other party
thereto, will constitute a

 
 
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    valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except to the extent that the enforcement thereof
may be limited by the Bankruptcy Exceptions and except as rights to
indemnification and contribution under the Registration Rights Agreement may be
limited under applicable law.

     

4.16
Authorization of this Agreement.  This Agreement has been duly authorized,
validly executed and delivered by the Company, and assuming due authorization,
execution and delivery of this Agreement by the Investor, constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that the enforcement thereof may
be limited by the Bankruptcy Exceptions.

 
4.17
Reports.  Since November 30, 2005, the Company has timely filed all documents
required to be filed with the Commission pursuant to Sections 13(a), 14(a)or
15(d) of the Exchange Act, except where the failure to so file could not
reasonably be expected to have a Material Adverse Effect.
 
The  SEC Reports, when they became effective or were filed with the Commission,
as the case may be, conformed in all material respects to the requirements of
the Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make such statements, in the light
of the circumstances in which they were made, not misleading.
 
Since November 30, 2005, the Company and each subsidiary have filed all material
reports, registrations and statements, together with any required amendments
thereto, that it was required to file with any applicable federal or state
securities or banking authorities, except where the failure to file any such
report, registration or statement, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.   As of their
respective dates, each of the foregoing reports complied with all applicable
rules and regulations promulgated by applicable foreign, federal or state
securities or banking authorities, as the case may be, except for any failure
that, individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
 
The records, systems, controls, data and information of the Company and the
subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or the subsidiaries or their accountants (including all means of
access thereto and therefrom). The Company (i) has implemented and maintains
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) to ensure that material information relating to the Company,
including its subsidiaries, is made known to the chief executive officer and the
chief financial officer of the Company by others within those entities, and (ii)
has disclosed, based on its most recent evaluation prior to the date hereof, to
the Company’s outside auditors and the audit committee of the Company’s board of
directors (A) any significant deficiencies and material weaknesses in the design
or

 
 
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    operation of internal controls over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that, individually or in the aggregate, could
reasonably be expected to adversely affect the Company’s ability to record,
process, summarize and report financial information and (B) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the Company’s internal controls over financial reporting. As
of the date hereof, to the knowledge of the Company, there is no reason that its
outside auditors and its chief executive officer and chief financial officer
will not be able to give the certifications and attestations required pursuant
to the rules and regulations adopted pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, without qualification, when next due.

     

4.18
Subprime Exposure. After giving effect to the write downs described in the press
release and related financial supplement referred to in Section 17 below, as of
November 30, 2007, the aggregate remaining total U.S. ABS CDO/Subprime Net
Exposure of the Company and its subsidiaries was $1.8 billion.  As used in this
paragraph, “Net Exposure” means the potential loss to the Company in the event
of a 100% default, assuming zero recovery, over a period of time.

As used in this Article IV, “Material Adverse Effect” means any fact,
circumstance, event, change, effect or occurrence that, individually or in the
aggregate with all other facts, circumstances, events, changes, effects, or
occurrences, has a material adverse effect on (i) the business, assets,
liabilities, results of operation or financial condition of the Company and its
subsidiaries taken as a whole or (ii) the ability of the Company to consummate
the transactions contemplated by this Agreement, other than, in each case, any
adverse effect resulting from the announcement of the transactions contemplated
by this Agreement.

5.     Representations, Warranties and Covenants of the Investor.
 
The Investor and the Guarantor each hereby represents and warrants to, and
covenants with, the Company that:
 
5.1.
(1) It is (a) a QIB and is an “accredited investor” within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, (b) aware that the
sale to it is being made in reliance on a private placement exemption from
registration under the Securities Act and (c) acquiring the Securities for its
own account or for the account of a QIB.
 
(2)  It understands and agrees on behalf of itself and on behalf of any investor
account for which it is purchasing Securities, and each subsequent holder of a
Security or shares of Common Stock issued upon settlement of the Stock Purchase
Contracts by its acceptance thereof will be deemed to agree, that the Securities
and Common Stock issuable upon settlement of the Stock Purchase Contracts are
being offered in a transaction not involving any public offering within the
meaning of the Securities Act, that the Securities and Common Stock issuable
upon settlement of the Stock Purchase Contracts have not been and, except as
described in the Offering Memorandum or contemplated by the Registration Rights
Agreement, will not be registered under the Securities Act and that, unless the
Securities are sold in a registered offering under the Securities Act, (a) it
may offer, sell, pledge or otherwise transfer any of the Securities only to a
person whom the

 
 
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seller reasonably believes is a QIB in a transaction not involving a public
offering and (b) if prior to the expiration of the applicable holding period
specified in Rule 144(k) of the Securities Act (or any successor provision) it
decides to offer, resell, pledge or otherwise transfer any of the Common Stock
issued upon settlement of the Securities, such Common Stock may be offered,
resold, pledged or otherwise transferred only (i) to a person whom the seller
reasonably believes is a QIB in a transaction not involving a public offering,
(ii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available), (iii) pursuant to an effective
registration statement under the Securities Act, or (iv) to the Company or one
of its subsidiaries, in each of cases (i) through (iv) in accordance with any
applicable securities laws of any State of the United States, and that (c) it
will, and each subsequent holder is required to, notify any subsequent purchaser
of the Securities or Common Stock from it of the resale restrictions referred to
in (a) and (b) above, as applicable, and will provide the Company and the
transfer agent such certificates and other information as they may reasonably
require to confirm that the transfer by it complies with the foregoing
restrictions, if applicable.
 
(3)  It understands that, unless the Securities are registered under the
Securities Act, (a) the Securities and (b) until the expiration of the
applicable holding period set forth in Rule 144(k) of the Securities Act (or any
successor provision), unless sold pursuant to a registration statement that has
been declared effective under the Securities Act or in compliance with Rule 144,
the Common Stock issued upon settlement of the Securities will bear a legend
substantially to the following effect:
 
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
(THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM.
 
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS
SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION NOT
INVOLVING A PUBLIC OFFERING, (II) PURSUANT TO ANY OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) SUBJECT TO THE ISSUER’S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (II) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT,
(III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR (IV) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, IN EACH OF CASES (I) THROUGH
(IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY SUBSEQUENT

 
 
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PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A)
ABOVE.
 
(4)           It:
 
(a) is able to fend for itself in the transactions contemplated by the offering
memorandum referred to below;
 
(b) has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its prospective investment in the
Securities; and
 
(c) has the ability to bear the economic risks of its prospective investment and
can afford the complete loss of such investment.
 
(5)           It has received a copy of the Offering Memorandum and acknowledges
that (a) it has conducted its own investigation of the Company and the terms of
the Securities, (b) it has had access to the Company’s public filings with the
Securities and Exchange Commission and to such financial and other information
as it deems necessary to make its decision to purchase the Securities, and (c)
has been offered the opportunity to ask questions of the Company and received
answers thereto, as it deemed necessary in connection with the decision to
purchase the Securities.
 
(6)           It understands that the Company will rely upon the truth and
accuracy of the foregoing representations, acknowledgements and agreements and
agrees that if any of the representations and acknowledgements deemed to have
been made by it by its purchase of the Securities is no longer accurate, it
shall promptly notify the Company.  If it is acquiring Securities as a fiduciary
or agent for one or more investor accounts, it represents that is has sole
investment discretion with respect to each such account and it has full power to
make the foregoing representations, acknowledgements and agreements on behalf of
such account.

 
5.2.
Each of the Investor and the Guarantor acknowledges that the Common Stock is
listed on the New York Stock Exchange and the Company is required to file
reports containing certain business and financial information with the
Securities and Exchange Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and that it is able to obtain
copies of such reports.

 
5.3.
Each of the Investor and the Guarantor acknowledges that no action has been or
will be taken in any jurisdiction outside the United States by the Company that
would permit an offering of the Securities, or possession or distribution of
offering materials in connection with the issue of the Securities, in any
jurisdiction outside the United States where action for that purpose is
required.  Each such person outside the United States will comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Securities or has in its possession or
distributes any offering material, in all cases at its own expense.

 
5.4.
Each of the Investor and the Guarantor has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and

 
 
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    has taken all necessary action to authorize the execution, delivery and
performance of this Agreement.

     

5.5.
Each of the Investor and the Guarantor understands that nothing in the Offering
Memorandum, this Agreement, the Company’s public filings with the Securities and
Exchange Commission or any other materials presented to the Investor in
connection with the purchase and sale of the Securities constitutes legal, tax
or investment advise.  Each of the Investor and the Guarantor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities and
has made its own assessment and has satisfied itself concerning the relevant tax
and other economic considerations relevant to its investment in the Securities.

 
5.6
To the best of each of its knowledge, after reasonable inquiry, as of the date
hereof, neither the Investor nor the Guarantor, nor any of their respective
Controlled Affiliates, directly or indirectly owns, controls or has the power to
vote any voting securities of the Company or any securities convertible into or
exercisable or exchangeable for voting securities of the Company.  As of the
additional Closing Date, if any, pursuant to Section 2.1, neither the Investor
nor the Guarantor, nor any of their respective Controlled Affiliates, will
directly or indirectly own, control or have the power to vote any voting
securities of the Company or any securities convertible into or exercisable or
exchangeable for voting securities of the Company in excess of 0.15% of the
total shares outstanding of the Company’s Common Stock on November 30, 2007 or
such later date as relevant under Section 2.1, excluding for purposes of this
calculation the Securities purchased pursuant to this Agreement.  The term
“Controlled Affiliate” means, when used with reference to a specified Person,
any Person directly or indirectly controlling or controlled by or under direct
or indirect common control with the Person specified or with the power, directly
or indirectly, to direct the management or policies of such Person or to vote 25
percent or more of any class of voting securities of such Person, as interpreted
by the Federal Deposit Insurance Corporation for purposes of the Change in Bank
Control Act, 12 U.S.C. §1817(j), or 12 C.F.R. Part 303, Subpart E.

 
5.7
In addition to the transfer restrictions set forth in Section 5.1, (a) the
Investor shall not offer, sell, pledge or otherwise transfer any of the
Securities or the Common Stock issued upon settlement of the Securities or Hedge
its exposure to the Common Stock prior to the first anniversary of the Closing
Date and (b) on or after the first anniversary of the Closing Date until the
first anniversary of the last date on which the Investor receives Common Stock
in settlement of its Securities, the Investor shall not, within any period of
three months, offer, sell, pledge or otherwise transfer Securities or Common
Stock issued upon settlement of the Securities or Hedge its exposure to Common
Stock, in one transaction or a series of transactions involving the Securities
or the Common Stock, having an aggregate value exceeding $2.5 billion, in each
case, other than (i) to Affiliates controlled by the Investor or the Guarantor
that agree to be bound by the provisions of this Agreement or (ii) as may be
required by order or decree of any Governmental Entity having jurisdiction over
the Investor or in the reasonable discretion of the Investor to comply with any
applicable statute, rule or regulation.  The

 
 
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    Investor shall immediately notify the Company if it engages in any of the
transactions referred to in this Section.

     

   
“Hedge” means, in respect of the Common Stock, to enter into any swap or any
other agreement or any transaction that hedges or transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of such
Common Stock, whether any such transaction or swap described is to be settled by
delivery of securities, in cash or otherwise.

     

5.8.
Neither the Investor nor the Guarantor will, and neither will permit any of its
Controlled Affiliates to, purchase or otherwise acquire, or agree or offer to
purchase or otherwise acquire, ownership, control or the power to vote any
voting securities of the Company or any securities convertible into or
exercisable or exchangeable for voting securities of the Company, including
without limitation Mandatorily Convertible Securities, if, after giving effect
thereto, the Investor and the Guarantor, together with their respective
Controlled Affiliates, would, directly or indirectly, own, control or have the
power to vote more than 9.90% of all voting securities of the Company.  For
purposes of this paragraph, the number of shares of Common Stock underlying
convertible or exchangeable securities on any date will be determined on a fully
converted basis and, for purposes of the Securities, deemed to be the number of
shares the Investor would receive upon an early settlement at the Settlement
Rate of the Securities as a result of a Cash Merger.

5.9
The Investor will remain a Controlled Affiliate of the Guarantor for so long as
the Investor owns any Securities.

6.     Survival of Representations, Warranties and Agreements.  Notwithstanding
any investigation made by any party to this Agreement, all covenants,
agreements, representations and warranties made by the Company, the Investor and
the Guarantor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Securities being purchased and the payment therefor.
 
7.     Notices.  All notices, requests, consents and other communications
hereunder shall be in writing, shall be delivered (A) if within the domestic
United States, by first-class registered or certified mail, or nationally
recognized overnight express courier, postage prepaid, or by facsimile, or (B)
otherwise by International Federal Express or facsimile, and shall be deemed
given (i) if delivered by first-class registered or certified mail, three
business days after so mailed, (ii) if delivered by a nationally recognized
overnight carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed and (iv) if
delivered by facsimile, upon electronic confirmation of receipt and shall be
delivered as addressed as follows:
 
 
(a)
if to the Company, to:

 
Morgan Stanley

 
Attention: Chief Financial Officer

 
1585 Broadway

 
New York, NY 10036

 
 
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(b)
if to the Investor or the Guarantor, at its address on the signature page
hereto, or at such other address or addresses as may have been furnished to the
Company in writing.

 
8.     Changes.  Except as contemplated herein, this Agreement may not be
modified or amended except pursuant to an instrument in writing signed by the
Company and the Investor.
 
9.     Headings.  The headings of the various sections of this Agreement have
been inserted for convenience or reference only and shall not be deemed to be
part of this Agreement.
 
10.   Severability.  In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
 
11.   Integration.  This Agreement supersedes all prior agreements and
understandings (whether written or oral) between the Company and the Investor
and the Guarantor, or either of them, with respect to the subject matter hereof.
 
11.   Applicable Law and Submission to Jurisdiction.
 
(a)
This Agreement will be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed within
the State of New York.

 
(b)
Each of the Investor and the Guarantor irrevocably submits to the non-exclusive
jurisdiction of any New York State or United States Federal court sitting in The
City of New York over any suit, action or proceeding arising out of or relating
to this Agreement or the transactions contemplated thereby.  Each of The
Investor and the Guarantor irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in such a court and any claim
that any such suit, action or proceeding brought in such a court has been
brought in an inconvenient forum.  To the extent that the Investor or the
Guarantor has or hereafter may acquire any immunity (on the grounds of
sovereignty or otherwise) from the jurisdiction of any court or from any legal
process with respect to itself or its property, it irrevocably waives, to the
fullest extent permitted by law, such immunity in respect of any such suit,
action or proceeding.

 
12.   Counterparts.  This Agreement may be signed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
 
13.   Preemptive Rights.
 
(a)   Company Sale of Covered Securities.
 
If the Company offers to sell Covered Securities in a Qualified Offering, the
Investor shall be afforded the opportunity to acquire from the Company, for the
same price and on the same terms as such Covered Securities are offered, in the
aggregate up to the amount of Covered Securities required to enable it to
maintain its then-current Investor Percentage Interest; provided, however, that
this Section 13 shall not apply to any Qualified Offering the gross proceeds of
which, together with the aggregate gross
 
 
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proceeds of any other Qualified Offering of Covered Securities after the date
hereof, do not exceed $500,000,000.
 
(b)   Notice.
 
(1)  In the event the Company intends to make a Qualified Offering of Covered
Securities that is an underwritten public offering or a private offering made to
Qualified Institutional Buyers (as such term is defined in Rule 144A under the
Securities Act) for resale pursuant to Rule 144A under the Securities Act, the
Company shall give the Investor written notice of its intention (including, in
the case of a registered public offering and to the extent possible, a copy of
the prospectus included in the registration statement filed in respect of such
offering), describing, to the extent then known, the anticipated amount of
securities, price and other material terms upon which the Company proposes to
offer the same.  The Investor shall have one Business Day from the date of
receipt of any such notice to notify the Company in writing that it intends to
exercise such preemptive purchase rights and as to the amount of Covered
Securities the Investor desires to purchase, up to the maximum amount calculated
pursuant to Section 13(a) (the “Designated Securities”).  Such notice shall
constitute a non-binding indication of interest of Investor to purchase the
Designated Securities so specified at the range of prices and other terms set
forth in the Company’s notice to it.  The failure to respond during such one
Business Day period shall constitute a waiver of preemptive rights in respect of
such offering.  To the extent the Company shall give the Investor notice of any
such offer prior to the public announcement thereof, the Investor shall agree to
confidentiality and restriction on trading terms reasonably acceptable to the
Company.  The failure of the Investor to agree to such terms within one Business
Day after the date of receipt of the Company’s notice as described in this
clause shall constitute a waiver of the Investor’s preemptive rights in respect
of such offering.
 
(2)  If the Company proposes to make a Qualified Offering of Covered Securities
that is not an underwritten public offering or Rule 144A offering (a “Private
Placement”), the Company shall give the Investor written notice of its
intention, describing, to the extent then known, the anticipated amount of
securities, price and other material terms upon which the Company proposes to
offer the same.  The Investor shall have one Business Day from the date of
receipt of the notice required by the immediately preceding sentence to notify
the Company in writing that it intends to exercise such preemptive purchase
rights and as to the amount of Designated Securities the Investor desires to
purchase, up to the maximum amount calculated pursuant to Section 13(a).  Such
notice shall constitute a non-binding indication of interest of Investor to
purchase the amount of Designated Securities so specified (or a proportionately
lesser amount if the amount of Covered Securities to be offered in such Private
Placement is subsequently reduced) upon the price and other terms set forth in
the Company’s notice to it.  The failure of the Investor to respond during the
one Business Day period referred to in the second preceding sentence shall
constitute a waiver of the preemptive rights in respect of such offering.  To
the extent the Company shall give the Investor notice of any such offer prior to
the public announcement thereof, the Investor shall agree to confidentiality and
restriction on trading terms reasonably acceptable to the Company.  The failure
of the Investor to agree to such terms within one Business Day after the date of
receipt of the Company’s notice as described in this clause shall constitute a
waiver of the Investor’s preemptive rights in respect of such offering.
 
 
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(c)   Purchase Mechanism.
 
(1)  If the Investor exercises its preemptive purchase rights provided in
Section 13(b)(1), the Company shall offer the Investor, if such underwritten
public offering or Rule 144A offering is consummated, the Designated Securities
(as adjusted to reflect the actual size of such offering when priced) at the
same price as the Covered Securities are offered to the investors in such
offering and shall provide written notice of such price to the Investor as soon
as practicable prior to such consummation.  Contemporaneously with the execution
of any underwriting agreement or purchase agreement entered into between the
Company and the underwriters or initial purchasers of such underwritten public
offering or Rule 144A offering, the Investor shall, if it continues to wish to
exercise its preemptive rights with respect to such offering, enter into an
instrument in form and substance reasonably satisfactory to the Company
acknowledging the Investor’s binding obligation to purchase the Designated
Securities to be acquired by it and containing representations, warranties and
agreements of the Investor that are customary in private placement transactions
and, in any event, no less favorable to the Investor than any underwriting or
purchase agreement entered into by the Company in connection with such offering,
and the failure to enter into such an instrument at or prior to such time shall
constitute a waiver of preemptive rights in respect of such offering.  Any
offers and sales pursuant to this Section 13 in the context of a registered
public offering shall be also conditioned on reasonably acceptable
representations and warranties of the Investor regarding its status as the type
of offeree to whom a private sale can be made concurrently with a registered
offering in compliance with applicable securities laws.
 
(2)  If the Investor exercises its preemptive rights provided in
Section 13(b)(2), the closing of the purchase of the Covered Securities with
respect to which such right has been exercised shall be conditioned on the
consummation of the Private Placement giving rise to such preemptive purchase
rights and shall take place simultaneously with the closing of the Private
Placement or on such other date as the Company and the Investor shall agree in
writing; provided that the actual amount of Covered Securities to be sold to the
Investor pursuant to its exercise of preemptive rights hereunder shall be
reduced if the aggregate amount of Covered Securities sold in the Private
Placement is reduced and, at the option of the Investor (to be exercised by
delivery of written notice to the Company within five business days of receipt
of notice of such increase), shall be increased if such aggregate amount of
Covered Securities sold in the Private Placement is increased.  In connection
with its purchase of Designated Securities, Investor shall, if it continues to
wish to exercise its preemptive rights with respect to such offering, execute an
agreement containing representations, warranties and agreements of Investor that
are substantially similar in all material respects to the agreements executed by
other purchasers in such Private Placement.
 
(d)   Cooperation.  The Company and the Investor shall cooperate in good faith
to facilitate the exercise of the Investor’s preemptive rights hereunder,
including securing any required approvals or consents, in a manner that does not
jeopardize the timing, marketing, pricing or execution of any offering of the
Company’s securities.
 
(e)   Limitation of Rights.  Notwithstanding the above, nothing set forth in
this Section 13 shall confer upon the Investor the right to purchase any
securities of the Company other than Designated Securities.
 
 
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(f)    Termination of Preemptive Rights.  Anything to the contrary in this
Section 13 notwithstanding, the preemptive right to purchase Covered Securities
granted by this Section 13 shall not be available for any offering that
commences at any time after the earlier of (i) the Stock Purchase Date or (ii)
the date on which the Investor offers, sells, pledges or otherwise transfers any
of the Securities that it acquired on the Closing Date or the Common Stock
issued upon settlement of the Securities, or Hedges its exposure to the Common
Stock, except as contemplated by Section 5.7(b)(i) or (ii).  The Investor shall
immediately notify the Company if it engages in any of the transactions referred
to in this Section.
 
(g)   For purposes of this Section 13:
 
(1)  “Business Day” means any day other than a Saturday or Sunday, or a day on
which banking institutions in The City of New York or Beijing, China are
authorized or required by law, regulation or executive order to remain closed.
 
(2)  “Covered Securities” means the Common Stock and any securities convertible
into or exercisable or exchangeable for Common Stock that are not Excluded
Securities.
 
(3) “Excluded Securities” means any securities that are (A) issued by the
Company pursuant to any employment contract, employee or benefit plan, stock
purchase plan, stock ownership plan, stock option or equity compensation plan or
other similar plan where stock is being issued or offered to a trust, other
entity or otherwise, to or for the benefit of any employees, potential
employees, officers or directors of the Company, (B) issued by the Company in
connection with a business combination or other merger, acquisition or
disposition transaction, (C) issued with reference to the Common Stock of a
subsidiary (i.e., a carve-out transaction) or (D) issued in connection with a
dividend investment or stockholder purchase plan;
 
(4)  “Investor Percentage Interest” means as of any date, the percentage equal
to (i) the aggregate number of shares of Common Stock beneficially owned by the
Investor (treating the Securities and other convertible securities of the
Company that are beneficially owned by the Investor or its Affiliates as fully
converted into the underlying Common Stock) divided by (ii) the total number of
outstanding shares of Common Stock after giving effect to the issuance to the
Investor of all Shares described in clause (i).  For purposes of this paragraph,
the number of shares of Common Stock into which the Securities are convertible
on any date will be deemed to be the number of shares the Investor would receive
upon an early settlement at the Settlement Rate of the Securities as a result of
a Cash Merger.
 
(5)  “Qualified Offering” means a public or nonpublic offering of Covered
Securities (other than Excluded Securities) solely for cash.
 
14.   Threshold Appreciation Price Reset Provisions.
 
(a)           If during the period commencing on the date of this Agreement and
ending on the 12 month anniversary of the Closing Date (the “Reset Test
Period”) the Company sells any Reset Triggering Securities and the aggregate
gross proceeds from all such sales of Reset Triggering Securities during such
period exceeds $1 billion (such occurrence a “Reset Event”), then, no later than
the Amendment Deadline, the Company shall amend the Stock Purchase
Contracts held by the Investor named this in this Agreement (the
 
 
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“Affected Stock Purchase Contracts”) as provided in the remainder of this
Section 14.  To the extent any such amendment shall require the consent of such
Investor as holder of the Stock Purchase Contracts pursuant to the terms of the
Securities, the Investor hereby agrees to give such consent as necessary to
effect such amendment (it being understood, for the avoidance of doubt, that
this sentence will not otherwise create or give the Investor any such right to
consent).
 
(b)           If a Reset Event occurs and the Reset Triggering Securities
include shares of Common Stock, then the Company shall amend each Affected Stock
Purchase Contract so that the Threshold Appreciation Price as adjusted equals
(x) the Applicable Stock Price multiplied by (y) 1.20.
 
(c)           If a Reset Event occurs and the Reset Triggering Securities
include Optionally Convertible Securities or Mandatorily Convertible Securities,
then the Company shall amend each Affected Stock Purchase Contract so that the
Threshold Appreciation Price as adjusted equals the Applicable Conversion or
Threshold Appreciation Price for any of such securities.
 
(e)           If in connection with the occurrence of a Reset Event the Company
has issued Reset Triggering Securities triggering adjustments under both of the
preceding two paragraphs, then the Company shall, in lieu of the adjustments
contemplated in such paragraphs, amend each Stock Purchase Contract so that the
Threshold Appreciation Price as adjusted equals the lowest Threshold
Appreciation Price calculated pursuant to those paragraphs.
 
(f)           If any provision of this Section 14 would (in the absence of this
sentence) result in an adjusted Threshold Appreciation Price that is less than
the Reference Price, the adjusted Threshold Appreciation Price shall instead be
the Reference Price.  No adjustment shall be made to the Threshold Appreciation
Price if that would result in an increase in the Threshold Appreciation Price.
 
(g)           It is understood and agreed that if any anti-dilution adjustments
are made to the Stock Purchase Contracts pursuant to the terms thereof,
appropriate changes will be made to the adjustments and related definitions set
forth in this Section 14 to preserve the economic intent of this Section 14 and
without any duplication to any such adjustment set forth in the Stock Purchase
Contracts.
 
(h)           Anything to the contrary in this Section 14 notwithstanding, the
provisions of this Section 14 shall not apply, and no adjustment shall made to
the Threshold Appreciation Price or otherwise pursuant to this Agreement, if a
Reset Event occurs on or after the date on which the Investor (i) offers, sells,
pledges or otherwise transfers any of the Securities that it acquired on the
Closing Date or the Common Stock issued upon settlement of the Securities, or
Hedges its exposure to the Common Stock, or (ii) settles any of the Stock
Purchase Contracts pursuant to the terms of the Securities, in each case except
as contemplated by Section 5.7(b)(i) or (ii).  The Investor shall immediately
notify the Company if it engages in any of the transactions referred to in this
Section.
 
(i)           For purposes of this Section 14:
 
“Adjusted Conversion or Threshold Appreciation Price” means, for any Optionally
Convertible Securities or Mandatorily Convertible Securities, the conversion
price or threshold appreciation price for such securities; provided, however,
if  the aggregate
 
 
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stated yield for such securities is greater than 9.0%, the Company and the
Investor entitled to an adjustment pursuant to this Section will attempt in good
faith to mutually agree on a hypothetical conversion price or threshold
appreciation price that would preserve the same fair market value for such
securities assuming such securities had borne an aggregate stated yield of
9.0%.  If the Company and such Investor cannot mutually agree on such
hypothetical conversion price or threshold appreciation price, they will appoint
an independent investment bank of national standing to do the calculation for
them and the cost of that bank will be divided between the parties.
 
“Amendment Deadline” means the date that is the earliest to occur of (i) the day
before the Stock Purchase Date under the Stock Purchase Contracts, (ii) the day
before any Early Settlement Date (whether pursuant to a cash merger or
otherwise) under any of the Stock Purchase Contracts and (iii) the date of any
sale of the Securities by the Investor in accordance with the terms of the
Securities and this Agreement (but in the case of this clause (iii), in no event
earlier than 5 Business Days following the last day of the Reset Test Period).
 
“Applicable Conversion or Threshold Appreciation Price” means, with respect to
Reset Triggering Securities consisting of Optionally Convertible Securities or
Mandatorily Convertible Securities sold during the Reset Test Period, the lower
of (i) the weighted average Adjusted Conversion or Threshold Appreciation Price
for such securities and (ii) the lowest Adjusted Conversion or Threshold
Appreciation Price for any such securities sold in any single offering with
gross proceeds of more than $100 million.
 
“Applicable Stock Price” means, with respect to Reset Triggering Securities
consisting of Common Stock sold during the Reset Test Period, the lower of (i)
the weighted average price per share at which shares of such Common Stock are
sold and (ii) the lowest price per share at which shares of Common Stock are
sold in any single offering with gross proceeds of more than $100 million.
 
“Mandatorily Convertible Securities” means additional PEPS or any other
securities (including securities consisting of units that are a combination of
securities) that are mandatorily convertible into or exchangeable for common
equity of the Company.
 
“Optionally Convertible Securities” means securities that are convertible into
or exchangeable for common equity of the Company at the option of the holder
thereof.
 
“Reference Price” means the reference price referred to in the Offering
Memorandum.
 
“Reset Triggering Securities” means any one or more of the following that are
not Excluded Securities (as defined in Section 13):
 
(1)           Common Stock sold at a price per share less than the Reference
Price and
 
(2)           Optionally Convertible Securities or Mandatorily Convertible
Securities having an Adjusted Conversion or Threshold Appreciation Price that is
less than the Threshold Appreciation Price;
 
provided, however, any Security issued upon exercise of rights issued in a
rights offering to shareholders with respect to which an adjustment was effected
in the Stock Purchase Contracts shall not constitute a Reset Triggering
Security.
 
 
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 “Threshold Appreciation Price” means the threshold appreciation price referred
to in the Offering Memorandum (as it may be adjusted pursuant to this
Agreement).
 
15.   Taxes:
 
(a)     Payments to Exempt Holders.

All payments made by the Company and any trust with respect to the Securities,
the treasury units, the stock purchase contract, the trust preferred securities,
the junior subordinated debentures, the subordinated notes, the qualifying
treasury securities and the treasury portfolio and any other payment made on, or
with respect to, the Securities (the “Payments”) shall be made free and clear
of, and without deduction or withholding for or on account of, any United States
federal, state and local withholding taxes, stamp or other taxes, levies,
imposts, duties, charges, fees or deductions, hereafter imposed, levied,
collected, withheld or assessed by any governmental authority (the “Taxes”),
provided that the Company or its paying agent has received in respect of such
Payments an unexpired, complete and executed IRS Form W-8EXP (or appropriate
substitute form) from the holders of the Securities, treasury units, the trust
preferred securities, the subordinated notes, or the junior subordinated
debentures, as applicable (an “Exempt Holder”). If as a result of a change in
law (or administrative guidance) any Taxes are deducted or withheld (or required
to be deducted or withheld) from any Payments to an Exempt Holder, the amounts
so payable shall be increased to the extent necessary to yield (after payment of
Taxes) Payments at the rates and in the amounts specified in the Offering
Memorandum. It being understood that the increased amounts shall also be payable
to any holder that would have been entitled to provide the Company or the paying
agent with a complete and executed IRS Form W-8EXP but for such change in law
(unless a holder is the holder of any Security, stock purchase contract, trust
preferred security, subordinated notes or junior subordinated debenture, at
least 3 months prior to such change in law and would have been entitled to
provide the Company or the paying agent with a complete and executed IRS Form
W-8EXP prior to such change in law but did not so provide). Notwithstanding the
preceding two sentences, the Company, the trust and their paying agents shall
not be required to increase the Payments if the holder purchased the Securities
in a registered offering.

(b)     Payments to Non-Exempt Holders.

A.           Contract Adjustment Payments. Absent a change in law, the Company
and the Investor agree to treat contract adjustment payments on the stock
purchase contract as a purchase price adjustment to the price of the common
stock to be purchased under the stock purchase contract. Notwithstanding the
above, the Company intends to withhold federal income tax with respect to all
contract adjustment payments on the stock purchase contract that are made to any
holder of Securities that is not an Exempt Holder (a “Non-Exempt Holder”).

B.           Interest. Except as required by law, the Company and the trust will
not withhold any Taxes with respect to payments made on the trust preferred
securities, the subordinated notes, the junior subordinated debentures and the
qualifying treasury securities and the treasury portfolio that are part of the
Securities (the “Debt Instruments”).  If as a result of a repeal or amendment of
the portfolio interest exemption under the Internal Revenue Code, the Company,
the trust or their paying agents withhold (or are required to withhold) any Tax
on payment of interest on the Debt Instruments, then the amounts so payable
shall be increased to
 
 
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the extent necessary to yield (after payment of such Taxes) payments on the Debt
Instruments at the rates and in the amounts specified in the Offering
Memorandum. Notwithstanding the preceding sentence, the Company, the trust and
their paying agents shall not be required to increase the payments on the Debt
Instruments if the holder purchased the Debt Instruments in a registered
offering.

C.           Recharacterization. Notwithstanding subparagraphs A and B above, if
the Securities are recharacterized or treated by the Internal Revenue Service,
or by any governmental or judicial authority having jurisdiction with respect to
Taxes (the “Taxing Authority”), as anything other than an ownership interest in
a stock purchase contract and one or more debt instruments that are separable
from the stock purchase contract, and the Company or the trust withhold (or are
required to withhold) Tax (that is subject to the jurisdiction of such Taxing
Authority) on Payments, then the amounts so payable shall be increased to the
extent necessary to yield (after payment of such Taxes) Payments at the rates
and in the amounts specified in the Offering Memorandum; provided that the
Company, the trust or their paying agents shall not be required to increase the
Payment in respect of any Tax with respect to (i) Payments under the stock
purchase contract, if the Company establishes, based on explicit judicial
authority that such Tax would have been imposed as of the date hereof absent the
recharacterization described above, and (ii) all other Payments, if the Company
establishes, based on explicit statutory or regulatory authority, that such Tax
would have been imposed as of the date hereof absent the recharacterization
described above. Notwithstanding the preceding sentence, the Company, the trust
and their paying agents shall not be required to increase the Payments if the
holder purchased the Securities in a registered offering. Any exclusion from the
payment of additional amounts in respect of any Taxes (other than U.S. federal
income taxes) under (i) and (ii) of this subsection C shall apply only to
holders that are not described in section D below, and any exclusion from the
payment of additional amounts under (i) and (ii) of this subsection C shall be
limited to the amount of Tax that would have been imposed as of the date hereof
absent the recharacterization described above.

D.           Non-U.S. Federal Income Taxes. If any Taxes, other than U.S.
federal income taxes, are deducted or withheld (or required to be deducted or
withheld) from any Payments to a holder of any Security, stock purchase
contract, trust preferred security, subordinated note, or junior subordinated
debenture, and such Taxes are imposed by a Taxing Authority in a jurisdiction
with which such holder has no nexus, then the amounts so payable shall be
increased to the extent necessary to yield (after payment of such Taxes)
Payments at the rates and in the amounts specified in the Offering Memorandum.

(c)      This section 15 is expressly intended to be for the benefit of and,
enforceable by, the holders of the Securities, treasury units and Debt
Instruments from time to time.
 
16.   Information.  The Company agrees to cooperate in good faith with any
request by the Investor to furnish the Investor with all information concerning
itself, its subsidiaries, directors, officers and stockholders and such other
matters as may be reasonably necessary in connection with any statement, filing,
notice or application made by or on behalf of the Investor or any of its
subsidiaries to any Governmental Entity in connection with the Purchase.
 
 
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17.   Publicity.  On the date hereof. the Company shall issue a press release
and related financial supplement substantially in the form of Exhibit B
hereto.  No other written public release or written announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
written consent of the other party (which consent shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
rules or regulations of any securities exchange, in which case the party
required to make the release or announcement shall, to the extent reasonably
practicable, allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.  The provisions of this Section shall
not restrict the ability of a party to summarize or describe the transactions
contemplated by this Agreement in any prospectus or similar offering document so
long as the other party is provided a reasonable opportunity to review such
disclosure in advance.  
 
18.   Termination.  This Agreement may be terminated at any time prior to the
Closing:

(a)  
by either the Investor or the Company if the Closing shall not have occurred by
the 60th calendar day following the date of this Agreement; provided, however,
that the right to terminate this Agreement under this Section shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur on or prior to such date;

(b)  
by either the Investor or the Company in the event that any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; or

(c)  
by the mutual written consent of the Investor and the Company.

 
In the event of termination of this Agreement as provided in this Section, this
Agreement shall forthwith become void and there shall be no liability on the
part of either party hereto except that nothing herein shall relieve either
party from liability for any breach of this Agreement.

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ANNEX B TO THE SECURITIES PURCHASE AGREEMENT
 
SUMMARY TERM SHEET FOR PEPSSM UNITS
dated December 19, 2007

The terms of the Securities will be substantially as set forth in the
“Description of the Premium Equity Participating Security Units – PEPSSM Units”
attached as Exhibit I hereto, as supplemented by the terms set forth below. In
the case of any inconsistency between the terms set forth below and the terms
described in Exhibit I, the terms set forth below shall control. Terms used but
not defined below shall have the meanings set forth in the Securities Purchase
Agreement or in Exhibit I hereto.
 
Aggregate Stated Amount of Corporate Units to be issued by Morgan Stanley
and each Morgan Stanley Trust
On each closing date contemplated in the Securities Purchase Agreement, Morgan
Stanley and the Morgan Stanley Trusts will issue three series of Corporate
Units. The stated amount of Corporate Units to be issued by Morgan Stanley and
each Morgan Stanley Trust will be allocated among the trusts in equal thirds,
adjusted as necessary such that the stated amount of Corporate Units issued by
Morgan Stanley and each Morgan Stanley Trust will be an integral multiple of
$1,000.
First Issue Date
December 28, 2007, or as soon as practicable thereafter.
Second Issue Date
If there is a second issue date of the Corporate Units, as contemplated by the
Securities Purchase Agreement, Morgan Stanley and each Morgan Stanley Trust will
issue additional Corporate Units in the amount specified in the Securities
Purchase Agreement, with the stated amount of such additional Corporate Units
allocated among the trusts in equal thirds, adjusted as necessary so that the
stated amount of Corporate Units issued by each trust will be an integral
multiple of $1,000.
Initial Interest Rate on Junior Subordinated Debentures and Initial Distribution
Rate of the Related Trust Preferred Securities
6% per annum.
Rate of Contract Adjustment Payments
on Stock Purchase Contracts
3% per annum.
Distribution Payment Dates
Distribution payments will accrue from the First Issue Date and be payable
quarterly in arrears on each February 17, May 17, August 17 and November 17
occurring prior to and including the date of a successful remarketing,
commencing February 17, 2008.
Remarketing Periods
Five consecutive business days beginning on the seventh business day prior to
each of August 17, 2010, November 17, 2010, February 17, 2011, May 17, 2011 and
August 17, 2011.
Reference Price
$48.07
Threshold Appreciation Price
The “threshold appreciation price” will equal 120% of the reference price.
Maturity of Junior Subordinated Debentures
February 17, 2042 (subject to change in connection with a remarketing of the
related trust preferred securities or junior subordinated debentures).

 
 
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EXHIBIT I TO TERM SHEET
 
CONFIDENTIAL OFFERING MEMORANDUM
DATED DECEMBER 19, 2007
 
DESCRIPTION OF THE PREMIUM EQUITY PARTICIPATING SECURITY UNITS—PEPSSM UNITS
 
The following is a summary of the terms of the PEPS Units. This summary,
together with the summary of some of the provisions of the related documents
described below, contains a description of all of the material terms of the PEPS
UNITS but is not necessarily complete.
 
General
 
We will issue three separate series of PEPS Units in connection with the
purchase contract and pledge agreements (the “purchase contract and pledge
agreements”) between us and the holders of a series of PEPS Units, acting
through the Bank of New York, which we refer to as the “stock purchase contract
agent” or the “collateral agent” as applicable. The PEPS Units of each series
may be either Corporate Units or Treasury Units. Unless indicated otherwise,
“PEPS Units” will include both Corporate Units and Treasury Units. The PEPS
Units of each series initially will consist of Corporate Units, each with a
stated amount of $1,000.
 
Corporate Units
 
Each Corporate Unit will consist of a unit composed of:
 
 
(a)
a stock purchase contract under which:

 
 
(1)
you will agree to purchase from us, and we will agree to sell to you, on the
stock purchase date, for $1,000 in cash, a number of shares of our common stock
equal to the settlement rate described under “Description of the Stock Purchase
Contracts—Purchase of Common Stock”, “—Early Settlement” or “—Early Settlement
Upon Cash Merger”, as the case may be. The stock purchase date is expected to be
August 17, 2010 (or, if such day is not a business day, the next business day),
but, unless the stock purchase contract terminates prior to such date as
described under “Description of the Stock Purchase Contracts—Termination,” could
be (i) moved to an earlier date in the circumstance described below under
“Description of the Stock Purchase Contracts—Early Settlement” or “—Early
Settlement Upon Cash Merger,” or (ii) deferred for quarterly periods until as
late as August 17, 2011 (or, if such day is not a business day, the next
business day) if the prior remarketing attempts are not successful, as described
below under “Description of the Trust Preferred Securities—Remarketing”;

 
 
(2)
we will pay to you quarterly contract adjustment payments at an annual rate of
3% of the stated amount of $1,000 per stock purchase contract, subject to our
right to defer these payments; and

 
 
(b)
a remarketable trust preferred security of Morgan Stanley Capital Trust A,
Morgan Stanley Capital Trust B or Morgan Stanley Capital Trust C (each a “Morgan
Stanley Trust” and collectively, the “Morgan Stanley Trusts) with an initial
liquidation amount of $1,000. Each trust preferred security represents an
undivided beneficial ownership interest in the assets of the relevant Morgan
Stanley Trust. The property trustee of each of the Morgan Stanley Trusts will
hold legal title to the assets. The assets of each of the Morgan Stanley Trusts
consist solely of one of three separate series (one series per Morgan Stanley
Trust) of our junior subordinated debentures due 2042, which we refer to as the
“junior subordinated debentures.” Until the remarketing settlement date with
respect to a series of trust preferred securities, unless we otherwise defer
such payments, we will make quarterly interest payments on each outstanding
series of the junior subordinated debentures that relate to the trust preferred
securities for which a remarketing settlement date has not occurred, at the
annual rate of 6% per year, and each Morgan Stanley Trust will pass through such
interest payments when received as distributions on the trust preferred
securities. Upon a successful remarketing, interest on the related series of
junior subordinated debentures will be reset and will accrue at a Reset Rate as
described below.

 
 
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Unless otherwise specified, all references in this offering memorandum to a
“trust preferred security” or “trust preferred securities” shall be to each of
the trust preferred securities issued by the three Morgan Stanley Trusts.
 
Unless otherwise specified, all references in this offering memorandum to a
“junior subordinated debenture” or “junior subordinated debentures” shall be to
each series of junior subordinated debentures held by the three Morgan Stanley
Trusts.
 
The purchase price of each Corporate Unit will be allocated between the related
stock purchase contract and the related trust preferred securities in proportion
to their respective fair market values at the time of issuance. We expect that,
at the time of issuance, the fair market value of each trust preferred security
will be $1,000 and the fair market value of each stock purchase contract will be
$0.
 
This allocation generally will be binding on each beneficial owner of each PEPS
Unit but not on the Internal Revenue Service.
 
As long as a PEPS Unit is in the form of a Corporate Unit, the related trust
preferred securities and their proceeds forming a part of such Corporate Units
will be pledged to us through the collateral agent, to secure your obligation to
purchase our common stock under the related stock purchase contract.
 
Creating Treasury Units
 
Unless the treasury portfolio (as defined under “Description of the Trust
Preferred Securities — Redemption”) has replaced the trust preferred securities
as a component of Corporate Units and other than during the periods described
below, you will have the right to substitute qualifying treasury securities (as
defined below) for the related trust preferred securities held by the collateral
agent, in each case, having an aggregate principal amount at maturity equal to
the liquidation amount of the trust preferred securities for which they are
substituted. Upon any such exchange, you will receive $1,000 stated amount of
Treasury Units and the related trust preferred securities free of the pledge to
secure your obligations under the stock purchase contract, and you will be able
to trade them separately.
 
You will be able to exercise this right (i) on any business day until the second
business day before the beginning of the first remarketing period in August,
2010 and (ii) after the first remarketing period, on any business day until the
stock purchase date for the related stock purchase contract, other than (1) on a
day in November, 2010, February, 2011, May, 2011 or August, 2011 that is on or
after the second day of the month through the sixteenth day of the month (or the
next business day if the last day is not a business day) or (2) from 3:00 P.M.,
New York City time, on the second business day before the beginning of any
remarketing period and until the business day after the end of that remarketing
period. For any Corporate Unit, you will also not be able to exercise this right
at any time after a successful remarketing of the trust preferred security that
is a component of such Corporate Unit. We refer to periods during which
exchanges are permitted as “exchange periods.”
 
Each “Treasury Unit” will be a unit consisting of:
 
•  
a stock purchase contract; and

 
•  
a qualifying treasury security (as defined below).

 
A “qualifying treasury security” means (i) for any business day prior to August
17, 2010, a zero-coupon U.S. treasury security with a principal amount at
maturity of $1,000 that matures at least one business day prior to August 17,
2010 and (ii) at any time after August 17, 2010, if there has not been an
earlier successful remarketing, a treasury security having a principal amount of
$1,000 and maturing at least one business day prior to the next succeeding
November 17, February 17, May 17 or August 17 (each such date a “quarterly
date”).
 
On each distribution date (or as promptly thereafter as the collateral agent and
the paying agent determine to be practicable), each holder of Treasury Units
will receive a contract adjustment payment (unless we have chosen to defer such
payments).
 
To create the Treasury Units, you must deposit with the collateral agent $1,000
principal amount of qualifying treasury securities for each $1,000 liquidation
amount of Corporate Units to be exchanged, transfer your Corporate Units to the
transfer agent and deliver the required notice, as described below under
“—Exchange Procedures.”
 
 
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º  Qualifying Treasury Securities After the First Remarketing Period
 
In the event the first remarketing period results in a failed remarketing (as
defined below) with respect to any series of trust preferred securities, in
order to determine what U.S. treasury security is the qualifying treasury
security during any exchange period after the first remarketing period for such
series, the issuer or the collateral agent will, for each quarterly date,
commencing on August 17, 2010 and ending on the stock purchase date for the
related stock purchase contracts or the earlier termination of such stock
purchase contracts, or if any such day is not a business day, the immediately
succeeding business day, identify:
 
•  
the 13-week treasury bill that matures at least one but not more than six
business days prior to that quarterly date; or

 
•  
if no 13-week treasury bill that matures on at least one but more than six
business days prior to that quarterly date is or is scheduled to be outstanding
or is available in a sufficient principal amount on the immediately preceding
quarterly date, the 26-week treasury bill that matures at least one but not more
than six business days prior to that quarterly date; or

 
•  
if neither of such treasury bills is or is scheduled to be outstanding or is
available in a sufficient principal amount on the immediately preceding
quarterly date, any other treasury security (which may be a zero coupon treasury
security) that is outstanding on the immediately preceding quarterly date, is
highly liquid and matures at least one business day prior to that quarterly
date; provided that any treasury security identified pursuant to this clause
shall be selected in a manner intended to minimize the cash value of the
security selected.

 
A “failed remarketing” with respect to any series of trust preferred securities
will be deemed to have occurred for each of the first four remarketing periods
if the remarketing agent is unable to remarket such trust preferred securities
for settlement on or before August 17, 2010, November 17, 2010, February 17,
2011 or May 17, 2011 (or if any such day is not a business day, the next
business day), as applicable.
 
In the event the first remarketing period results in a failed remarketing with
respect to any series of trust preferred securities, the issuer or
the  collateral agent shall use commercially reasonable efforts to identify the
security meeting the foregoing criteria for each quarterly date promptly after
the Department of the Treasury makes the schedule for upcoming auctions of U.S.
treasury securities publicly available and shall, to the extent that a security
previously identified with respect to any quarterly date is no longer expected
to be outstanding on the immediately preceding quarterly date, identify another
security meeting the foregoing criteria for such quarterly date. The security
most recently identified by the issuer or the collateral agent with respect to
any quarterly date shall be the qualifying treasury security with respect to the
period from and including the date it is identified as a qualifying treasury
security (or if later, the date of maturity of the qualifying treasury security
with respect to the immediately preceding quarterly date) to but excluding its
date of maturity, and the issuer’s or the collateral agent's identification of a
security as a qualifying treasury security for such period shall be final and
binding for all purposes absent manifest error. You will be able to obtain the
issue date, the maturity date and, when available, the CUSIP number of the
treasury bills or other U.S. treasury securities that are qualifying treasury
securities for the current exchange period from the issuer or the collateral
agent by calling  (212) 762-8131. Since this information is subject to change
from time to time, the holders should confirm this information prior to
purchasing or delivering U.S. treasury securities in connection with any
exchange of Corporate Units for Treasury Units after a failed remarketing.
 
Each qualifying treasury security delivered to the collateral agent in
connection with any exchange of Corporate Units and qualifying treasury
securities for Treasury Units and trust preferred securities will be pledged to
us through the collateral agent to secure your obligation to purchase shares of
our common stock under the corresponding stock purchase contracts. In purchasing
qualifying treasury securities after a failed remarketing, the collateral agent
will solicit offers from at least three U.S. government securities dealers, one
of which may be The Bank of New York or an affiliate of The Bank of New York,
which also acts as our collateral agent, and will accept the lowest offer so
long as at least two offers are available. The collateral agent shall have no
liability to the Morgan Stanley Trusts, any trustee or any holder of the PEPS
Units in connection with the purchase of qualifying treasury securities in the
absence of gross negligence or willful misconduct.
 
 
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º  Exchange Procedures
 
To exchange Corporate Units and qualifying treasury securities for Treasury
Units and trust preferred securities, for each Corporate Unit you must:
 
•  
deposit with the collateral agent U.S. treasury securities that are qualifying
treasury securities on the date of deposit, in a principal amount of $1,000,
which you must purchase on the open market at your expense unless you already
own them;

 
•  
transfer the Corporate Units to the stock purchase contract agent, accompanied
by a notice stating that you are (1) depositing the appropriate qualifying
treasury securities with the collateral agent and (2) requesting the delivery to
you of Treasury Units and trust preferred securities.

 
Upon the deposit, and receipt of an instruction from the stock purchase contract
agent, the collateral agent will release the trust preferred securities
corresponding to the exchanged Corporate Units from the pledge under the
purchase contract and pledge agreement, free and clear of our security interest.
You will own the related trust preferred securities released to you unencumbered
by the security interest created under the purchase contract and pledge
agreement and they may be traded separately from the resulting Treasury Units.
 
Recreating Corporate Units
 
If you hold Treasury Units you will have the right, at any time during an
exchange period, to recreate Corporate Units by substituting for the related
qualifying treasury securities held by the collateral agent trust preferred
securities having a liquidation amount equal to the aggregate principal amount
at stated maturity of the qualifying treasury securities for which substitution
is being made.
 
Each of these substitutions will recreate Corporate Units, and the applicable
qualifying treasury securities will be released to the holder unencumbered by
the security interest created under the purchase contract and pledge agreement
and may be traded separately from the Corporate Units.
 
To recreate a Corporate Unit, you must:
 
•  
deposit with the collateral agent trust preferred securities with a $1,000
liquidation amount, which you must purchase at your expense unless otherwise
owned by you; and

 
•  
transfer Treasury Unit certificates to the stock purchase contract agent;
accompanied by a notice stating that you are (1) depositing trust preferred
securities with a $1,000 liquidation amount with the collateral agent in
substitution for the pledged treasury securities and (2) requesting the release
to you of the pledged treasury security relating to the Treasury Units.

 
Upon the deposit and receipt of an instruction from the stock purchase contract
agent, the collateral agent will release the related qualifying treasury
securities from the pledge under the purchase contract and pledge agreement,
free and clear of our security interest, to the stock purchase contract agent.
The stock purchase contract agent will then cancel the Treasury Units, transfer
the related treasury security to you, and deliver the recreated Corporate Units
to you.
 
The substituted trust preferred securities and their proceeds will be pledged to
us through the collateral agent to secure your obligation to purchase shares of
our common stock representing the preferred stock under the related stock
purchase contracts.
 
Current Payments
 
Subject to the deferral provisions described below, until the stock purchase
date for any stock purchase contracts, holders of the related Corporate Units
will be entitled to receive quarterly contract adjustment payments payable by us
at an annual rate of 3% on the stated amount of $1,000 per Corporate Unit and
distributions from the Morgan Stanley Trusts calculated at an annual rate of 6%
on the related trust preferred securities.
 
Subject to the deferral provisions described below, until the stock purchase
date for any series of stock purchase contracts, holders of the related series
of Treasury Units will be entitled to receive quarterly contract adjustment
 
 
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payments payable by us at the annual rate of 3% on the stated amount of $1,000
per Treasury Unit. For as long as they hold the separate trust preferred
securities, the holders of such series of Treasury Units will continue to
receive the scheduled quarterly distribution on the trust preferred securities
that were released to them when the Treasury Units were created, subject to our
right to defer interest payments on the junior subordinated debentures
underlying the trust preferred securities.
 
Holders of not less than $1,000,000 aggregate stated amount of a series of PEPS
Units shall be entitled to receive current payments by wire transfer in
immediately available funds on the applicable date of payment.
 
We may defer the contract adjustment payments until no later than the stock
purchase date for any stock purchase contracts as described below under
“Description of the Purchase contracts—Option to Defer Contract Adjustment
Payments.”
 
Deferred contract adjustment payments will accrue interest until paid,
compounded on each distribution date, at 9% per annum. All accrued and unpaid
contract adjustment payments on the stock purchase contracts, including deferred
contract adjustment payments and interest thereon, that we do not pay in cash on
the stock purchase date (the “unpaid contract adjustment payment amount”), will
be paid in the form of additional subordinated notes with a principal amount
equal to the unpaid contract adjustment payment amount.
 
We may also defer cash payments of interest on the junior subordinated
debentures that are owned by the Morgan Stanley Trusts, provided that prior to
the related stock purchase date, we will not defer the payment of interest with
respect to any series of junior subordinated debentures without deferring the
payment of interest with respect to all series of junior subordinated
debentures, in which case the deferred amounts will accrue additional interest
at the applicable rate then borne by the related junior subordinated debentures.
As a consequence, the Morgan Stanley Trusts will accumulate corresponding
distributions on the related trust preferred securities during the deferral
period. Deferred distributions to which you are entitled will accrue interest,
compounded quarterly, from the relevant distribution date for distributions
during any deferral period, at the rate borne by the junior subordinated
debentures at such time, to the extent permitted by applicable law. After we
give notice of any deferral of contract adjustment payments or interest on the
junior subordinated debentures and during any period that we are deferring
contract adjustment payments or interest on the junior subordinated debentures
(and, accordingly, the Morgan Stanley Trusts are accumulating distributions on
the trust preferred securities) that are otherwise payable in cash, we will be
restricted from making certain payments, including declaring or paying any
dividends or making any distributions on shares of our capital stock, or
redeeming, purchasing, acquiring or making a liquidation payment with respect
to, shares of our capital stock, as described under “Description of the Junior
Subordinated Debentures—Restrictions on Certain Payments.”
 
Our obligation to pay contract adjustment payments will be subordinate and
junior in right of payment to all our senior debt, to the same extent as our
obligations under our junior subordinated debentures, as described under
“Description of the Junior Subordinated Debentures.” The ability of the Morgan
Stanley Trusts to make the distributions on the trust preferred securities is
dependent solely upon the receipt of corresponding payments from us on the
related junior subordinated debentures. Our obligations under the junior
subordinated debentures are similarly subordinate and junior in right of payment
to all our senior debt.
 
Absence of Rights with Respect to Common Stock
 
Holders of stock purchase contracts forming part of the Corporate Units or
Treasury Units, in their capacities as holders of those securities, will have no
voting or other rights (including any rights to receive dividends or other
distributions on our common stock for which the record date occurs prior to the
stock purchase date) in respect of our common stock until the stock purchase
date.
 
Listing of the Securities
 
We will not apply to list the PEPS Units on any stock exchange.  We will list
the shares of common stock that we deliver upon settlement of the stock purchase
contacts on the stock exchange or market on which our outstanding shares of
common stock are then listed.
 
 
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Miscellaneous
 
We or our affiliates may from time to time purchase any PEPS Units that are then
outstanding by tender, in the open market or by private agreement.
 
 
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DESCRIPTION OF THE STOCK PURCHASE CONTRACTS
 
The following is a summary of some of the terms of the stock purchase contracts
and the purchase contract and pledge agreement. This summary, together with the
summary of some of the provisions of the related documents described below,
contains a description of the material terms of the stock purchase contracts and
the purchase contract and pledge agreement but is not necessarily complete.
 
Purchase of Common Stock
 
Each stock purchase contract that is a part of a Corporate Unit or a Treasury
Unit will obligate its holder to purchase, and us to sell, on the “stock
purchase date” for any stock purchase contract, which we expect to be August 17,
2010 but may be an earlier date in the event of an early settlement described
under “—Early Settlement” or in the event of a cash merger described under
“—Early Settlement Upon Cash Merger,” (unless the stock purchase contract
terminates prior to that date), or a date as late as August 17, 2011 due to a
deferral for quarterly periods if the prior remarketing attempts are not
successful, a number of shares of our common stock equal to the settlement rate,
for $1,000 in cash. The number of shares of our common stock issuable upon
settlement of each stock purchase contract on the stock purchase date for such
stock purchase contract (which we refer to as the “settlement rate”) will be
determined as follows, subject to adjustment as described under “—Anti-dilution
Adjustments” below:
 
(1)
If the applicable market value of our common stock is equal to or greater than
the “threshold appreciation price” (as defined below), the settlement rate will
be the number of shares of our common stock equal to the stated amount divided
by the threshold appreciation price (such settlement rate being referred to as
the “minimum settlement rate”).
 
Accordingly, if the market price for the common stock increases between the date
of this offering memorandum and the period during which the applicable market
value is measured and the applicable market price is greater than the threshold
appreciation price, the aggregate market value of the shares of common stock
issued upon settlement of each stock purchase contract will be higher than the
stated amount, assuming that the market price of the common stock on the stock
purchase date is the same as the applicable market value of the common stock. If
the applicable market price is the same as the threshold appreciation price, the
aggregate market value of the shares issued upon settlement will be equal to the
stated amount, assuming that the market price of the common stock on the stock
purchase date is the same as the applicable market value of the common stock.

 
(2)
If the applicable market value of our common stock is less than the threshold
appreciation price but greater than the “reference price” (as defined below),
the settlement rate will be a number of shares of our common stock equal to
$1,000 divided by the applicable market value.
 
Accordingly, if the market price for the common stock increases between the date
of this offering memorandum and the period during which the applicable market
value is measured, but the market price does not exceed the threshold
appreciation price, the aggregate market value of the shares of common stock
issued upon settlement of each stock purchase contract will be equal to the
stated amount, assuming that the market price of the common stock on the stock
purchase date is the same as the applicable market value of the common stock.

 
(3)
If the applicable market value of our common stock is less than or equal to the
reference price, the settlement rate will be the number of shares of our common
stock equal to the stated amount divided by the reference price (such settlement
rate being referred to as the “maximum settlement rate”).

 
Accordingly, if the market price for the common stock decreases between the date
of this offering memorandum and period during which the adjusted applicable
market value is measured and the market price is less than the reference price,
the aggregate market value of the shares of common stock issued upon settlement
of each stock purchase contract will be less than the stated amount, assuming
that the market price
 
 
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on the stock purchase date is the same as the applicable market value of the
common stock. If the market price of the common stock is the same as the
reference price, the aggregate market value of the shares will be equal to the
stated amount, assuming that the market price of the common stock on the stock
purchase date is the same as the applicable market value of the common stock.
 
If you elect to settle your stock purchase contract early in the manner
described under “—Early Settlement,” the number of shares of our common stock
issuable upon settlement of such stock purchase contract will be the minimum
settlement rate, subject to adjustment as described under “Anti-dilution
Adjustments.” We refer to the minimum settlement rate and the maximum settlement
rate collectively as the “fixed settlement rates.”
 
The “applicable market value” means the arithmetic average of the VWAP for each
of the 20 consecutive trading days, subject to adjustment as described below,
beginning on and including the twenty-second scheduled trading day immediately
preceding August 17, 2010 (we refer to this period as the “observation period”);
provided, however, that if we enter into a reorganization event (as defined
under “—Anti-dilution Adjustments” below), the applicable market value will mean
the value of an exchange property unit (as defined under “—Anti-dilution
Adjustments—Reorganization Events” below). Following the occurrence of any such
event, references herein to the purchase or issuance of shares of our common
stock will be construed to be references to settlement into exchange property
units. For purposes of calculating the exchange property unit value, (x) the
value of any common stock included in the exchange property unit shall be
determined using the arithmetic average of the VWAP for each of the 20
consecutive trading days, subject to adjustment as described below, beginning on
and including the twenty-second scheduled trading day immediately preceding
August 17, 2010 (or, if the reorganization event shall not have occurred prior
to such date, the related stock purchase date for such stock purchase contract)
and (y) the value of any other property, including securities other than common
stock included in the exchange property unit, shall be the value of such
property on the first trading day of the observation period, or if the
reorganization event shall not have occurred prior to such date, the
twenty-second scheduled trading day prior to the related stock purchase date for
such stock purchase contract (as determined in good faith by our board of
directors, whose determination shall be conclusive and described in a Board
resolution).
 
The term “reference price” means $48.07.
 
The term “threshold appreciation price” means 120% of the reference price.
 
The term “trading day” means a business day on which the relevant exchange or
quotation system is scheduled to be open for business on which the shares of our
common stock:
 
·  
are not suspended from trading on any national or regional securities exchange
or association or over-the-counter market for any period or periods aggregating
one half hour or longer; and

 
·  
have traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the shares of our common stock.

 
The term “scheduled trading day” means a day that is scheduled to be a trading
day.
 
The term “VWAP” means, for the relevant measurement day, the per share
volume-weighted average price as displayed under the heading Bloomberg VWAP on
Bloomberg page MS AQR (or its equivalent successor if such page is not
available) in respect of the period from the scheduled open of trading on the
relevant trading day until the scheduled close of trading on the relevant
trading day (or if such volume-weighted average price is unavailable, the market
price of one share of Morgan Stanley common stock on such trading day determined
using a volume-weighted average method, by a nationally recognized independent
investment banking firm retained by us for this purpose).
 
 
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If a scheduled trading day during the observation period is not a trading day,
we will notify investors of that fact on such scheduled trading day.  If 20
trading days for our common stock have not occurred during the observation
period prior to the third business day immediately prior to August 17, 2010 or
any earlier applicable stock purchase date, as the case may be, all remaining
trading days will be deemed to occur on that third business day and the VWAP for
each of the remaining trading days will be the VWAP on such third business day
or if such day is not a trading day, the VWAP as determined in its reasonable
discretion by a nationally recognized independent investment banking firm
retained by Morgan Stanley for this purpose.
 
We will not issue any fractional shares of our common stock upon settlement of a
stock purchase contract. Instead of a fractional share, the holder will receive
an amount of cash equal to such fraction multiplied by the applicable market
value. If, however, a holder surrenders for settlement at one time more than one
stock purchase contract, then the number of shares of our common stock issuable
pursuant to such stock purchase contracts will be computed based upon the
aggregate number of stock purchase contracts surrendered.
 
Unless:
 
·  
a holder has settled early the related stock purchase contracts by delivery of
cash to the stock purchase contract agent in the manner described under “—Early
Settlement” or “—Early Settlement Upon Cash Merger;”

 
·  
a holder of Corporate Units has settled the related stock purchase contracts
with separate cash in the manner described under “—Notice to Settle with Cash;”
or

 
·  
an event described under “—Termination” has occurred,

 
then, on the stock purchase date for a stock purchase contract,
 
·  
in the case of Corporate Units where there has been a successful remarketing,
$1,000 per Corporate Unit of the proceeds from such remarketing will
automatically be applied to satisfy in full the holder’s obligations to purchase
our common stock under the related stock purchase contracts and any excess
proceeds will be delivered to the stock purchase contract agent for the benefit
of the holders of Corporate Units;

 
·  
in the case of Corporate Units where there has not been a successful remarketing
in the final remarketing period, unless holders of Corporate Units elect not to
exercise their put right described under “Description of the Trust Preferred
Securities—Remarketing” by delivering cash to settle their stock purchase
contracts, such holders will be deemed to have elected to apply the put price to
satisfy in full their obligations to purchase our common stock under the related
stock purchase contracts and we will deliver to such holders our common stock
pursuant to the related stock purchase contracts. We will issue additional
subordinated notes in the amount of any accrued and unpaid interest on the
junior subordinated debentures (including deferred interest) as of the stock
purchase date for such stock purchase contracts to the Morgan Stanley Trusts,
which will in turn distribute such notes to the holders of Corporate Units and
any separate trust preferred securities and we will pay the unpaid contract
adjustment payment amount in additional subordinated notes that will be
delivered to the holders of PEPS Units;

 
·  
in the case of Corporate Units where the treasury portfolio has replaced the
trust preferred securities as a component of the Corporate Units, proceeds of
the appropriate applicable ownership interests in the treasury portfolio when
paid at maturity equal to the stated amount of $1,000 per Corporate Unit will
automatically be applied to satisfy in full the holder’s obligation to purchase
common stock under the related stock purchase contracts and any

 
 
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  excess proceeds will be delivered to the stock purchase contract agent for the
benefit of the holders of Corporate Units; and

   

·  
in the case of Treasury Units, the net cash proceeds, when paid at maturity, of
the qualifying treasury securities forming part of the Treasury Units or their
proceeds automatically will be applied to satisfy in full the holder’s
obligation to purchase our common stock under the related stock purchase
contracts.

 
In any event, the common stock will then be issued and delivered to you or your
designee, upon presentation and surrender of the certificate evidencing the
Corporate Units or Treasury Units, and payment by you of any transfer or similar
taxes payable in connection with the issuance of the common stock to any person
other than you.
 
Prior to the settlement of a stock purchase contract, the shares of our common
stock underlying each stock purchase contract will not be outstanding, and the
holder of the stock purchase contract will not have any voting rights, rights to
dividends or other distributions or other rights of a holder of our common stock
by virtue of holding such stock purchase contract.
 
By purchasing a Corporate Unit or a Treasury Unit, a holder will be deemed to
have, among other things:
 
·  
irrevocably appointed the stock purchase contract agent as its attorney-in-fact
to enter into and perform the stock purchase contract and the related purchase
contract and pledge agreement in the name of and on behalf of such holder; and

 
·  
agreed to be bound by the terms and provisions of the Corporate Units and
Treasury Units and perform its obligations under the purchase contract and
pledge agreement.

 
In addition, each beneficial owner of a PEPS Unit, by acceptance of the
beneficial interest therein, will be deemed to have agreed (i) to treat the
acquisition of a PEPS Unit as an acquisition of the related trust preferred
security and the related stock purchase contract constituting such PEPS Unit,
(ii) to allocate 100% of the purchase price of a PEPS Unit to the related trust
preferred security, (iii) to treat for U.S. federal income tax purposes itself
as the owner of the related junior subordinated debenture, applicable ownership
interests in the treasury portfolio or the qualifying treasury securities, as
the case may be, and (iv) to treat the junior subordinated debentures as our
indebtedness for all U.S. federal income tax purposes which is not subject to
the contingent payment debt regulations.
 
Early Settlement

Subject to the conditions described below, a holder of Corporate Units or
Treasury Units may settle the related stock purchase contracts at any time prior
to 5:00 p.m., New York City time, on the second business day immediately
preceding the first day of the first remarketing period, in the case of
Corporate Units, or the second business day immediately preceding the scheduled
stock purchase date for the first remarketing period, in the case of Treasury
Units. If the treasury portfolio has replaced the trust preferred securities as
a component of the Corporate Units, holders of Corporate Units may settle early
only in integral multiples of 200 Corporate Units at any time prior to 5:00
p.m., New York City time, on the second business day immediately preceding the
scheduled stock purchase date for the first remarketing period. We refer to this
right as the “early settlement right.” In order to settle stock purchase
contracts early, a holder of PEPS Units must deliver to the stock purchase
contract agent (1) a completed “Election to Settle Early” form, along with the
Corporate Unit or Treasury Unit certificate, if they are in certificated form,
and (2) a cash payment in immediately available funds in an amount equal to (i)
$1,000 times the number of stock purchase contracts being settled plus (ii) if
the delivery is made with respect to stock purchase contracts during the period
from the close of business on any record date next preceding any distribution
date to the opening of business on such distribution date, an
 
 
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amount equal to the contract adjustment payments payable on the distribution
date with respect to the stock purchase contracts.
 
So long as you hold PEPS Units as a beneficial interest in a global security
deposited with the depositary, procedures for early settlement will also be
governed by standing arrangements between the depositary and the stock purchase
contract agent.
 
In order to exercise your early settlement right, you must give us written
notice of your intention to exercise this right at least 61 days prior to the
date of exercise.
 
Upon early settlement, (1) the holder will receive a number of shares of our
common stock per PEPS Unit equal to the minimum settlement rate, subject to
adjustment under the circumstances described under “—Anti-dilution Adjustments”
below, (2) the related trust preferred securities, junior subordinated
debentures, applicable interests in the treasury portfolio or qualifying
treasury securities, as the case may be, underlying the PEPS Units and securing
such stock purchase contracts will be released from the pledge under the
purchase contract and pledge agreement, and delivered within three business days
following the early settlement date, in each case to the stock purchase contract
agent for delivery to the holder, (3) the holder’s right to receive future
contract adjustment payments and any accrued and unpaid contract adjustment
payments for the period since the most recent quarterly payment will terminate,
except that the holder will receive any accrued and unpaid contract adjustment
payments if the early settlement date falls after a record date next preceding
any distribution date and prior to opening of business on such distribution date
and (4) no adjustment will be made to or for the holder on account of any
accrued and unpaid contract adjustment payments referred to in (3) above.
 
If the stock purchase contract agent receives a completed “Election to Settle
Early” form, along with the Corporate Unit or Treasury Unit certificate, if they
are in certificated form, and payment of $1,000 for each stock purchase contract
being settled prior to 5:00 p.m., New York City time, on any business day and
all conditions to early settlement have been satisfied, then that day will be
considered the early settlement date with respect to such stock purchase
contracts. If the stock purchase contract agent receives the foregoing on or
after 5:00 p.m., New York City time, on any business day or at any time on a day
that is not a business day, then the next business day will be considered the
early settlement date with respect to such stock purchase contracts.
 
Early Settlement Upon Cash Merger
 
Prior to the first scheduled remarketing date, if we are involved in a
consolidation, acquisition or merger, or a sale of all or substantially all of
our assets that is scheduled to close not later than eight business days prior
to such remarketing settlement date, in each case in which at least 10% of the
consideration received by holders of our common stock consists of consideration
that is not common equity, which we refer to as a “cash merger,” then following
the cash merger, each holder of a stock purchase contract will have the right to
accelerate and settle such stock purchase contract early at the settlement rate
in effect immediately prior to the effective date of such transaction,
calculated as described below. We refer to this right as the “cash merger
settlement right.”
 
The foregoing paragraph includes a phrase relating to a sale of all or
substantially all of our assets. There is no precise, established definition of
the phrase “substantially all” under applicable law. Accordingly, your right to
accelerate and settle such stock purchase contract early as a result of a sale
of substantially all of our assets may be uncertain.
 
We will provide each of the holders with a notice of the completion of a cash
merger within five business days thereof. The notice will specify a cash merger
early settlement date, which shall be at least ten business days after the date
of the notice but no later than the earlier of 20 business days after the date
of such notice or two business days prior to the first day of the next
remarketing period, by which each holder’s cash merger settlement right must be
exercised. The notice will set forth, among other things, the settlement rate,
the stock purchase date for the early settlement  and the amount of the cash,
securities and other consideration receivable
 
 
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by the holder upon settlement. To exercise the cash merger settlement right, you
must deliver to the stock purchase contract agent, no later than 4:00 p.m., New
York City time, on the third business day before the specified cash merger early
settlement date, the certificate evidencing your Corporate Units or Treasury
Units if they are held in certificated form, and payment of the applicable
purchase price in immediately available funds less the amount of any accrued and
unpaid contract adjustment payments.
 
So long as the PEPS Units are evidenced by one or more global securities
deposited with the depositary, procedures for early settlement upon a cash
merger will also be governed by standing arrangements between the depositary and
the stock purchase contract agent.
 
If you exercise the cash merger settlement right, we will deliver to you on the
specified cash merger early settlement date the kind and amount of securities,
cash or other property that you would have been entitled to receive if you had
settled the stock purchase contract immediately before the effective date of the
cash merger and received shares of our common stock at the settlement rate then
in effect.  The settlement rate then in effect will be the settlement rate
described above under “—Purchase of Common Stock,” except that the observation
period for determining the applicable market value will be the 20 consecutive
trading days ending on the third trading day immediately preceding the effective
date of the cash merger. You will also receive the trust preferred securities,
junior subordinated debentures, applicable interest in the treasury portfolio or
qualifying treasury securities underlying the Corporate Units or Treasury Units,
as the case may be. If you do not elect to exercise your cash merger settlement
right, your Corporate Units or Treasury Units will remain outstanding and
subject to normal settlement on the stock purchase date for equity property
units, as defined below under “Anti-dilution Adjustments – Reorganization
Events.”
 
Notice to Settle with Cash

Unless the treasury portfolio has replaced the trust preferred securities as a
component of the Corporate Units, a holder of Corporate Units may settle the
related stock purchase contract with separate cash by delivering the Corporate
Unit certificate, if in certificated form, to the offices of the stock purchase
contract agent with the completed “Notice to Settle with Cash” form prior to
5:00 p.m., New York City time, on the second business day immediately preceding
the beginning of any remarketing period.
 
The holder must also deliver to the collateral agent the required cash payment
in immediately available funds. Such payment must be delivered prior to 5:00
p.m., New York City time, on the first business day immediately preceding the
beginning of a remarketing period.
 
Upon receipt of the cash payment, the related trust preferred security will be
released from the collateral arrangement and transferred to the stock purchase
contract agent for distribution to the holder of the related Corporate Units.
The holder of the Corporate Units will then receive the applicable number of
shares of our common stock on the stock purchase date for such stock purchase
contracts.
 
If a holder of Corporate Units that has given notice of its intention to settle
with cash fails to deliver the cash by the applicable time and date specified
above, the trust preferred securities underlying such holder’s Corporate Units
will automatically be remarketed, or if there is a failed final remarketing (as
defined in “—Remarketing”, below) such trust preferred securities will be put to
us, as described under “—Remarketing” below.
 
Any cash received by the collateral agent upon cash settlement will be invested
promptly in permitted investments, as defined in the purchase contract and
pledge agreement, and an amount equal to $1,000 times the number of stock
purchase contracts settled with cash will be paid to us on the stock purchase
date for such stock purchase contracts. Any funds received by the collateral
agent in respect of the investment earnings from such investments in excess of
such amount will be distributed to the stock purchase contract agent for payment
to the holders who settled with cash.
 
 
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Remarketing
 
Unless a special event redemption or a termination event has occurred, or all
the stock purchase contracts have settled early as a result of an early
settlement or an early settlement upon a cash merger, or all of the outstanding
PEPS Units are held in the form of Treasury Units and none of the holders of the
related trust preferred securities has elected to participate in the
remarketing, as described under “Description of the Trust Preferred
Securities—Remarketing,” or all of the holders of PEPS Units have settled their
stock purchase contracts with separate cash, as described above under “—Notice
to Settle with Cash,” and none of the holders of the related trust preferred
securities has elected to participate in the remarketing, we, through the
remarketing agent, will attempt to remarket the trust preferred securities (or,
if the junior subordinated debentures are no longer held by the Morgan Stanley
Trusts, the junior subordinated debentures) in a process we call “remarketing.”
The periods during which a remarketing will be attempted, or “remarketing
periods,” will each consist of five consecutive business days beginning on the
seventh business day prior to each of August 17, 2010, November 17, 2010,
February 17, 2011, May 17, 2011 and August 17, 2011 (or if any such day is not a
business day, the immediately succeeding business day) and such remarketings
will continue to be attempted until the earlier to occur of the fifth such
period or the earlier settlement of a successful remarketing for such series of
trust preferred securities (or junior subordinated debentures). A successful
remarketing for a series will settle on the date, or “remarketing settlement
date,” that is the third business day after the last day of the relevant
remarketing period. If a successful remarketing occurs with respect to a series,
the stock purchase date related to such series will occur on the remarketing
settlement date. For a detailed description of the remarketing procedures, see
“Description of the Junior Subordinated Debentures—Remarketing.”
 
On any day other than the last day of a remarketing period, we will have the
right, in our absolute discretion and without prior notice to the holders of the
PEPS Units, to postpone the remarketing until the following business day.
 
If the remarketing agent is unable to remarket a series of trust preferred
securities for settlement on or before August 17, 2011 (or if such day is not a
business day, the immediately succeeding business day), a “failed final
remarketing” will be deemed to have occurred for such series. In that case:
 
•  
If you hold trust preferred securities as a component of Corporate Units, and
unless you elect not to exercise your put right by delivering cash to settle
your stock purchase contracts, you will be deemed to have elected to apply the
put price to satisfy in full your obligations to purchase our common stock under
the related stock purchase contracts;

 
•  
We will issue additional subordinated notes in the amount of any accrued and
unpaid interest on the junior subordinated debentures (including deferred
interest) as of the stock purchase date to Morgan Stanley Trust, which will in
turn distribute such notes to the holders of Corporate Units and we will issue
additional subordinated notes in the amount of the unpaid contract adjustment
payment amount to the stock purchase contract agent for distribution to the
holders of the PEPS Units.

 
We will notify you of any failed remarketings and of a failed final remarketing.
 
We will covenant in the purchase contract and pledge agreement to use our
commercially reasonable efforts to effect the remarketing of the trust preferred
securities as described in this offering memorandum.
 
Contract Adjustment Payments
 
We will make periodic contract adjustment payments, or “contract adjustment
payments,” on the stock purchase contracts at the rate of 3% per annum of the
stated amount of $1,000 per stock purchase contract. Contract adjustment
payments will be calculated on the basis of a 360-day year consisting of twelve
30-day months. Contract adjustment payments will accrue from the original issue
date of the Corporate Units and, subject to our right to defer contract
adjustment payments described below, will be payable on each distribution date
through the stock purchase date. If any distribution date is not a business day,
then payment of
 
 
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the contract adjustment payments payable on that date will be made on the next
business day, and no interest or payment will be paid in respect of the delay.
 
Contract adjustment payments will be payable to the holders of stock purchase
contracts as they appear on the books and records of the stock purchase contract
agent at the close of business on the relevant record dates, which will be on
the first day of the month in which the relevant distribution date falls. These
distributions will be paid through the stock purchase contract agent, who will
hold amounts received in respect of the contract adjustment payments for the
benefit of the holders of the PEPS Units.
 
Our obligations with respect to contract adjustment payments will be subordinate
and junior in right of payment to our obligations under any of our senior debt
to the same extent as the junior subordinated debentures. The stock purchase
contracts do not limit our incurrence of indebtedness, including senior debt. No
contract adjustment payments may be made if there shall have occurred and be
continuing a default in any payment with respect to senior debt or an event of
default with respect to any senior debt resulting  in the acceleration of the
maturity thereof, or if any judicial proceedings are pending with respect to any
such default.
 
Absent a change in law, you and we agree to treat contract adjustment payments
on the stock purchase contracts as a purchase price adjustment to the price of
the common stock to be purchased under the stock purchase contracts.
Notwithstanding the above, we intend to withhold federal income tax with respect
to all contract adjustment payments on the stock purchase contracts that are
made to any non-U.S. holder of a stock purchase contract, unless such holder is
entitled to an exemption from withholding and has provided us with an unexpired,
complete and properly executed certification that such holder is exempt from
withholding, as required by law.
 
Option to Defer Contract Adjustment Payments
 
We may, at our option, and will at the direction of any then applicable
regulatory authority, defer contract adjustment payments on the corresponding
stock purchase contracts at any time or from time to time. If we defer contract
adjustment payments we will provide prior written notice to holders of PEPS
Units and the stock purchase contract agent. We may elect to defer contract
adjustment payments on more than one occasion. Deferred contract adjustment
payments will accrue interest until paid, compounded on each distribution date
at the rate of 9% per annum. We may pay any deferred contract adjustment
payments and accrued interest thereon in cash on any distribution date following
the beginning of the deferral period that falls on or prior to the stock
purchase date. Any contract adjustment payments (including any deferred contract
adjustment payments and accrued interest thereon), not paid in cash on the stock
purchase date will be paid in additional subordinated notes, as described under
“Description of the Junior Subordinated Debentures – Option to Defer Interest
Payments”. If the stock purchase contracts are terminated upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to us,
your right to receive contract adjustment payments, including any deferred
contract adjustment payments, also will terminate.
 
If we elect or are directed by any then applicable regulatory authority to defer
contract adjustment payments, then, until the deferred contract adjustment
payments have been paid in cash or any additional subordinated notes we issue in
respect of deferred contract adjustment payments have been repaid in full, we
will not make any of the payments that we would be prohibited from making during
a deferral of interest payments on the junior subordinated debentures as
described under “Description of the Junior Subordinated Debentures—Restrictions
on Certain Payments.”
 
Termination
 
The purchase contract and pledge agreement provides that the stock purchase
contracts and the obligations and rights of us and of the holders of Corporate
Units and Treasury Units thereunder (including the holders’ obligation and right
to purchase and receive shares of our common stock and to receive accrued and
unpaid contract adjustment payments) will immediately and automatically
terminate upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to Morgan Stanley.
 
 
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Upon any termination, the collateral agent will release the related interests in
the trust preferred securities, applicable ownership interests in the treasury
portfolio, or qualifying treasury securities, as the case may be, from the
pledge arrangement and transfer such interests in the trust preferred
securities, applicable ownership interests in the treasury portfolio or
qualifying treasury securities to the purchase contract agent for distribution
to the holders of Corporate Units and Treasury Units. If a holder would
otherwise have been entitled to receive less than $1,000 principal amount at
maturity of any treasury security upon termination of the stock purchase
contract, the stock purchase contract agent will dispose of the security for
cash and pay cash to the holder. Upon any termination, however, such release and
distribution may be subject to a delay.  In the event that Morgan Stanley
becomes the subject of a case under the U.S. Bankruptcy Code, such delay may
occur as a result of the automatic stay under the U.S. Bankruptcy Code and
continue until such automatic stay has been lifted. We expect any such delay to
be limited. Moreover, claims arising out of the trust preferred securities will
be subject to the equitable jurisdiction and powers of the bankruptcy court. For
example, although we do not believe such an argument would prevail, following
the termination of the stock purchase contracts, a party in interest in the
bankruptcy proceeding might argue that the holders of the trust preferred
securities should be treated as equity holders, rather than creditors, in the
bankruptcy proceeding.
 
Pledged Securities and the Purchase Contract and Pledge Agreement
 
Your trust preferred securities, your applicable ownership interest in the
treasury portfolio and the qualifying treasury securities, also referred to as
the “pledged securities,” will be pledged to the collateral agent for our
benefit, pursuant to the purchase contract and pledge agreement, to secure your
obligations to purchase shares of our common stock under the stock purchase
contracts. Your rights to the pledged securities will be subject to our security
interest created by the purchase contract and pledge agreement. The aggregate
liquidation amount of pledged trust preferred securities, the principal amount
of the applicable ownership interests in the treasury portfolio and the
principal amount of the qualifying treasury securities constituting pledged
securities, must always equal at least the purchase price of our common stock
under the stock purchase contracts. Accordingly, you may not withdraw pledged
securities from the pledge arrangement except:
 
•  
to substitute qualifying treasury securities for trust preferred securities in
connection with an exchange of Corporate Units for Treasury Units and trust
preferred securities, as provided for under “Description of the PEPS
Units—Creating Treasury Units”;

 
•  
to substitute trust preferred securities for qualifying treasury securities in
connection with an exchange of Treasury Units and trust preferred securities for
Corporate Units, as provided for under “Description of the PEPS Units—Recreating
Corporate Units”; or

 
•  
upon the termination of the stock purchase contracts.

 
Subject to the security interest and the terms of the purchase contract and
pledge agreement, each holder of Corporate Units will be entitled through the
stock purchase contract agent and the collateral agent to all of the
proportional rights of the related trust preferred securities, including voting
and redemption rights, and their proceeds. Each holder of Treasury Units will
retain beneficial ownership of the related qualifying treasury securities
pledged in respect of the related stock purchase contracts. We will have no
interest other than our security interest in the pledged securities.
 
Except as described in “Certain Other Provisions of the Purchase Contract and
Pledge Agreement,” the collateral agent will, upon receipt, if any, of payments
on the pledged securities, distribute the payments to the stock purchase
contract agent, which will in turn distribute those payments to the persons in
whose names the related PEPS Units are registered at the close of business on
the record date immediately preceding the date of payment. Holders of not less
than $1 million aggregate stated amount of PEPS Units of a series shall be
entitled to receive such payments by wire transfer in immediately available
funds on the applicable date of payment.
 
By acceptance of the PEPS Units, you will be deemed to have:
 
 
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•  
irrevocably agreed to be bound by the terms and provisions of the related stock
purchase contracts and the purchase contract and pledge agreement and to have
agreed to perform your obligations thereunder for so long as you remain a holder
of the PEPS Units, and

 
•  
duly appointed the stock purchase contract agent as your attorney-in-fact to
enter into and perform the related stock purchase contracts and pledge agreement
on your behalf and in your name.

 
In addition, as a beneficial owner of the PEPS Units, by acceptance of the
beneficial interest therein, you will be deemed to have agreed for all U.S.
federal income tax purposes:
 
•  
to treat the acquisition of a PEPS Unit as an acquisition of the related trust
preferred security and the related stock purchase contract constituting such
PEPS Unit;

 
•  
to allocate 100% of the purchase price of a PEPS Unit to the trust preferred
security;

 
•  
to treat yourself as the owner of the stock purchase contracts and the related
trust preferred securities, applicable ownership interests in the treasury
portfolio or the qualifying treasury securities, as the case may be, and

 
•  
to treat the junior subordinated debentures as our indebtedness for all U.S.
federal income tax purposes, which is not subject to the contingent payment debt
regulations.

 
Anti-dilution Adjustments
 
Each of the fixed settlement rates will be subject to the following adjustments:
 
(1) Stock Dividends. If we pay or make a dividend or other distribution on all
or substantially all of our common stock in common stock, each fixed settlement
rate in effect at the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution shall be increased by dividing:
 
·  
each fixed settlement rate by

 
·  
a fraction of which the numerator shall be the number of shares of our common
stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution.

 
(2) Stock Purchase Rights. If we issue to all or substantially all holders of
our common stock rights, options or warrants entitling them to subscribe for or
purchase shares of our common stock for a period expiring within 60 days from
the date of issuance of such rights, options or warrants at a price per share of
our common stock less than the current market price on the date fixed for the
determination of stockholders entitled to receive such rights, options or
warrants, each fixed settlement rate in effect at the opening of business on the
day following the date fixed for such determination shall be increased by
dividing:
 
·  
each fixed settlement rate by

 
·  
a fraction, the numerator of which shall be the number of shares of our common
stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of our common stock which the aggregate
consideration expected to be received by us upon the exercise, or exchange of
such rights, options or warrants would purchase at such current market price and
the denominator of which shall be the number of shares of our common stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of our common stock so offered for subscription or
purchase, either directly or indirectly.

 
 
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(3) Stock Splits; Reverse Splits; and Combinations. If outstanding shares of our
common stock shall be subdivided, split or reclassified into a greater number of
shares of common stock, each fixed settlement rate in effect at the opening of
business on the day following the day upon which such subdivision, split or
reclassification becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of our common stock shall each be
combined or reclassified into a smaller number of shares of common stock, each
fixed settlement rate in effect at the opening of business on the day following
the day upon which such combination or reclassification becomes effective shall
be proportionately reduced.
 
(4) Debt, Asset or Security Distributions. If we, by dividend or otherwise,
distribute to all or substantially all holders of our common stock evidences of
our indebtedness, assets or securities (but excluding any rights, options or
warrants referred to in paragraph (2) above, any dividend or distribution paid
exclusively in cash referred to in paragraph (5) below or any dividend of shares
of capital stock of any class or series, or similar equity interests, of or
relating to a subsidiary or other business unit in the case of a spin-off
referred to below, or any dividend or distribution referred to in paragraph (1)
above), each fixed settlement rate in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution shall be increased by dividing:
 
·  
each fixed settlement rate by

 
·  
a fraction, the numerator of which shall be the current market price on the date
fixed for such determination less the then fair market value of the portion of
the assets or evidences of indebtedness so distributed applicable to one share
of our common stock and the denominator of which shall be such current market
price.

 
In the case of the payment of a dividend or other distribution on our common
stock of shares of capital stock of any class or series, or similar equity
interests, of or relating to a subsidiary or other business unit of ours, which
we refer to as a “spin-off,” each fixed settlement rate in effect immediately
before the close of business on the record date fixed for determination of
stockholders entitled to receive that distribution will be increased by
dividing:
 
·  
each fixed settlement rate by

 
·  
a fraction, the numerator of which is the average VWAP over the 10 trading days
from and including the third trading day after the date on which
“ex-distribution trading” commences for such dividend or distribution on the
NYSE or such other national or regional exchange or market on which our common
stock is then listed or quoted, except as described below, and the denominator
of which is such average VWAP plus the fair market value, determined as
described below, of those shares of capital stock or similar equity interests so
distributed applicable to one share of common stock.

 
The adjustment to each fixed settlement rate under the preceding paragraph will
occur on the date that is the earlier of:
 
·  
the close of business on the 10th trading day after the third trading day after
the date on which “ex-distribution trading” commences for such dividend or
distribution on the NYSE or such other national or regional exchange or market
on which our common stock is then listed or quoted; and

 
·  
the date of the securities being offered in the initial public offering of the
spin-off, if that initial public offering is effected simultaneously with the
spin-off.

 
For purposes of this section, “initial public offering” means the first time
securities of the same class or type as the securities being distributed in the
spin-off are offered to the public for cash.
 
In the event of a spin-off that is not effected simultaneously with an initial
public offering of the securities being distributed in the spin-off, the fair
market value of the securities to be distributed to holders of our
 
 
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common stock means the average VWAP of those securities over the first 10
trading days from and including the third trading day after the date on which
trading commences for such securities on the NYSE or such other national or
regional exchange or market on which such securities are then listed or quoted.
 
If, however, an initial public offering of the securities being distributed in
the spin-off is to be effected simultaneously with the spin-off, the fair market
value of the securities being distributed in the spin-off means the initial
public offering price, while the current market price of our common stock means
the VWAP of our common stock on the trading day on which the initial public
offering price of the securities being distributed in the spin-off is
determined.
 
(5) Cash Distributions. If we, by dividend or otherwise, make distributions to
all or substantially all holders of our common stock exclusively in cash during
any quarterly period (excluding any cash that is distributed in a reorganization
event to which the provisions described below under “—Reorganization Events”
apply or as part of a distribution referred to in paragraph (4) above) in an
amount that exceeds $0.27 per share per quarter of our common stock (such per
share amount being referred to at the “reference dividend”), immediately after
the close of business on the date fixed for determination of the stockholders
entitled to receive such distribution, each fixed settlement rate shall be
increased by dividing:
 
·  
each fixed settlement rate by

 
·  
a fraction, the numerator of which shall be equal to the current market price on
the date fixed for such determination less the per share amount of the
distribution and the denominator of which shall be equal to such current market
price minus the reference dividend.

 
The reference dividend is subject to adjustment on an inversely proportional
basis whenever the fixed settlement rates are adjusted, provided that no
adjustment will be made to the reference dividend for any adjustment made to the
fixed settlement rates pursuant to this clause (5).
 
(6) Tender and Exchange Offers. In the case that a tender offer or exchange
offer made by us or any subsidiary for all or any portion of our common stock
shall expire and such tender or exchange offer (as amended through the
expiration thereof) shall require the payment to stockholders (based on the
acceptance (up to any maximum specified in the terms of the tender offer or
exchange offer) of purchased shares) of an aggregate consideration having a fair
market value per share of our common stock that exceeds the VWAP on the trading
day next succeeding the last date on which tenders or exchanges may be made
pursuant to such tender offer or exchange offer, then, immediately prior to the
opening of business on the second business day after the date of the last time
(which we refer to as the “expiration time”) tenders or exchanges could have
been made pursuant to such tender offer or exchange offer (as amended through
the expiration thereof), each fixed settlement rate shall be increased by
dividing:
 
·  
each fixed settlement rate immediately prior to the close of business on the
date of the expiration time by

 
·  
a fraction (A) the numerator of which shall be equal to (x) the product of (i)
the current market price on the date of the expiration time and (ii) the number
of shares of common stock outstanding (including any tendered or exchanged
shares) on the date of the expiration time less (y) the amount of cash
consideration plus the fair market value of the aggregate non-cash consideration
payable to stockholders pursuant to the tender offer or exchange offer (assuming
the acceptance, up to any maximum specified in the terms of the tender offer or
exchange offer, of purchased shares), and (B) the denominator of which shall be
equal to the product of (x) the current market price on the date of the
expiration time and (y) the result of (i) the number of shares of our common
stock outstanding (including any tendered or exchanged shares) on the date of
the expiration time less (ii) the number of all shares validly tendered, not
withdrawn and accepted for payment on the date of the expiration time (such
validly tendered or exchanged shares, up to any such maximum, being referred to
as the “purchased shares”).

 
 
 
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The “current market price” per share of our common stock or any other security
on any day means the average VWAP for the 20 consecutive trading days preceding
the earlier of the day preceding the day in question and the day before the “ex
date” with respect to the issuance or distribution requiring such computation.
For purposes of this paragraph, the term “ex date,” when used with respect to
any issuance or distribution, means the first date on which our common stock or
such other security, as applicable, trades, regular way, on the principal U.S.
securities exchange or quotation system on which our common stock or such other
security, as applicable, is listed or quoted at that time, without the right to
receive the issuance or distribution.
 
Reorganization Events. The following events are defined as “reorganization
events”:
 
·  
any consolidation or merger of Morgan Stanley with or into another person or of
another person with or into Morgan Stanley; or

 
·  
any sale, transfer, lease or conveyance to another person of the property of
Morgan Stanley as an entirety or substantially as an entirety; or

 
·  
any statutory share exchange of Morgan Stanley with another person (other than
in connection with a merger or acquisition); or

 
·  
any liquidation, dissolution or termination of Morgan Stanley

 
in each case in which holders of our common stock would be entitled to receive
cash, securities or other property for their shares of common stock.
 
Upon a reorganization event, each stock purchase contract shall thereafter, in
lieu of a variable number of shares of our common stock, be settled by delivery
of exchange property units. An “exchange property unit” represents the right to
receive the kind and amount of securities, cash and other property receivable in
such reorganization event (without any interest thereon, and without any right
to dividends or distribution thereon which have a record date that is prior to
the applicable settlement date) per share of our common stock by a holder of
common stock that is not a person with which we are consolidated or into which
we are merged or which merged into us or to which such sale or transfer was
made, as the case may be (we refer to any such person as a “constituent
person”), or an affiliate of a constituent person to the extent such
reorganization event provides for different treatment of common stock held by
our affiliates and non-affiliates. In the event all holders of our common stock
(other than any constitutent person and affiliates thereof) do not receive the
same form of consideration to be received in such transaction, the exchange
property unit that holders of the Corporate Units or Treasury Units will be
entitled to receive will be deemed to be the weighted average of the types and
amounts of consideration received by the holders of our common stock that
affirmatively make an election (or of all such holders if none make an
election).
 
In the event of such a reorganization event, the person formed by such
consolidation, or merger or the person which acquires our assets shall execute
and deliver to the transfer agent an agreement providing that the holder of each
PEPS Unit that remains outstanding after the reorganization event (if any) shall
have the rights described in the preceding paragraph. Such supplemental
agreement shall provide for adjustments to the amount of any securities
constituting all or a portion of an exchange property unit which, for events
subsequent to the effective date of such reorganization event, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
“—Anti-dilution Adjustments” section. The provisions described in the preceding
two paragraphs shall similarly apply to successive reorganization events.
 
Holders have the right to settle their obligations under the PEPS Units early in
the event of certain cash mergers as described above under “—Early Settlement
Upon Cash Merger.”
 
You may be treated as receiving a constructive distribution from us with respect
to the stock purchase contract if under applicable Treasury regulations (1) the
settlement rate is adjusted (or fails to be adjusted) and,
 
 
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as a result of the adjustment (or failure to adjust), your proportionate
interest in our assets or earnings and profits is increased, and (2) the
adjustment (or failure to adjust) is not made pursuant to a bona fide,
reasonable anti-dilution formula. Thus, under certain circumstances, an increase
in (or a failure to decrease) the settlement rate might give rise to a taxable
dividend to you even though you will not receive any cash in connection with the
increase in (or failure to decrease) the settlement rate. In addition, non-U.S.
holders of PEPS Units may, in certain circumstances, be deemed to have received
a distribution subject to U.S. federal withholding tax.
 
In addition, we may increase the settlement rate if our board of directors deems
it advisable to avoid or diminish any income tax to holders of our common stock
resulting from any dividend or distribution of shares (or rights to acquire
shares) or from any event treated as a dividend or distribution for income tax
purposes or for any other reasons.
 
Adjustments to the settlement rate will be calculated to the nearest 1/10,000th
of a share. No adjustment in the settlement rate will be required unless the
adjustment would require an increase or decrease of at least one percent in the
settlement rate. If any adjustment is not required to be made because it would
not change the settlement rate by at least one percent, then the adjustment will
be carried forward and taken into account in any subsequent adjustment, provided
that effect shall be given to anti-dilution adjustments not later than the stock
purchase date for a PEPS Unit.
 
No adjustment to the settlement rate need be made if holders may participate in
the transaction that would otherwise give rise to an adjustment, so long as the
distributed assets or securities the holders would receive upon settlement of
the PEPS Units, if convertible, exchangeable, or exercisable, are convertible,
exchangeable or exercisable, as applicable, without any loss of rights or
privileges for a period of at least 60 days following settlement of the PEPS
Units.
 
The fixed settlement rates will not be adjusted:
 
·  
upon the issuance of any shares of our common stock pursuant to any present or
future plan providing for the reinvestment of dividends or interest payable on
our securities and the investment of additional optional amounts in shares of
our common stock under any plan;

 
·  
upon the issuance of any shares of our common stock or options or rights to
purchase those shares pursuant to any present or future employee, director or
consultant benefit plan or program of or assumed by us or any of our
subsidiaries;

 
·  
upon the issuance of any shares of our common stock pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the PEPS Units were first issued;

 
·  
for a change in the par value or no par value of the common stock; or

 
·  
for accumulated and unpaid dividends.

 
We will be required, as soon as practicable after the settlement rate is
adjusted, to provide written notice of the adjustment to the holders of PEPS
Units.
 
If an adjustment is made to each fixed settlement rate pursuant to paragraphs
(1) through (6) of this “— Anti-dilution Adjustments” section, a corresponding
adjustment also will be made to the applicable market value solely to determine
which of the clauses of the definition of settlement rate will be applicable on
the stock purchase date or any cash merger early settlement date, but there will
be no adjustment to the applicable market value as such term is used as the
denominator in the fraction described in clause (2) of the definition of
settlement rate set forth in “— Purchase of Common Stock,” provided that if an
event requiring an adjustment occurs on any trading day during the observation
period, the VWAP calculated for each trading day before the
 
 
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event requiring an adjustment occurs will be adjusted in a manner inversely
proportional to the adjustment to the fixed settlement rates.
 
To the extent that we have a rights plan in effect upon a settlement of a
purchase contract, you will receive, in addition to our common stock, the rights
under the rights plan, unless, prior to the settlement of a purchase contract,
the rights have separated from the common stock, in which case each fixed
settlement rate will be adjusted at the time of separation as if we made a
distribution to all holders of our common stock as described in clause (4)
above, subject to readjustment in the event of the expiration, termination or
redemption of such rights.
 
 
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CERTAIN OTHER PROVISIONS OF THE PURCHASE CONTRACT AND PLEDGE AGREEMENT
 
The following is a summary of certain other provisions of the purchase contract
and pledge agreement. This summary, together with the summary of some of the
provisions of the related documents described below, contains a description of
certain other provisions of the purchase contract and pledge agreement but is
not necessarily complete.
 
No Consent to Assumption
 
Holders of PEPS Units, by acceptance of PEPS Units, will under the terms of the
purchase contract and pledge agreement for the relevant series of PEPS Units
expressly withhold any consent to the assumption (i.e., affirmance) of the stock
purchase contracts and the PEPS Units, as applicable, by us or our trustee if we
become the subject of a case under the U.S. Bankruptcy Code or other similar
state or federal law provision for reorganization or liquidation.
 
Consolidation, Merger, Sale or Conveyance
 
We covenant in the purchase contract and pledge agreement for a series of PEPS
Units that we will not merge or consolidate with, or transfer or lease all or
substantially all of our assets to, any person or entity, unless:
 
•  
we will be the continuing corporation; or

 
•  
the successor corporation or person that acquires all or substantially all of
our assets:

 
º  
will be a corporation organized under the laws of the United States, a state of
the United States or the District of Columbia; and

 
º  
will expressly assume all of our obligations under the stock purchase contracts,
the purchase contract and pledge agreement, the trust agreement, the junior
subordinated indenture, the junior subordinated debentures, the guarantee and
the remarketing agreement; and

 
•  
immediately after the merger, consolidation, sale, lease or conveyance, we, that
person or that successor corporation will not be in default in the performance
of the covenants and conditions applicable to us under the stock purchase
contracts, the purchase contract and pledge agreement, the trust agreement, the
junior subordinated indenture, the junior subordinated debentures, the guarantee
or the remarketing agreement.

 
Modification
 
Each purchase contract and pledge agreement will contain provisions permitting
us, the stock purchase contract agent or the collateral agent, as the case may
be, to modify the purchase contract and pledge agreement without the consent of
the holders for any of the following purposes:
 
•  
to evidence the succession of another person to our obligations,

 
•  
to add to the covenants for the benefit of holders or to surrender any of our
rights or powers under those agreements,

 
•  
to evidence and provide for the acceptance of appointment of a successor stock
purchase contract agent or a successor collateral agent or securities
intermediary,

 
•  
to cure any ambiguity or to correct or supplement any provisions that may be
inconsistent, and

 
 
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•  
to make any other modifications that do not adversely affect the interest of the
holders in any material respect.

 
Each purchase contract and pledge agreement will contain provisions permitting
us and the stock purchase contract agent and the collateral agent, with the
consent of the holders of not less than a majority of the stock purchase
contracts included in the relevant series of PEPS Units at the time outstanding,
to modify the terms of such stock purchase contracts or such purchase contract
and pledge agreement. However, no such modification may, without the consent of
the holder of each outstanding stock purchase contract affected by the
modification,
 
•  
change any distribution date,

 
•  
change the amount or type of pledged securities related to the stock purchase
contract, impair the right of the holder of any pledged securities to receive
distributions on the pledged securities or otherwise adversely affect the
holder's rights in or to the pledged securities,

 
•  
reduce any contract adjustment payments or change the place or currency of
payment,

 
•  
impair the right to institute suit for the enforcement of the stock purchase
contract or payment of any contract adjustment payments,

 
•  
reduce the number of shares of our common stock purchasable under the stock
purchase contract, increase the price to purchase shares of our common stock
upon settlement of the stock purchase contract or change the stock purchase date
(except as contemplated by the purchase contract and pledge agreement), or

 
•  
reduce the above-stated percentage of outstanding stock purchase contracts the
consent of the holders of which is required for the modification or amendment of
the provisions of the stock purchase contracts or the purchase contract and
pledge agreement.

 
If any amendment or proposal referred to above would adversely affect only the
Corporate Units or the Treasury Units of a series of PEPS Units, then only the
affected class of holders will be entitled to vote on the amendment or proposal,
and the amendment or proposal will not be effective except with the consent of
the holders of not less than a majority of the affected class or of all of the
holders of the affected classes, as applicable.
 
Title
 
We, the stock purchase contract agent and the collateral agent may treat the
registered owner of any PEPS Units as the absolute owner of the PEPS Units for
the purpose of making payment and settling the related stock purchase contracts
and for all other purposes.
 
Replacement of Certificates
 
The PEPS Units will be issued initially in certificated, registered form. Any
mutilated PEPS Unit certificate will be replaced by us at the expense of the
holder upon surrender of the certificate to the stock purchase contract agent.
PEPS Unit certificates that become destroyed, lost or stolen will be replaced by
us at the expense of the holder upon delivery to us and the stock purchase
contract agent of evidence of their destruction, loss or theft satisfactory to
us and the stock purchase contract agent. In the case of a destroyed, lost or
stolen PEPS Unit certificate, an indemnity satisfactory to the stock purchase
contract agent and us may be required at the expense of the holder of the PEPS
Units evidenced by the certificate before a replacement will be issued.
 
Notwithstanding the foregoing, we will not be obligated to issue any PEPS Unit
certificates on or after the business day immediately preceding the earliest of
any early settlement
 
 
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date, any cash merger early settlement date, the stock purchase date for any
stock purchase contracts or after the stock purchase contracts have terminated.
The purchase contract and pledge agreement will provide that, in lieu of the
delivery of a replacement PEPS Unit certificate following any of these dates,
the stock purchase contract agent, upon delivery of the evidence and indemnity
described above, will deliver the shares of our common stock issuable pursuant
to the stock purchase contracts included in the PEPS Units evidenced by the
certificate or, if the stock purchase contracts have terminated prior to the
stock purchase date, transfer the pledged securities included in the PEPS Units
evidenced by the certificate.
 
Information Concerning the Stock Purchase Contract Agent
 
The Bank of New York initially will be the stock purchase contract agent under
each purchase contract and pledge agreement. The stock purchase contract agent
will act as the agent for the holders of each series of PEPS Units from time to
time. The purchase contract and pledge agreement will not obligate the stock
purchase contract agent to exercise any discretionary powers in connection with
a default under the terms of the PEPS Units or the purchase contract and pledge
agreement.
 
Each purchase contract and pledge agreement will contain provisions limiting the
liability of the stock purchase contract agent. Each purchase contract and
pledge agreement will contain provisions under which the stock purchase contract
agent may resign or be replaced. Any such resignation or replacement would be
effective upon the acceptance of appointment by a successor.
 
Information Concerning the Collateral Agent and Securities Intermediary
 
The Bank of New York initially will be the collateral agent and securities
intermediary under the purchase contract and pledge agreements.
 
In its capacity as collateral agent, The Bank of New York will act solely as our
agent and will not assume any obligation or relationship of agency or trust for
or with any of the holders of the PEPS Units, except for the obligations owed by
a pledgee of property to the owner of the property under the relevant purchase
contract and pledge agreement and applicable law.
 
All property delivered to the securities intermediary pursuant to each purchase
contract and pledge agreement will be credited to a collateral account
established by the securities intermediary for the collateral agent. The
securities intermediary will treat the stock purchase contract agent as entitled
to exercise all rights relating to any financial asset credited to such
collateral account, subject to the provisions of such purchase contract and
pledge agreement.
 
Each purchase contract and pledge agreement will contain provisions limiting the
liability of the collateral agent and securities intermediary and provisions
under which they may resign or be replaced. This resignation or replacement
would be effective upon the acceptance of appointment by a successor.
 
Governing Law
 
Each purchase contract and pledge agreement and the stock purchase contracts
will be governed by, and construed in accordance with, the laws of the State of
New York.
 
Miscellaneous
 
Should you elect to substitute the related pledged securities, create Treasury
Units or recreate Corporate Units, you will be responsible for any commissions,
fees or other expenses incurred in acquiring the pledged securities to be
substituted, and we will not be responsible for any of those fees or expenses.
 
Each purchase contract and pledge agreement will provide that we will pay all
fees and expenses related to the offering of the relevant series of PEPS Units,
including the fees and expenses of the stock purchase contract
 
 
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agent and the fees and expenses relating to the enforcement by the stock
purchase contract agent of the rights of the holders of the PEPS Units of such
series.
 
Each purchase contract and pledge agreement will provide that we will pay all
fees and expenses related to the retention of the collateral agent and
securities intermediary.
 
 
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DESCRIPTION OF THE MORGAN STANLEY CAPITAL TRUSTS
 
Morgan Stanley Capital Trust A, Morgan Stanley Capital Trust B and Morgan
Capital Trust C (each a “Morgan Stanley Trust” and collectively, the “Morgan
Stanley Trusts”) will be formed as Delaware statutory trusts. The Morgan Stanley
Trusts will exist solely to:
 
•  
issue and sell their common securities to Morgan Stanley;

 
•  
issue and sell their trust preferred securities as part of this offering;

 
•  
use the proceeds from the sale of their common securities and trust preferred
securities to purchase junior subordinated debentures from Morgan Stanley; and

 
•  
engage in other activities that are necessary, convenient or incidental to these
purposes.

 
The name and address of the Delaware trustee for each Morgan Stanley 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 Trust will be The Bank
of New York, 101 Barclay Street, Floor 8 West, New York, New York 10286. The
principal offices and telephone number of each Morgan Stanley Trust are 1585
Broadway, New York, New York 10036 and (212) 761-4000.
 
We, as holder of the common securities of each Morgan Stanley Trust, intend to
select our employees, officers or affiliates to serve as administrators of the
Morgan Stanley Trusts. 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 of the Morgan Stanley Trusts, 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 trust preferred securities of
the Morgan Stanley Trusts may remove and replace the property trustee and
Delaware trustee for the Morgan Stanley Trusts at any time.
 
We will pay all fees and expenses related to the organization of each Morgan
Stanley Trust and the offering of the trust preferred securities. We will also
pay all ongoing costs and expenses of the Morgan Stanley Trusts, except
obligations under the common securities and trust preferred securities.
 
 
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
 
The following is a summary of some of the terms of the trust preferred
securities. This summary, together with the summary of some of the provisions of
the related documents described below, contains a description of the material
terms of the trust preferred securities but is not necessarily complete.
 
General
 
The Morgan Stanley Trusts will issue the trust preferred securities under the
terms of the trust agreements. The trust agreements will be deemed to be
qualified under the Trust Indenture Act. The Bank of New York will act as the
property trustee for purposes of complying with the Trust Indenture Act. The
terms of the trust preferred securities will include those stated in the trust
agreements and the Delaware Statutory Trust Act and those made part of the trust
agreements by the Trust Indenture Act.
 
The trust preferred securities will have an initial stated amount of $1,000 per
trust preferred security and will be mandatorily redeemable for their
liquidation amount upon the redemption or maturity of the related junior
subordinated debentures (initially February 17, 2042, but subject to change as
described below under “—Redemption”).
 
The trust preferred securities will rank equal to, and payments will be made on
the trust preferred securities on a proportional basis with, the common
securities, as such term is described under “The Morgan Stanley Capital Trusts.”
However, the trust preferred securities will rank prior to the common securities
as to payment if there occurs with respect to the junior subordinated debentures
an event of default or a default as a result of a failure to pay amounts under
the junior subordinated debentures when due as described under “Description of
Trust Preferred Securities—Liquidation Distribution Upon Dissolution.” Please
note, however, that the aggregate liquidation amount of the common securities
for each Morgan Stanley Trust is only $10,000. The trust agreements do not
permit the Morgan Stanley Trusts to issue any securities other than the common
securities and the trust preferred securities or to incur any indebtedness.
 
Morgan Stanley will register each series of the junior subordinated debentures
in the name of the applicable Morgan Stanley Trust. The property trustee will
hold the junior subordinated debentures in trust for the benefit of the holders
of the trust preferred securities and the common securities.
 
Distributions
 
Subject to the deferral provisions described below, interest on each series of
the junior subordinated debentures, and, accordingly, distributions on the
related trust preferred securities, will be cumulative and will be fixed
initially at an annual rate of 6% of the stated amount. Distributions on the
trust preferred securities will accumulate from the date of issuance of the PEPS
Units and will be payable quarterly in arrears on each February 17, May 17,
August 17 and November 17 occurring prior to and including the date of a
successful remarketing, commencing February 17, 2008, and when, as and if funds
are available for distributions. We may, however, in connection with a
successful remarketing, elect to change the distribution dates effective from
and after the remarketing settlement date, including an election to pay
distributions semi-annually.
 
The rate on any series of junior subordinated debentures will be reset in
connection with the remarketing of such series as described below under
“Description of the Junior Subordinated Debentures—Remarketing.” In addition,
the frequency of interest payments of any series of junior subordinated
debentures may be changed in connection with the remarketing of any series of
trust preferred securities as described under “Description of the Junior
Subordinated Debentures—Remarketing.”
 
We may at our option, and will if so directed by any then applicable regulatory
authority, defer cash payments of interest on any series of junior subordinated
debentures at any time or from time to time provided that we will not defer cash
payments of interest with respect to any series of junior subordinated
debentures without deferring cash payments of interest with respect to all
remaining series of junior subordinated debentures. We may not defer interest
payments with respect to any series of junior subordinated debentures
 
 
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for any period of time that (i) exceeds 20 consecutive interest payment dates
(or the equivalent if interest periods are not at the time quarterly), or (ii)
extends beyond the stated maturity date or any redemption date of such series of
junior subordinated debentures. Any deferred payments of interest will accrue
additional interest at the applicable rate then borne by such series of junior
subordinated debentures. As a consequence, each Morgan Stanley Trust will
accumulate corresponding distributions on the related series of trust preferred
securities. Accumulated distributions will accumulate as interest on the junior
subordinated debentures, from the relevant distribution date during any deferral
period, at the rate originally applicable to the junior subordinated debentures
compounded on each distribution date with respect to the trust preferred
securities, to the extent permitted by applicable law.
 
We covenant that, if, with respect to any series of junior subordinated
debentures, we defer interest on any interest payment date on or prior to the
stock purchase date for such series, we will notify any then applicable
regulatory authority and, if we have elected to defer interest with respect to a
series of junior subordinated debentures and there is a failed final remarketing
with respect to such series, then we will pay the holders the deferred interest
in additional subordinated notes, which will be distributed by the relevant
Morgan Stanley Trust to the holders of the related series of trust preferred
securities. If we issue any additional subordinated notes, the foregoing
covenant will also apply to the payment of interest on and principal of these
notes.
 
After we give notice of any deferral of contract adjustment payments or interest
on any series of junior subordinated debentures and during any period that we
are deferring interest on such series of junior subordinated debentures (and,
accordingly, the relevant Morgan Stanley Trust is accumulating distributions on
the related series of trust preferred securities) or have issued but not yet
repaid in full additional subordinated notes in respect of deferred interest, we
will be restricted, subject to certain exceptions, from making certain payments,
including declaring or paying any dividends or making any distributions on, or
redeeming, purchasing, acquiring or making a liquidation payment with respect
to, shares of our capital stock, as described under “Description of the Junior
Subordinated Debentures—Restrictions on Certain Payments.”
 
Each Morgan Stanley Trust will make distributions on the related series of trust
preferred securities on the relevant distribution dates to the extent that it
has funds available therefor. The trust funds available for distribution to you
as a holder of a series of trust preferred securities will be limited to
payments received from us on the related series of junior subordinated
debentures held by each Morgan Stanley Trust. We will guarantee the payment of
distributions on the trust preferred securities out of moneys held by the
relevant Morgan Stanley Trust to the extent of available trust funds held by the
applicable Morgan Stanley Trust, as described under “Description of the
Guarantee.” Our obligations under the junior subordinated debentures are
subordinate and junior in right of payment to all our senior debt.
 
When a distribution date is not a business day, the Morgan Stanley Trusts will
make the distribution on the next business day without interest. The term
“distribution” includes any interest payable on unpaid distributions unless
otherwise stated.
 
Distributions made for periods prior to the stock purchase date will be
calculated on the basis of a 360-day year consisting of twelve 30-day months,
and distributions for periods beginning on or after such date will be calculated
on the same basis as the reset interest rate on the junior subordinated
debentures is calculated.
 
Payment of Distributions
 
Distributions on the trust preferred securities will be payable to holders,
including the collateral agent, as they appear on the books and records of the
Morgan Stanley Trusts on the relevant record dates. The record dates will be the
first day of the month in which the relevant distribution date falls.
 
The Morgan Stanley Trusts will pay distributions through the property trustee.
The property trustee will hold amounts received from the junior subordinated
debentures in the payment account for the benefit of the holders of the related
series of trust preferred securities and the related series of common
securities.
 
 
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If a distribution is payable on a day that is not a business day, then that
distribution will be paid on the next day that is a business day, and without
any interest or other payment for any delay, with the same force and effect as
if made on the distribution date.
 
A business day is a day other than (a) a Saturday or Sunday, and (b) a day on
which banking institutions in The City of New York, New York are authorized or
required by law or executive order to close.
 
Remarketing
 
Unless a special event redemption or a termination event has occurred, or all
the stock purchase contracts have settled early as a result of an early
settlement or an early settlement upon a cash merger, or all of the outstanding
PEPS Units are held in the form of Treasury Units and none of the holders of the
related trust preferred securities has elected to participate in the
remarketing, as described under “Description of the Trust Preferred
Securities—Remarketing,” or all of the holders of PEPS Units have settled their
stock purchase contracts with separate cash, as described above under “—Notice
to Settle with Cash,” and none of the holders of the related trust preferred
securities have elected to participate in the remarketing, we, through the
remarketing agent, will attempt to remarket the trust preferred securities in a
process we call “remarketing.” All of the outstanding trust preferred securities
held as part of Corporate Units will be remarketed in the remarketing other than
those the holders of which have elected (i) not to participate in the
remarketing and (ii) to settle the related stock purchase contract with separate
cash, whether or not the remarketing is successful. See “Description of the
Stock Purchase Contracts—Notice to Settle with Cash.” If you hold trust
preferred securities separately and not as part of the Corporate Units, your
trust preferred securities will not be remarketed unless you elect to
participate in the remarketing. After any successful remarketing, the interest
rate, interest payment dates and other terms of each series of the underlying
junior subordinated debentures may change, as a result of which the distribution
rate on and certain other terms of all of the related trust preferred securities
may also change, even those that were not included in the remarketing. See
“Description of the Junior Subordinated Debentures—Remarketing.”
 
Under the remarketing agreement, on or prior to 5:00 p.m., New York City time,
on the second business day immediately preceding the beginning of any
remarketing period holders of the trust preferred securities not held as part of
the related series of Corporate Units may elect to have their trust preferred
securities included in the remarketing and remarketed in the same manner and at
the same price as the trust preferred securities held as part of the Corporate
Units by delivering their trust preferred securities along with a notice to the
collateral agent. The collateral agent will hold these trust preferred
securities or their proceeds, as the case may be, in an account separate from
the collateral account in which the securities pledged to secure the obligations
of the holders of Corporate Units under the stock purchase contracts will be
held. Holders of the trust preferred securities electing to have their trust
preferred securities remarketed will also have the right to withdraw that
election on or prior to 5:00 p.m., New York City time, on the second business
day immediately preceding the beginning of any remarketing period. If the
remarketing agent cannot remarket a series of trust preferred securities during
any remarketing period, the remarketing agent will promptly return such trust
preferred securities not held as part of Corporate Units to the collateral agent
for release to the holders.
 
If the remarketing of any series of trust preferred securities is successful,
the remarketing agent will remit to the collateral agent the proceeds of such
remarketing for payment to such participating holders of trust preferred
securities not held as part of Corporate Units.
 
Redemption
 
When Morgan Stanley repays or redeems a series of the junior subordinated
debentures, whether at the final maturity date or upon earlier redemption, the
property trustee will apply the proceeds from the repayment or redemption to
redeem the related trust preferred securities and common securities having an
aggregate liquidation amount equal to that portion of the principal amount of
such series of junior subordinated debentures being repaid or redeemed. The
redemption price per trust preferred security will equal the $1,000 liquidation
amount, plus accrued and unpaid distributions to but excluding the redemption
date for such trust
 
 
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preferred securities, provided that, in the case of an early redemption in
connection with a special event (as defined below), the redemption price per
security will be the redemption amount determined as described below plus the
amount of deferred interest (including compound interest thereon) through the
date of redemption.
 
In the case of an early redemption in connection with a special event prior to
the remarketing settlement date for a series of trust preferred securities, the
redemption price payable in respect of all junior subordinated debentures
included in PEPS Units of the related series will be distributed to the
collateral agent, which in turn will apply an amount equal to the redemption
amount (as defined below) of such redemption price to purchase the treasury
portfolio on behalf of the holders of the PEPS Units of such series and remit
the remaining portion (net of fees and expenses, if any), if any, of such
redemption price to the stock purchase contract agent for payment to the holders
of such series of PEPS Units. Thereafter, the applicable ownership interests in
the treasury portfolio will be substituted for such series of junior
subordinated debentures and will be pledged to us through the collateral agent
to secure the related PEPS Unit holders’ obligations to purchase shares of our
common stock under the related stock purchase contracts. Holders of junior
subordinated debentures of such series that are not part of PEPS Units will
directly receive proceeds from the redemption of the junior subordinated
debentures.
 
If less than all of the junior subordinated debentures of a series are to be
repaid or redeemed, then the aggregate liquidation amount of the related trust
preferred securities and related common securities to be redeemed will be
allocated in proportion to their respective aggregate liquidation amounts,
except in the case of an event of default or a default under such junior
subordinated debentures as a result of any failure by Morgan Stanley to pay any
amounts under such junior subordinated debentures when due. Please note,
however, that the aggregate liquidation amount of the common securities of each
Morgan Stanley Trust is only $10,000.
 
Subject to obtaining any then required regulatory approval, Morgan Stanley may
redeem the junior subordinated debentures included in a series of Corporate
Units:
 
·  
in whole or in part, on one or more occasions, at any time on or after the date
(the “first optional redemption date” that is the later of (a) August 17, 2012
if the relevant stock purchase date is on August 17, 2010 (or if such day is not
a business day, the next succeeding business day) and the third anniversary of
the relevant stock purchase date if such date is after August 17, 2010 (or if
such day is not a business day, the next succeeding business day) and (b) if we
are deferring interest on the related junior subordinated debentures on the
applicable stock purchase date, the date that is five years after the beginning
of the relevant deferral period; and

 
·  
in whole, but not in part, at any time prior to the remarketing settlement date
for the related series of trust preferred securities:

 
·  
within 90 days following the occurrence and continuation of a tax event,
accounting event or an investment company event, each as defined below,

 
·  
following the occurrence and continuation of a regulatory event, rating agency
event or property trustee event, each as defined below.

 
If then required under the rules and regulations of any applicable regulatory
authority, Morgan Stanley will obtain the prior approval of such applicable
regulatory authority before exercising its redemption rights described in this
offering memorandum.
 
A redemption of the junior subordinated debentures will cause a mandatory
redemption of the related series of the trust preferred securities and the
common securities. See “Description of Junior Subordinated
Debentures—Redemption.”
 
 
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“Special event” means a tax event, an accounting event, an investment company
event, a regulatory event, a rating agency event or a property trustee event.
 
“Tax event” means the receipt by Morgan Stanley of an opinion of counsel
experienced in such matters, who is not an officer or employee of Morgan Stanley
or any of its affiliates, to the effect that as a result of:
 
·  
any amendment to, or change, including any announced prospective change, in the
laws, or any regulations thereunder, of the United States or any political
subdivision thereof or taxing authority therein affecting taxation which is
effective on or after the date of this offering memorandum;

 
·  
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations which is announced on or after
the date of this offering memorandum; or

 
·  
any threatened challenge asserted in connection with an audit of a Morgan
Stanley Trust, Morgan Stanley or Morgan Stanley’s subsidiaries, or a threatened
challenge asserted in writing against any other taxpayer that has raised capital
through the issuance of securities that are substantially similar to the junior
subordinated debentures or the PEPS Units, which challenge becomes publicly
known or otherwise becomes widely known to tax practitioners on or after the
date of this offering memorandum;

 
there is more than an insubstantial increase in the risk that:
 
(1)
a Morgan Stanley Trust is, or will be within 90 days of the delivery of the
opinion of counsel, subject to U.S. federal income tax with respect to income
received or accrued on the junior subordinated debentures;

 
(2)
interest payable by Morgan Stanley on the junior subordinated debentures is not,
or will not be within 90 days of the delivery of the opinion of counsel,
deductible by Morgan Stanley, in whole or in part, for U.S. federal income tax
purposes; or

 
(3)
a Morgan Stanley Trust is, or will be within 90 days of the delivery of the
opinion of counsel, subject to more than a de minimis amount of taxes, duties or
other governmental charges.

 
If any Morgan Stanley Trust is the holder of all the junior subordinated
debentures and any of the events referred to in clause (1) or (3) above shall
occur, Morgan Stanley will pay any additional sums required so that
distributions on the trust preferred securities will not be reduced by any
additional taxes, duties or other governmental charges payable by such Morgan
Stanley Trust as a result of the tax event. See “Description of Junior
Subordinated Debentures—Additional Sums.”
 
“Accounting event” means the receipt by the audit committee of our Board of
Directors of a written report in accordance with Statement on Auditing Standards
(“SAS”) No. 97, “Amendment to SAS No. 50— Reports on the Application of
Accounting Principles,” from our independent auditors, provided at the request
of management, to the effect that, as a result of a change in accounting rules
after the date of original issuance of the junior subordinated debentures, we
must either (a) account for the stock purchase contracts as derivatives under
SFAS 133 (or otherwise mark-to-market or measure the fair value of all or any
portion of the stock purchase contracts with changes appearing in our income
statement) or (b) account for PEPS Units using the if-converted method under
SFAS 128, and that such accounting treatment will cease to apply upon redemption
of the relevant series of junior subordinated debentures.
 
“Investment company event” means the receipt by Morgan Stanley of an opinion of
counsel experienced in such matters, who is not an officer or employee of Morgan
Stanley or any of its affiliates, to the effect that, as a result of the
occurrence of a change in law or regulation or a written change, including any
announced prospective change, in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Morgan Stanley
 
 
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Trusts are or will be considered an “investment company” that is required to be
registered under the Investment Company Act, which change or prospective change
becomes effective or would become effective, as the case may be, on or after the
date of this offering memorandum.
 
“Property trustee event” means the occurrence of certain events of bankruptcy or
insolvency with respect to the property trustee or all or substantially all of
its property if a successor property trustee has not been appointed within 90
days of the event.
 
“Regulatory event” means the determination by Morgan Stanley, based on the
opinion of counsel experienced in such matters, who may be an employee of Morgan
Stanley or any of its affiliates, that as a result of:
 
·  
any amendment to, clarification of or change (including any announced
prospective change) in applicable laws or regulations or official
interpretations thereof or policies with respect thereto, or

 
·  
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations,

 
which amendment, clarification, change, pronouncement or decision is effective
or announced on or after the date of this offering memorandum, there is more
than an insubstantial risk that the PEPS Units will no longer constitute tier 1
(or its equivalent) capital of Morgan Stanley or any holding company of which
Morgan Stanley is a subsidiary for the purposes of the capital adequacy
guidelines or policies of any applicable regulatory body or governmental
authority.
 
“Rating agency event” means the determination by Morgan Stanley of a change by
any nationally recognized statistical rating organization within the meaning of
Section 3(a)(62) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), that currently publishes a rating for Morgan Stanley (a “rating
agency”) in the equity credit criteria for securities such as the PEPS Units
resulting in a lower equity credit to Morgan Stanley than the equity credit
assigned by such rating agency to the PEPS Units on the date of this offering
memorandum.
 
“Redemption amount” means, for each junior subordinated debenture, prior to the
remarketing settlement date for such junior subordinated debenture, the product
of the principal amount of such junior subordinated debenture and a fraction,
the numerator of which is the treasury portfolio purchase price, as defined
below, and the denominator of which is the applicable principal amount, as
defined below; provided that in no event shall the redemption amount for any
junior subordinated debenture be less than the principal amount of such junior
subordinated debenture.
 
“Treasury portfolio purchase price” means the lowest aggregate ask-side price
quoted by a primary U.S. government securities dealer to the quotation agent, as
defined below, between 9:00 a.m. and 11:00 a.m., New York City time on the third
business day immediately preceding the special event redemption date for the
purchase of the treasury portfolio described below for settlement on the special
event redemption date.
 
“Applicable principal amount” means the aggregate principal amount of the
applicable series of junior subordinated debentures on the special event
redemption date.
 
“Treasury portfolio” means as of any date a portfolio of U.S. Treasury
securities (or principal or interest strips thereof) that mature on or prior to
the second business day immediately preceding the remarketing settlement date
for the next remarketing period in an aggregate amount at maturity equal to the
applicable principal amount and with respect to each scheduled interest payment
date on the junior subordinated debentures that occurs after the special event
redemption date, to and including such remarketing settlement date, U.S.
Treasury securities (or principal or interest strips thereof) that mature on or
prior to the business day immediately preceding such scheduled interest payment
date in an aggregate amount at maturity equal to the
 
 
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aggregate interest payment (assuming no reset of the interest rate) that would
be due on the applicable principal amount of the junior subordinated debentures
on such date.
 
“Quotation agent” means any primary U.S. government securities dealer selected
by us.
 
Redemption Procedures
 
Each Morgan Stanley Trust may the related series of redeem trust preferred
securities only in an amount equal to the funds it has on hand and legally
available to pay the redemption price.
 
The property trustee will mail written notice of the redemption of the trust
preferred securities to the registered holders at least 15 but not more than 30
days before the date fixed for redemption. If a Morgan Stanley Trust gives a
notice of redemption, then, by 12:00 noon, New York City time, on the date of
redemption, if the funds are available for payment, the property trustee will,
for trust preferred securities held in book-entry form:
 
•  
irrevocably deposit with DTC funds sufficient to pay the applicable redemption
price; and

 
•  
give DTC irrevocable instructions and authority to pay the redemption price to
the holders of the related series of trust preferred securities.

 
With respect to trust preferred securities not held in book-entry form, if funds
are available for payment, the property trustee will:
 
•  
irrevocably deposit with the paying agent funds sufficient to pay the applicable
redemption price; and

 
•  
give the paying agent irrevocable instructions and authority to pay the
redemption price to the holders of trust preferred securities upon surrender of
their certificates evidencing the trust preferred securities.

 
Notwithstanding the above, distributions payable on or prior to the date of
redemption for any trust preferred securities called for redemption will be
payable to the holders of the trust preferred securities on the relevant record
dates.
 
Once notice of redemption is given and funds are deposited, then all rights of
the holders of the trust preferred securities called for redemption will
terminate, except the right to receive the redemption price, but without any
interest or other payment for any delay in receiving it. If notice of redemption
is given and funds deposited as required, the trust preferred securities then
will cease to be outstanding.
 
If any date fixed for redemption is not a business day, then payment of the
redemption price will be made on the next day that is a business day, without
any interest or other payment for the delay.
 
If payment of the redemption price for the trust preferred securities called for
redemption is improperly withheld or refused and not paid either by the relevant
Morgan Stanley Trust or by Morgan Stanley under the guarantee, then
distributions on those trust preferred securities will continue to accumulate at
the then applicable rate, from and including the date of redemption to but
excluding the date of actual payment. In this case, the actual distribution date
will be the date fixed for redemption for purposes of calculating the redemption
price.
 
Subject to the above and applicable law, including United States federal
securities laws, Morgan Stanley or its affiliates may at any time and from time
to time purchase outstanding trust preferred securities by tender, in the open
market or by private agreement, and may resell trust preferred securities.
 
If less than all the trust preferred securities and common securities are
redeemed, then the aggregate liquidation amount of the trust preferred
securities and the common securities to be redeemed normally will be
 
 
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allocated in proportion to their respective aggregate liquidation amounts.
However, if there has occurred with respect to a series of junior subordinated
debentures an event of default or a default as a result of any failure by Morgan
Stanley to pay any amounts under such junior subordinated debentures when due,
holders of the related series of trust preferred securities will be paid in full
before any payments are made to holders of the related series of common
securities. Please note, however, that the aggregate liquidation amount of the
common securities for any Morgan Stanley Trust is only $10,000. The property
trustee will select the particular trust preferred securities to be redeemed on
the pro rata basis described above not more than 30 days prior to the date of
redemption by any method the property trustee deems fair and appropriate or, if
the trust preferred securities are then held in book-entry form, in accordance
with DTC’s customary procedures. For federal income tax purposes, unless
otherwise prevented, we and the trusts intend to treat such partial redemption,
and in purchasing the PEPS Units or the related trust preferred securities, the
holders agree to treat such partial redemption, as an in kind distribution of
the related series of junior subordinated debentures to the holders of such
trust preferred securities in redemption of such trust preferred securities
chosen to be redeemed immediately followed by a cash redemption by us of the
related series of junior subordinated debentures held by such holders.
 
Liquidation Distribution upon Dissolution
 
The amount payable on the trust preferred securities in the event of any
liquidation of the related Morgan Stanley Trust is the liquidation amount of
$1,000 per trust preferred security plus accumulated but unpaid distributions,
subject to certain exceptions, which may be paid in the form of a distribution
of the related series of junior subordinated debentures.
 
Morgan Stanley may at any time dissolve a Morgan Stanley Trust, subject to
obtaining any then required regulatory approval. If a Morgan Stanley Trust
dissolves and it has paid or made reasonable provision to pay, in accordance
with Section 3808(e) of the Delaware Statutory Trust Act, the liabilities owed
to its creditors, the related series of junior subordinated debentures may be
distributed to the holders of the related series of trust preferred securities
and common securities.
 
The trust agreements each state that the relevant Morgan Stanley Trust will
dissolve automatically on February 17, 2048, or earlier upon:
 
(1)
the bankruptcy, dissolution or liquidation of Morgan Stanley;

 
(2)
written direction by Morgan Stanley to the property trustee to dissolve a Morgan
Stanley Trust and distribute the related series of junior subordinated
debentures to the holders of the related series of trust preferred securities,
which direction, subject to the foregoing restrictions, is optional and wholly
within the discretion of Morgan Stanley;

 
(3)
the redemption of all the trust preferred securities of a series in connection
with the redemption of all the junior subordinated debentures of such series or
the maturity of such series of junior subordinated debentures; or

 
(4)
the entry of an order for the dissolution of a Morgan Stanley Trust by a court
of competent jurisdiction.

 
If a Morgan Stanley Trust dissolves as described in clauses (1), (2) or (4)
above, after the trust pays all amounts owed to creditors, holders of the
related series of trust preferred securities and the related series of common
securities will be entitled to receive:
 
•  
junior subordinated debentures of such series having a principal amount equal to
the liquidation amount of the related series of trust preferred securities and
related series of common securities of the holders; or, if this is not
practical,

 
 
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•  
a cash amount equal to, in the case of holders of such series of trust preferred
securities, the aggregate liquidation amount plus accumulated but unpaid
distributions to but excluding the date of payment.

 
If a Morgan Stanley Trust cannot pay the full amount due on the related series
of trust preferred securities and the related series of common securities
because it has insufficient assets for payment, then the amounts such Morgan
Stanley Trust owes on such series of trust preferred securities will be
proportionately allocated. The holders of the related series of common
securities will be entitled to receive distributions upon any liquidation on a
pro rata basis with the holders of the related series of trust preferred
securities, except that if there occurs with respect to the related series of
junior subordinated debentures an event of default or a default as a result of a
failure by Morgan Stanley to pay any amounts in respect of such series of junior
subordinated debentures when due, such Morgan Stanley Trust will pay the total
amounts due on the related series of trust preferred securities before making
any distribution on the related series of common securities.
 
After the liquidation date is fixed for any distribution of junior subordinated
debentures, upon dissolution of a Morgan Stanley Trust:
 
•  
the related series of trust preferred securities and the related series of
common securities will no longer be deemed to be outstanding;

 
•  
DTC or its nominee, as the registered holder of the related series of trust
preferred securities, will receive a registered global certificate or
certificates representing such series of junior subordinated debentures to be
delivered upon distribution with respect to the related series of trust
preferred securities held by DTC or its nominee; and

 
•  
any certificates representing the related series of trust preferred securities
not held by DTC or its nominee will be deemed to represent junior subordinated
debentures having an aggregate principal amount equal to the liquidation amount
of the trust preferred securities, and bearing accrued but unpaid interest equal
to accumulated but unpaid distributions on such trust preferred securities,
until the holder of those certificates presents them to the securities registrar
for the trust preferred securities for transfer or reissuance.

 
Trust Preferred Securities Events of Default
 
Any one of the following events constitutes an event of default under the trust
agreements, which we refer to as trust preferred securities event of default,
regardless of the reason for the trust preferred 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:
 
•  
the occurrence of a default with respect to the junior subordinated debentures
in which the proceeds from the sale of the common securities and trust preferred
securities have been invested;

 
•  
default by a Morgan Stanley Trust or the property trustee in the payment of any
distribution on the related series of trust preferred securities when it becomes
due and payable, and continuation of the default for a period of 30 days;

 
•  
default by a Morgan Stanley Trust or the property trustee in the payment of any
redemption price of any common security or trust preferred security issued
pursuant to its trust agreement when it becomes due and payable;

 
•  
default in the performance, or breach, in any material respect, of any covenant
or warranty of the applicable property trustee and Delaware trustee (other than
a covenant or warranty described above dealing with default in the payment of
any distribution or redemption price) and continuation of such default or breach
for a period of 60 days after written notice has been given, by registered or
certified mail, to the applicable property trustee and Delaware trustee and us
by the holders of at least 25% in

 
 
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  aggregate liquidation amount of the related series of trust preferred
securities outstanding, which notice must specify the default or breach, demand
it be remedied and state that it is a Notice of Default under the applicable
trust agreement; or 

   

•  
the occurrence of certain events of bankruptcy or insolvency with respect to the
property trustee or all or substantially all of its property if a successor
property trustee has not been appointed within 90 days of the event.

 
Within ten business days after the occurrence of any trust preferred 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
common securities or trust preferred securities and the administrators, unless
the trust preferred securities event of default has been cured or waived. In
addition, the property trustee will notify each holder of the trust preferred
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 Morgan Stanley Trusts are in compliance with all the conditions and
covenants under their trust agreements.
 
The existence of a trust preferred securities event of default does not entitle
the holders of trust preferred securities to accelerate the maturity thereof.
 
An event of default under the junior subordinated indenture entitles the
property trustee, as sole holder of the junior subordinated debentures, and the
holders of the related series of trust preferred securities to declare the
junior subordinated debentures due and payable under the junior subordinated
indenture. The only events of default under the junior subordinated indenture
are (i) Morgan Stanley’s failure to pay interest for 30 days after deferral for
20 or more consecutive quarterly interest periods or the equivalent thereof, in
the event that interest periods are other than quarterly and (ii) the occurrence
of certain events of bankruptcy or insolvency of Morgan Stanley, whether
voluntary or not.
 
Voting Rights
 
Except as described under “Description of the Guarantees—Amendments and
Assignments” and “Description of the Junior Subordinated Debentures—Modification
of Indentures” or as otherwise required by law or the trust agreements, as an
owner of trust preferred securities, you will be entitled to vote only on the
following matters:
 
•  
removal of the property trustee or the Delaware trustee:

 
º  
when there is a default under the related series of junior subordinated
debentures; or

 
º  
when holders of a majority in liquidation value of the outstanding trust
preferred securities of such series decide to remove either of the trustees for
cause;

 
•  
certain modifications to the terms of such series of trust preferred securities
and the guarantee that would adversely affect the rights of the holders of such
trust preferred securities; and

 
•  
the exercise of rights as holder of the junior subordinated debentures by the
Morgan Stanley Trust that corresponds to your trust preferred securities.

 
The trustees are authorized and directed to conduct the affairs of and to
operate the Morgan Stanley Trusts in such a way that it will not be
characterized as other than one or more grantor trusts or agency arrangements
for U.S. federal income tax purposes.
 
In this regard, we and the trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Morgan Stanley
Trusts or the Declarations of Trust, that we and the trustees
 
 
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determine to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the trust
preferred securities.
 
 
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
 
The following describes material terms of the junior subordinated debentures.
You should also read the Junior Subordinated Indenture, dated as of October 1,
2004, between Morgan Stanley and The Bank of New York, as indenture trustee (the
“junior subordinated indenture”)
 
Under circumstances involving the dissolution of any Morgan Stanley Trust or, at
the election of Morgan Stanley, such Morgan Stanley Trust may distribute the
junior subordinated debentures to the holders of the trust preferred securities
and the common securities in liquidation of such Morgan Stanley Trust. See
“Description of Trust Preferred Securities—Liquidation Distribution upon
Dissolution.”
 
General
 
The junior subordinated debentures are unsecured, subordinated obligations of
Morgan Stanley. The junior subordinated debentures to be acquired by each Morgan
Stanley Trust will be limited in aggregate principal amount to $2,000,010,000 in
the case of Morgan Stanley Trust A, $2,000,010,000 in the case of Morgan Stanley
Trust B and $1,579,153,000 in the case of Morgan Stanley Trust C. Each such
amount will be limited to the sum of:
 
•  
the aggregate stated liquidation amount of the PEPS Units issued by the relevant
Morgan Stanley Trust; and

 
•  
the amount of capital contributed by Morgan Stanley to the relevant Morgan
Stanley Trust in exchange for the common securities.

 
The junior subordinated debentures and the guarantee will be unsecured and will
rank subordinate and junior in right of payment to all of Morgan Stanley’s
current and future senior indebtedness (as defined below). The junior
subordinated debentures will be effectively subordinated to all indebtedness and
other liabilities of Morgan Stanley’s subsidiaries. The junior subordinated
debentures and related guarantee will rank pari passu with the junior
subordinated debt of Morgan Stanley underlying the existing capital securities
of Morgan Stanley Capital Trust III, Morgan Stanley Capital Trust IV, Morgan
Stanley Capital Trust V and Morgan Stanley Capital Trust VI (collectively, the
“Parity Trusts”) and guarantees by Morgan Stanley of the capital securities
issued by the Parity Trusts, respectively. The junior subordinated debentures
and the guarantee will rank senior to the junior subordinated debt of Morgan
Stanley underlying the existing capital securities of Morgan Stanley Capital
Trust VII and Morgan Stanley Capital Trust VIII (collectively, the “junior
trusts”) and the guarantee by Morgan Stanley of the capital securities issued by
the junior trusts and may rank junior to, senior to or pari passu with junior
subordinated debentures and guarantees underlying capital securities to be
issued in the future by trusts similar to the Morgan Stanley Trusts or other
junior subordinated securities to be issued in the future by Morgan Stanley. For
information on the subordination of the junior subordinated debentures, see “—
Subordination” and “Description of Guarantees — Status of the Guarantees” for a
more detailed explanation.
 
The junior subordinated debentures included in a series of Corporate Units will
have terms substantially similar to the terms of the trust preferred securities
included in such series, except that the junior subordinated debentures will not
be remarketed at any time (unless the junior subordinated debentures are
distributed directly to holders of the trust preferred securities). Instead,
upon a successful remarketing, as described below under “—Remarketing,” the
coupon on the junior subordinated debentures will be correspondingly reset to
match the corresponding distribution rate on the trust preferred securities.
 
Interest Rate and Maturity
 
The junior subordinated debentures will mature on February 17, 2042 (subject to
change in connection with a remarketing of the trust preferred securities) and
will bear interest accruing from the date of issuance, at the rate of 6% per
annum, payable quarterly in arrears on each February 17, May 17, August 17 and
November 17, commencing February 17, 2008 subject to the deferral provisions
described under “—Option to Defer
 
 
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Interest Payments” below and subject to the reset of the interest rate in
connection with a remarketing described under “—Remarketing” below.
 
The amount of interest payable for any period will be computed on the basis of a
360-day year consisting of twelve 30-day months. In the case that any date on
which interest is payable on the junior subordinated debentures is not a
business day, then payment of the interest payable on that date will be made on
the next succeeding day that is a business day. However, no interest or other
payment shall be paid in respect of the delay.
 
In connection with a remarketing of each series of trust preferred securities
described below in “—Remarketing,” the remarketing agent may reset the rate and
the interest payment frequency (including a change from quarterly to semi-annual
interest payments) on the related series of junior subordinated debentures to a
new fixed rate and/or payment frequency that will apply to all outstanding
junior subordinated debentures of any series and will become effective on the
remarketing settlement date for such series.
 
Option to Defer Interest Payments
 
We will have the right under the subordinated indenture to defer, and will defer
if directed to do so by any then applicable regulatory authority, the payment of
interest on the junior subordinated debentures at any time or from time to time.
We may not defer interest payments for any period of time that (i) exceeds 20
consecutive interest payment dates (or the equivalent if interest periods are
not at the time quarterly), or (ii) extends beyond the stated maturity date or
any redemption date of the junior subordinated debentures. Any deferral period
must end on an interest payment date. Prior to the termination of any deferral
period, we may extend such deferral period, provided such extended deferral
period complies with these limitations. No interest will be due and payable
during a deferral period except at the end thereof. At the end of a deferral
period, we must pay all interest then accrued and unpaid, together with any
interest on the accrued and unpaid interest, to the extent permitted by
applicable law. Upon the termination of any deferral period, and the payment of
all amounts then due, we may begin a new deferral period, subject to the
limitations described above. Subject to the foregoing, there is no limitation on
the number of times that we may begin or extend a deferral period.
 
We may pay any deferred interest on the junior subordinated debentures,
including additional interest accrued thereon, in cash on any interest payment
date following the beginning of the deferral period.  If on the stock purchase
date we elect not to pay any accrued and unpaid deferred interest on the junior
subordinated debentures and there is a successful remarketing, we will pay such
deferred interest out of the proceeds of the successful remarketing.
 
If we exercise our right to defer payments of interest on the junior
subordinated debentures, we intend to treat the junior subordinated debentures
as reissued, solely for U.S. federal income tax purposes, with original issue
discount, and you would generally be required to accrue such original issue
discount as ordinary income using a constant yield method prescribed by Treasury
regulations. As a result, the income that you would be required to accrue would
exceed the interest payments that you would actually receive.
 
If we are deferring interest on the junior subordinated debentures and there is
a failed final remarketing, then on the stock purchase date we will pay the
holders of Corporate Units deferred interest on the junior subordinated
debentures in “additional subordinated notes” that have a principal amount equal
to the aggregate amount of deferred interest as of the stock purchase date,
mature on a maturity date determined at the time of their issuance but in no
event earlier than the later of August 17, 2012 and the date that is five years
following the commencement of the deferral period, bear interest at a rate per
annum equal to the rate of interest originally in effect on the junior
subordinated debentures, are subordinate and rank junior in right of payment to
all of our senior debt on the same basis as the junior subordinated debentures,
and are redeemable by us at any time prior to their stated maturity at their
principal amount plus accrued and unpaid interest through the redemption date.
 
 
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If the property trustee is the sole holder of the junior subordinated
debentures, Morgan Stanley will give the property trustee and the Delaware
trustee written notice of its selection of a deferral period no more than 15
business days before the next succeeding date on which the distributions on the
PEPS Units are payable. If such selection is made prior to the stock purchase
date, the property trustee will give notice of Morgan Stanley’s selection of a
deferral period to the holders of the Corporate Units.
 
If the property trustee is not the sole holder, or is not itself the holder, of
the junior subordinated debentures, Morgan Stanley will give the holders of the
junior subordinated debentures and the property trustee written notice of its
selection of a deferral period at least 10 business days before the earlier of:
 
•  
the next interest payment date; and

 
•  
the date Morgan Stanley is required to give notice to holders of the junior
subordinated debentures of the record or payment date for the related interest
payment.

 
Morgan Stanley has no present intention of exercising its right to defer
payments of interest on the junior subordinated debentures.
 
Additional Sums
 
If, at any time while the property trustee is the holder of the junior
subordinated debentures, any Morgan Stanley Trust is subject to U.S. federal
income tax with respect to income received or accrued on the junior subordinated
debentures or subject to more than a de minimis amount of taxes, duties or other
governmental charges (other than taxes withheld in respect of distributions to,
or for the account of, any holder of a Corporate Unit or trust preferred
security), Morgan Stanley will pay as additional interest on the junior
subordinated debentures any additional amounts (“additional sums”) that are
required so that the distributions paid by such Morgan Stanley Trust will not be
reduced as a result of any of those taxes, duties or governmental charges.
 
Restrictions on Certain Payments
 
Morgan Stanley will not, nor will it permit any of its subsidiaries to:
 
•  
declare or pay any dividends or any distributions on, or redeem, purchase,
acquire or make a liquidation payment on, any shares of Morgan Stanley’s capital
stock;

 
•  
make any payment of principal of, or interest or premium, if any, on, or repay,
repurchase or redeem debt securities of Morgan Stanley that rank equal or junior
to the junior subordinated debentures, other than (i) any payment of current or
deferred interest on securities that rank equally with the junior subordinated
debentures that is made pro rata to the amounts due on such securities
(including the junior subordinated debt securities), and (ii) any payments that,
if not made, would cause us to violate the terms of the instrument governing
such debt securities; or

 
•  
make any guarantee payments on any guarantee of debt securities of any of Morgan
Stanley’s subsidiaries if the guarantee ranks equal or junior to the junior
subordinated debentures,

 
if at such time Morgan Stanley has given notice of its election of a deferral
period and has not rescinded this notice, or the deferral period, or any
extension thereof, is continuing.
 
The restrictions listed above do not apply to:
 
•  
repurchases, redemptions or other acquisitions of shares of capital stock of
Morgan Stanley in connection with (1) any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, (2) a dividend reinvestment or stockholder
stock purchase plan, or (3) the issuance of capital stock of Morgan

 
 
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  Stanley, or securities convertible into or exercisable for such capital stock,
as consideration in an acquisition transaction entered into prior to the
deferral period;

   

•  
an exchange, redemption, reclassification or conversion of any class or series
of Morgan Stanley’s capital stock, or any capital stock of a subsidiary of
Morgan Stanley, for any class or series of Morgan Stanley’s capital stock, or of
any class or series of Morgan Stanley’s indebtedness for any class or series of
Morgan Stanley’s capital stock;

 
•  
the purchase of fractional interests in shares of Morgan Stanley’s capital stock
under the conversion or exchange provisions of the capital stock or the security
being converted or exchanged;

 
•  
any declaration of a dividend in connection with any stockholders’ rights plan,
or the issuance of rights, stock or other property under any stockholders’
rights plan, or the redemption or repurchase of rights pursuant to the plan;

 
•  
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks equal or junior to that stock;

 
•  
payments by Morgan Stanley under the guarantee of the trust preferred
securities; or

 
•  
the ability of Morgan Stanley & Co. Incorporated, or any of our other
affiliates, to engage in any market-making transactions in our securities or the
securities of any of our affiliates.

 
In addition, as long as any Morgan Stanley Trust holds any of the junior
subordinated debentures, Morgan Stanley agrees:
 
•  
to continue to hold, directly or indirectly, 100% of the common securities of
such Morgan Stanley Trust, provided that certain successors that are permitted
under the junior subordinated indenture may succeed to Morgan Stanley’s
ownership of the common securities;

 
•  
as holder of the common securities, not to voluntarily dissolve, windup or
liquidate such Morgan Stanley Trust, other than (1) as part of the distribution
of the junior subordinated debentures to the holders of the Corporate Units or
separate trust preferred securities in accordance with the terms of the
Corporate Units or trust agreement, as the case may be, or (2) as part of a
merger, consolidation or amalgamation which is permitted under the trust
agreement; and

 
•  
to use its reasonable efforts, consistent with the terms and provisions of the
trust agreement, to cause the trust to continue not to be taxable as a
corporation for United States federal income tax purposes.

 
Redemption
 
Subject to obtaining any then required regulatory approval, Morgan Stanley may
redeem each series of junior subordinated debentures as described above under
“Description of the Trust Preferred Securities—Redemption.”
 
Subordination
 
Holders of the junior subordinated debentures should recognize that contractual
provisions in the junior subordinated indenture may prohibit Morgan Stanley 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 junior subordinated indenture and the junior subordinated
debentures, to all of Morgan Stanley’s senior indebtedness and certain junior
indebtedness.
 
 
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For purposes of the junior subordinated debentures, “senior indebtedness”
includes (i) obligations of, or guaranteed or assumed by, Morgan Stanley for
borrowed money or evidenced by bonds, debentures, notes or similar instruments,
including obligations with respect to securities issued under Morgan Stanley’s
senior indentures or senior subordinated indentures, 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 junior subordinated
debentures will rank pari passu with the junior subordinated debt of Morgan
Stanley underlying the Parity Trusts and the guarantees by Morgan Stanley of the
capital securities issued by the Parity Trusts and may rank junior to, senior to
or pari passu with junior subordinated debentures and guarantees underlying
capital securities to be issued in the future by trusts similar to the Morgan
Stanley Trusts or other junior subordinated securities to be issued in the
future by Morgan Stanley. For the avoidance of doubt, the junior subordinated
debentures will rank pari passu with the claims of Morgan Stanley’s trade
creditors.
 
The indenture does not restrict our ability to issue senior indebtedness.
 
The indenture provides that, unless all principal of and any premium or interest
on the senior indebtedness has been paid in full, or provision has been made to
make these payments in full, no payment of principal of, or any premium or
interest on, any series of junior subordinated debentures may be made in the
event:
 
•  
of any insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings involving us or a substantial part
of our property;

 
•  
that (a) a default has occurred in the payment of principal, any premium,
interest or other monetary amounts due and payable on any senior indebtedness or
(b) there has occurred any other event of default concerning senior
indebtedness, that permits the holder or holders of the senior indebtedness to
accelerate the maturity of the senior indebtedness, with notice or passage of
time, or both, and that event of default has continued beyond the applicable
grace period, if any, and that default or event of default has not been cured or
waived or has not ceased to exist; or

 
•  
that the principal of and accrued interest on any junior subordinated debentures
has been declared due and payable upon an event of default under the junior
subordinated indenture and that declaration has not been rescinded and annulled
as provided under that junior subordinated indenture.

 
Remarketing
 
Unless a special event redemption or a termination event has occurred, or all
the stock purchase contracts have settled early as a result of an early
settlement or an early settlement upon a cash merger, or all of the outstanding
PEPS Units are held in the form of Treasury Units and none of the holders of the
related trust preferred securities has elected to participate in the
remarketing, as described under “Description of the Trust Preferred
Securities—Remarketing,” or all of the holders of PEPS Units have settled their
stock purchase contracts with separate cash, as described above under “—Notice
to Settle with Cash,” and none of the holders of the related trust preferred
securities has elected to participate in the remarketing, we, through Morgan
Stanley & Co. Incorporated as our “remarketing agent”, will attempt to remarket
the trust preferred securities (or, if the junior subordinated debentures are no
longer held by the relevant Morgan Stanley Trust, the junior subordinated
debentures) in a process we call “remarketing.” The periods during which a
remarketing will be attempted, or “remarketing periods,” will each consist of
five consecutive business days beginning on the seventh business day prior to
August 17, 2010, November 17, 2010, February 17, 2011, May 17, 2011 and August
17, 2011 (or if any such day is not a business day, the immediately succeeding
business day), and such remarketings will continue to be attempted until the
earlier to occur of the fifth such period or the earlier settlement of a
successful remarketing for such series of trust preferred securities (or junior
subordinated
 
 
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debentures). On any day other than the last day of a remarketing period, we will
have the right, in our absolute discretion and without prior notice to the
holders of the PEPS Units, trust preferred securities or junior subordinated
debentures, to postpone the remarketing until the following business day. A
successful remarketing will settle on the date, or “remarketing settlement
date,” that is the third business day after the last day of the relevant
remarketing period.
 
If in the judgment of our counsel or counsel to the remarketing agent a
registration statement is required to effect the remarketing of the trust
preferred securities, we will use our commercially reasonable efforts to ensure
that a registration statement covering the full principal amount of the trust
preferred securities to be remarketed will be effective in a form that will
enable the remarketing agent to rely on it in connection with the remarketing
process or we will effect such remarketing pursuant to Rule 144A under the
Securities Act, if available, or any other available exemption from applicable
registration requirements under the Securities Act.
 
The proceeds of trust preferred securities sold in a successful remarketing will
be applied towards satisfying your obligation to purchase the shares of our
common stock under the related stock purchase contracts. Any remaining proceeds
will be remitted to holders of trust preferred securities.
 
Pursuant to the remarketing agreement, the remarketing agent will use its
commercially reasonable efforts to obtain a price for the trust preferred
securities to be remarketed that results in proceeds of at least 100% of their
remarketing value. The “remarketing value” for each series of trust preferred
securities will be equal to 100% of its liquidation amount, unless the
remarketing period falls during a period in which we are deferring interest
payments on the related junior subordinated debentures. In that case, the
“remarketing value” of such trust preferred securities will be equal to 100% of
their liquidation amount plus accrued and unpaid distributions payable thereon,
including any deferred distributions and any interest thereon, unless we elect
to pay all accrued and unpaid distributions, including any deferred
distributions and any interest thereon, in cash on such distribution date, in
which case the remarketing value of such trust preferred securities will be
equal to 100% of their liquidation amount. We will pay the fees of the
remarketing agent directly. Such fees will not be included in the calculation of
the remarketing value.
 
To obtain that value, the remarketing agent may reset the interest rate on the
underlying junior subordinated debentures and, accordingly, distributions on
such trust preferred securities to a new fixed rate that will apply to all such
outstanding trust preferred securities, whether or not included in the
remarketing, and will become effective on the remarketing settlement date. The
distribution rate on such trust preferred securities will reflect the interest
rate on the underlying junior subordinated debentures as and when it is reset.
If the interest rate is reset, such junior subordinated debentures will bear
interest and, accordingly, such trust preferred securities will provide
distributions, at that rate, or “Reset Rate,” from and after the remarketing
settlement date. Such junior subordinated debentures will bear interest at the
new rate from and after the remarketing settlement date, which will be a
distribution date.
 
The Reset Rate will be equal to the interest rate determined to result in
proceeds from the remarketing of the trust preferred securities of at least 100%
of the remarketing value; provided that the Reset Rate may not exceed the Reset
Cap in connection with the first four remarketing periods. For this purpose, the
“Reset Cap” is the prevailing market yield, as determined by the remarketing
agent, of the benchmark U.S. treasury security having a remaining maturity that
most closely corresponds to the period from such date until the earliest date on
which the junior subordinated debentures may be redeemed at our option in the
event of a successful remarketing, plus 350 basis points, or 3.50%, per annum.
 
In connection with a remarketing, we may also elect:
 
•  
to change the date after which each series of junior subordinated debentures
will be redeemable at our option to any date on or after the first optional
redemption date and to change the redemption price, provided that no redemption
price may be less than the principal plus accrued and unpaid interest, including
deferred interest (if any), on such junior subordinated debentures; and/or

 
 
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•  
to change the maturity date of each series of junior subordinated debentures,
but not earlier than the first optional redemption date nor later than the
original maturity date.

 
In connection with a remarketing, we may also elect to distribute each series of
junior subordinated debentures out of any Morgan Stanley Trust and remarket such
junior subordinated debentures as our senior, unsecured obligations, provided
that we may make such election only if such change in the priority of such
junior subordinated debentures will not result in a change in payment
expectations under such junior subordinated debentures. We will be required to
remarket the debentures as our senior, unsecured obligations, if the remarketing
agent concludes that such change in the priority of such junior subordinated
debentures is necessary in order for the remarketing to be successful. If we
elect or are required to remarket such junior subordinated debentures as our
senior, unsecured obligations, we will also eliminate the interest deferral
features of the securities being remarketed.
 
If the remarketing agent cannot remarket the related trust preferred securities
during any of the first four remarketing periods at a price that results in
proceeds, net of any remarketing fee, equal to 100% of the remarketing value of
such trust preferred securities to be remarketed, then:
 
•  
the stock purchase date will be deferred until the next remarketing settlement
date;

 
•  
the interest rate on the related junior subordinated debentures will not be
reset; and

 
•  
the remarketing agent will thereafter attempt to establish a new Reset Rate
meeting the requirements described above and remarket the trust preferred
securities during subsequent remarketing periods, which will begin on the
seventh business day immediately preceding each of November 17, 2010, February
17, 2011, May 17, 2011 and August 17, 2011 (or if any such day is not a business
day, the immediately succeeding business day).

 
Any subsequent remarketing will be subject to the conditions and procedures
described above, and will settle (if successful) on the corresponding
remarketing settlement date, provided that if a successful remarketing has not
previously occurred and, as a result, the remarketing agent attempts a
remarketing during the fifth remarketing period, then the Reset Rate for that
remarketing will not be subject to the Reset Cap.
 
In the case of a failed final remarketing, the stock purchase date will be the
distribution date immediately following the remarketing period and:
 
•  
On the stock purchase date, holders of all trust preferred securities will have
the right to put their trust preferred securities to us for an amount equal to
the liquidation amount of their trust preferred securities. A holder of
Corporate Units will be deemed to have automatically exercised this put right
with respect to the trust preferred securities underlying such Corporate Units
unless, prior to 5:00 p.m., New York City time, on the second business day
immediately prior to the stock purchase date, the holder provides written notice
of an intention to settle the related stock purchase contracts with separate
cash and on or prior to the business day immediately preceding the stock
purchase date delivers to the collateral agent $1,000 in cash per stock purchase
contract. Unless a holder of Corporate Units has settled the related stock
purchase contracts with separate cash on or prior to the stock purchase date,
the holder will be deemed to have elected to apply the put price against such
holder’s obligations to us under the related stock purchase contracts, thereby
satisfying such obligations in full, and we will deliver to the holder our
common stock pursuant to the related stock purchase contracts.

 
•  
The interest rate on the junior subordinated debentures underlying the trust
preferred securities will not be reset and they will continue to accrue interest
at the interest rate that would otherwise apply. In the event of a final failed
remarketing, we may move up the stated maturity of the junior subordinated
debentures and, accordingly, the mandatory redemption date of the trust
preferred securities, to any date on or after the date that is the later of (a)
two years after the remarketing settlement date and (b)

 
 
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  if we are deferring interest on the junior subordinated debentures at the time
of the remarketing, the date that is five years after the beginning of the
relevant deferral period.

   

•  
We will issue additional subordinated notes in the amount of any accrued and
unpaid (or deferred) interest on the junior subordinated debentures as of the
stock purchase date to each Morgan Stanley Trust, which will in turn distribute
such notes to the holders of Corporate Units and any separate trust preferred
securities and we will pay any unpaid contract adjustment payment amount in
additional subordinated notes that will be delivered to the holders of PEPS
Units.

 
We will give the stock purchase contract agent and the property trustee, who in
turn will give holders of the PEPS Units and holders of the trust preferred
securities not held as part of Corporate Units, notice of remarketing at least
21 calendar days prior to the first day of any remarketing period. Such notice
will set forth:
 
•  
the beginning and ending dates of the remarketing period and the applicable
remarketing settlement date and stock purchase date in the event the remarketing
is successful;

 
•  
the applicable distribution dates and record dates for cash distributions on the
trust preferred securities;

 
•  
any change to the stated maturity of the junior subordinated debentures, and, if
applicable, the date on and after which each Morgan Stanley Trust will have the
right to redeem the trust preferred securities;

 
•  
whether the junior subordinated debentures underlying the trust preferred
securities, and our guarantee of the trust preferred securities will no longer
be subordinated to our senior indebtedness;

 
•  
the procedures you must follow if you hold trust preferred securities held as
part of Corporate Units to elect not to participate in the remarketing and the
date by which such election must be made; and

 
•  
the procedures you must follow if you hold trust preferred securities separately
to elect to participate in the remarketing as described under “Description of
the Trust Preferred Securities—Remarketing” and the date by which such election
must be made.

 
We will notify the holders of PEPS Units of any failed remarketing.
 
Events of Default, Defaults and the Rights of PEPS Unit Holders to Take Action
Against Morgan Stanley
 
Under the junior subordinated debentures, only (i) Morgan Stanley’s failure to
pay interest for 30 days after deferral for 20 or more consecutive quarterly
interest periods or the equivalent thereof, in the event that interest periods
are other than quarterly and (ii) the occurrence of certain events of bankruptcy
or insolvency of Morgan Stanley, whether voluntary or not, results in an event
of default which would allow for the relevant series of junior subordinated
debentures to be accelerated.
 
So long as any Morgan Stanley Trust holds the junior subordinated debentures of
a series, the property trustee and the holders of the trust preferred securities
will have the following rights under the junior subordinated indenture with
respect to an event of default or a default:
 
•  
upon the occurrence and continuation of an event of default, the property
trustee or the holders of not less than 25% in aggregate liquidation amount of
the trust preferred securities may declare the principal and interest accrued
thereon of the junior subordinated debentures of such series due and payable
immediately;

 
•  
upon the occurrence of a default, there is no right of acceleration except for
those defaults that are also events of default; if a default in the payment of
principal of, or any interest on, such series of junior subordinated debentures
occurs and is continuing and Morgan Stanley fails to pay the full amount

 
 
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  then due and payable with respect to the junior subordinated debentures of
such 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; if any default occurs and is continuing, the indenture trustee
may pursue legal action to enforce the performance of any provision in the
junior subordinated indenture to protect the rights of the indenture trustee and
the holders of the junior subordinated debentures of such series;

   

•  
if all defaults have been cured or waived, the consent of the holders of more
than 50% in aggregate liquidation amount the of corresponding series of trust
preferred securities is required to annul a declaration by the indenture
trustee, the applicable Morgan Stanley Trust or the holders of the trust
preferred securities of such series that the principal of the junior
subordinated debentures is due and payable immediately;

 
•  
unless the default is cured, the consent of each holder of trust preferred
securities of such series is required to waive a default in the payment of
principal, premium or interest with respect to the junior subordinated
debentures of such series or a default in respect of a covenant or provision
that cannot be modified or amended without the consent of the holder of each
outstanding junior subordinated debenture of such series; and

 
•  
unless the default is cured, the consent of the holders of more than 50% in
aggregate liquidation amount of the trust preferred securities of such series is
required to waive any other default.

 
The indenture trustee shall be under no obligation to exercise any of the rights
or powers vested in it by the junior subordinated indenture at the request or
direction of any of the holders pursuant to the junior subordinated indenture,
unless such holders shall have offered to the indenture trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
 
If the event of default or default under the junior subordinated debentures is
attributable to the failure of Morgan Stanley to pay any amounts payable on the
junior subordinated debentures when due, then a registered holder of trust
preferred securities of the corresponding series may bring a legal action
against Morgan Stanley directly for enforcement of payment to such holder of
amounts owed on the junior subordinated debentures with a principal amount equal
to the aggregate liquidation amount of the trust preferred securities held by
such holder (a “direct action”). Morgan Stanley may not amend the junior
subordinated debentures to remove this right to bring a direct action without
the prior written consent of the registered holders of all the trust preferred
securities of the relevant Morgan Stanley Trusts. Morgan Stanley may reduce its
payments then due under the junior subordinated debentures of a series by any
corresponding payments it has made to holders of the corresponding trust
preferred securities in connection with a direct action.
 
The holders of the trust preferred securities will not be able to exercise
directly any remedies available to the holders of the junior subordinated
debentures except under the circumstance described in the preceding paragraph.
See “Description of Trust Preferred Securities—Trust Preferred Securities Events
of Default”.
 
Modification of Subordinated Indenture
 
If any of the PEPS Units of a series are outstanding:
 
•  
no modification may be made to the junior subordinated indenture that materially
adversely affects the holders of such PEPS Units;

 
•  
no termination of the junior subordinated indenture may occur; and

 
•  
no waiver of any event of default or default under the junior subordinated
debentures of such series may be effective,

 
 
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without the prior consent of the holders of at least a majority of the aggregate
liquidation amount of the outstanding PEPS Units of such series unless and until
the principal of and premium, if any, on the junior subordinated debentures
included in such series of PEPS Units and all accrued and unpaid interest
thereon have been paid in full and certain other conditions are satisfied.
 
In addition, if any of the PEPS Units of a series are outstanding, all holders
of such PEPS Units must consent if Morgan Stanley wants to amend the junior
subordinated indenture to:
 
•  
impair the rights of holders of such PEPS Units to institute a direct action;

 
•  
remove any obligation to obtain the consent of holders of such PEPS Units; or

 
•  
change the percentage of holders of the PEPS Units of such series required to
amend or waive any provision of the junior subordinated indenture.

 
So long as Morgan Stanley complies with the terms of the junior subordinated
debentures and the junior subordinated indenture, Morgan Stanley may defer
interest payable on the junior subordinated debentures, as described in this
offering memorandum, without the consent of Morgan Stanley Trust or the holders
of the PEPS Units.
 
Notwithstanding the foregoing, neither Morgan Stanley nor Morgan Stanley Trust
may amend the terms of the junior subordinated debentures or the junior
subordinated indenture to add events of default or acceleration events.
 
Merger, Consolidation, Sale, Lease or Conveyance
 
The junior subordinated indenture provides that we will not merge or consolidate
with any other person and will not sell, lease or convey all substantially all
or our assets to any other person, unless:
 
•  
we will be the continuing corporation; or

 
•  
the successor corporation or person that acquired all or substantially all of
our assets;

 
º  
will be a corporation organized under the laws of the United States, a state of
the United States or the District of Columbia; and

 
º  
will expressly assume all of our obligations under the junior subordinated
indenture and the junior subordinated debentures issued under that junior
subordinated indenture; and

 
•  
immediately after the merger, consolidation, sale, lease or conveyance, we, that
person or that successor corporation will not be in default in the performance
of the covenants and conditions of the junior subordinated indenture.

 
There are no covenants or other provisions in the 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.
 
Registration, Denomination and Transfer
 
Morgan Stanley will register each series of junior subordinated debentures in
the name of the related Morgan Stanley Trust. The property trustee will hold the
junior subordinated debentures in trust for the benefit
 
 
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of the holders of the PEPS Units and the common securities. The junior
subordinated debentures will be issued in denominations of $1,000 and integral
multiples thereof.
 
If the junior subordinated debentures are issued in certificated form, payments
of principal and interest will be payable, the transfer of the junior
subordinated debentures will be registrable, and junior subordinated debentures
will be exchangeable for junior subordinated debentures of other authorized
denominations of a like aggregate principal amount. However, payment of interest
may be made at the option of Morgan Stanley by check mailed to the address of
the holder entitled to the payment. Upon written request to the paying agent not
less than 15 calendar days prior to the date on which interest is payable, a
holder of $1 million or more in aggregate principal amount of junior
subordinated debentures of a series may receive payment of interest, other than
payments of interest payable at maturity or on any date of redemption or
repayment, by wire transfer of immediately available funds.
 
Junior subordinated debentures may be presented for registration of transfer,
exchange, redemption or payment with an endorsed form of transfer, or a duly
executed and satisfactory written instrument of transfer, at the securities
registrar’s office in New York, New York or the office of any transfer agent
selected by Morgan Stanley without service charge and upon payment of any taxes
and other governmental charges as described in the junior subordinated
indenture. Morgan Stanley will appoint the indenture trustee as securities
registrar under the junior subordinated indenture. Morgan Stanley may at any
time designate additional transfer and paying agents with respect to the junior
subordinated debentures.
 
In the event of any redemption, Morgan Stanley and the indenture trustee will
not be required to:
 
•  
register the transfer of or exchange junior subordinated debentures during a
period beginning 15 calendar days before the first mailing of the notice of
redemption; or

 
•  
register the transfer of or exchange any junior subordinated debentures selected
for redemption, except, in the case of any junior subordinated debentures being
redeemed in part, any portion not to be redeemed.

 
At the request of Morgan Stanley, funds deposited with the indenture trustee or
any paying agent held for Morgan Stanley for the payment of principal, interest
and premium, if any, on any junior subordinated debenture which remain unclaimed
for two years after the principal, interest and premium, if any, has become
payable will be repaid to Morgan Stanley and the holder of the junior
subordinated debenture will, as a general unsecured creditor, look only to
Morgan Stanley for payment thereof.
 
Distribution of Junior Subordinated Debentures
 
As described above, a series of junior subordinated debentures may be
distributed in exchange for the corresponding series of trust preferred
securities upon dissolution and liquidation of the relevant Morgan Stanley
Trust, after satisfaction of such Morgan Stanley Trust’s liabilities to its
creditors. See “Description of Trust Preferred Securities—Liquidation
Distribution Upon Dissolution” above.
 
If a series of the junior subordinated debentures have been distributed in
exchange for the corresponding series of trust preferred securities, the holders
of not less than 25% in aggregate principal amount of such junior subordinated
debentures will have the right upon the occurrence and continuation of an event
of default, unless the principal of all such junior subordinated debentures has
already become due and payable, to declare the principal and interest accrued
thereon due and payable immediately.
 
 
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DESCRIPTION OF THE GUARANTEE
 
The following is a description of the material terms of the guarantee. You
should read the guarantee, to be dated as of December 28, 2007, between Morgan
Stanley and The Bank of New York, as guarantee trustee, and the Trust Indenture
Act.
 
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
trust preferred securities covered by the guarantee, as and when due, regardless
of any defense, right of set-off or counterclaim that a Morgan Stanley Trust may
have or assert other than the defense of payment.
 
The following payments on the trust preferred securities (the “guarantee
payments”), if not fully paid by the applicable Morgan Stanley Trust, will be
paid by Morgan Stanley under the guarantee, without duplication:
 
•  
any accumulated and unpaid distributions required to be paid on the trust
preferred securities, to the extent the applicable Morgan Stanley Trust has
funds available to make the payment;

 
•  
the redemption price for any trust preferred securities called for redemption,
if the applicable Morgan Stanley Trust has funds available to make the payment;
and

 
•  
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
applicable Morgan Stanley Trust, other than in connection with a distribution of
the applicable junior subordinated debentures to the holders of PEPS Units, the
lesser of:

 
(1)
the aggregate of the $1,000 per trust preferred security liquidation amount and
all accumulated and unpaid distributions on the relevant series of trust
preferred securities to the date of payment, if the relevant Morgan Stanley
Trust has funds available to make the payment; and

 
(2)
the amount of assets of the relevant Morgan Stanley Trust remaining available
for distribution to holders of the PEPS Units upon liquidation of such Morgan
Stanley Trust.

 
Morgan Stanley’s obligation to make a guarantee payment may be satisfied by
direct payment of the required amounts by Morgan Stanley to the holders of the
trust preferred securities or by causing the applicable Morgan Stanley Trust to
pay the amounts to the holders.
 
If we do not make payments on the junior subordinated debentures owned by a
Morgan Stanley Trust, such Morgan Stanley Trust will not be able to pay any
amounts payable in respect of the trust preferred securities issued by it and
will not have funds legally available for that purpose. In that event, holders
of such series of trust preferred securities would not be able to rely upon the
guarantee for payment of those amounts. The guarantee will have the same ranking
as the junior subordinated debentures owned by such Morgan Stanley Trust. No
guarantee will limit the incurrence or issuance of other secured or unsecured
debt of Morgan Stanley.
 
Status of the Guarantees
 
The guarantee will constitute an unsecured obligation of Morgan Stanley and will
rank equal to the junior subordinated debentures owned by the Morgan Stanley
Trusts.
 
The guarantee will constitute a guarantee of payment and not of collection. Any
holder of trust preferred 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.
The guarantee will be held by the guarantee trustee for the benefit of the
holders of the trust preferred securities. The guarantee will not be discharged
except by payment of the guarantee payments in full to the extent not
 
 
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paid by or on behalf of the Morgan Stanley Trusts or, if applicable,
distribution to the holders of the trust preferred securities of the junior
subordinated debentures owned by the Morgan Stanley Trusts.
 
Amendments and Assignment
 
Except with respect to any changes that do not materially adversely affect the
rights of holders of the trust preferred securities issued by the Morgan Stanley
Trusts, in which case no approval will be required, the guarantee may not be
amended with respect to a Moan Stanley Trust without the prior approval of the
holders of at least a majority of the aggregate liquidation amount of the
outstanding trust preferred securities of the related series. All guarantees and
agreements contained in the 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 trust preferred securities.
 
Events of Default
 
An event of default under the guarantee with respect to a Morgan Stanley Trust
will occur upon the failure of Morgan Stanley to perform any of its payment
obligations under the guarantee with respect to such Morgan Stanley Trust, or to
perform any non-payment obligation if the non-payment default remains unremedied
for 30 days. If an event of default under the guarantee occurred and is
continuing, the guarantee trustee will enforce the guarantee for the benefit of
the holders of the related series of trust preferred securities. The holders of
a majority in aggregate liquidation amount of a series of outstanding trust
preferred securities 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 trust preferred securities may institute a legal proceeding
directly against Morgan Stanley to enforce its rights under the guarantee
without first instituting a legal proceeding against the related Morgan Stanley
Trust, the guarantee trustee or any other person or entity.
 
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 trust preferred
securities 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.
 
Termination of the Guarantee
 
The guarantee will terminate upon full payment of the redemption price of all of
the trust preferred securities covered by the guarantee, upon full payment of
the amounts payable with respect to the trust preferred securities upon
liquidation of the Morgan Stanley Trusts or upon distribution of the junior
subordinated debentures owned by the Morgan Stanley Trusts to the holders of all
the trust preferred securities covered by the guarantee. The guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the trust preferred securities covered by the guarantee must
repay any sums with respect to the trust preferred securities or the guarantee.
 
Governing Law
 
The guarantee will be governed by, and construed in accordance with, the laws of
the State of New York.
 
 
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 RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
 
Morgan Stanley will guarantee payments of distributions and redemption and
liquidation payments payable by the Morgan Stanley Trusts on the PEPS Units to
the extent the relevant Morgan Stanley Trust has funds available for such
payment, as described under “Description of Guarantee” above. No single document
executed by Morgan Stanley will provide for the full, irrevocable and
unconditional guarantee of the PEPS Units. It is only the combined operation of
the guarantee, the trust agreements and the junior subordinated indenture that
has the effect of providing a full, irrevocable and unconditional guarantee of
the Morgan Stanley Trusts’ obligations under the PEPS Units.
 
As long as Morgan Stanley pays interest and other payments when due on each
series of junior subordinated debentures, those payments will be sufficient to
cover distributions and redemption and liquidation payments due on the related
series of PEPS Units, primarily because:
 
•  
the aggregate principal amount of the junior subordinated debentures will be
equal to the sum of the aggregate liquidation amount of the PEPS Units and the
common securities;

 
•  
the interest rate and interest and other distribution dates on the junior
subordinated debentures will match the distribution rate and distribution and
other distribution dates for the PEPS Units;

 
•  
Morgan Stanley will, pursuant to an expense agreement, pay for any and all
costs, expenses and liabilities of the Morgan Stanley Trusts, except withholding
taxes and the Morgan Stanley Trusts’ obligations to holders of the PEPS Units
and the common securities; and

 
•  
the trust agreements provide that the Morgan Stanley Trusts will not engage in
any activity that is not consistent with the limited purposes of the Morgan
Stanley Trusts.

 
The only events of default applicable to the PEPS Units that may result in
acceleration of the related series of junior subordinated debentures are: (i)
Morgan Stanley’s failure to pay interest for 30 days after deferral for 20 or
more consecutive quarterly interest periods or the equivalent thereof, in the
event that interest periods are other than quarterly and (ii) the occurrence of
certain events of bankruptcy or insolvency of Morgan Stanley, whether voluntary
or not. However, in the event of payment defaults under, or acceleration of,
senior indebtedness (as defined above), the junior subordinated indenture
provides that no payments may be made on the junior subordinated debentures
until such senior indebtedness has been paid in full or any payment default
under the such indebtedness has been cured or waived. See “Description of Junior
Subordinated Debentures.”
 
Limited Purpose of Morgan Stanley Trust
 
The trust preferred securities represent preferred undivided beneficial
interests in the assets of the Morgan Stanley Trusts.  The Morgan Stanley Trusts
exist for the sole purpose of:
 
•  
issuing and selling the trust preferred securities and common securities;

 
•  
investing the proceeds from the sale of the trust preferred securities and
common securities in the junior subordinated debentures; and

 
•  
engaging in only those other activities necessary, convenient or incidental to
these purposes.

 
A principal difference between the rights of a holder of a trust preferred
security and a holder of a junior subordinated debenture is that a holder of a
junior subordinated debenture is entitled to receive from Morgan Stanley
payments on junior subordinated debentures held by the holder, while a holder of
trust preferred securities is entitled to receive distributions or other amounts
payable with respect to the trust preferred securities from the relevant Morgan
Stanley Trust or from Morgan Stanley under the guarantee only if and to the
extent such Morgan Stanley Trust has funds available for the payment of those
distributions.
 
 
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Rights upon Dissolution
 
The holders of the trust preferred securities are entitled to receive, out of
assets held by the Morgan Stanley Trusts, a distribution in cash upon any
voluntary or involuntary dissolution, winding-up or liquidation of the relevant
Morgan Stanley Trust that does not involve the distribution of the related
series of junior subordinated debentures, after Morgan Stanley Trust has paid or
made reasonable provision to pay, in accordance with Section 3808(e) of the
Delaware Statutory Trust Act, the liabilities owed to its creditors as required
by applicable law. See “Description of Capital Securities—Liquidation
Distribution upon Dissolution.”
 
In the event of any voluntary or involuntary liquidation or bankruptcy of Morgan
Stanley, the Morgan Stanley Trusts, as registered holder of the junior
subordinated debentures, would be a subordinated creditor of Morgan Stanley,
subordinated and junior in right of payment to all Morgan Stanley’s senior
indebtedness, but entitled to receive payment in full of all amounts payable
with respect to the junior subordinated debentures before any stockholders of
Morgan Stanley receive payments or distributions. Since Morgan Stanley is the
guarantor under the guarantee and has agreed to pay for all costs, expenses and
liabilities of the Morgan Stanley Trusts (other than withholding taxes and the
Morgan Stanley Trusts’ obligations to the holders of the trust preferred
securities and common securities), the positions of a holder of the trust
preferred securities and a holder of the junior subordinated debentures relative
to other creditors and to stockholders of Morgan Stanley in the event of
liquidation or bankruptcy of Morgan Stanley are expected to be substantially the
same.
 

 
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Exhibit A-2
 
Opinion of Davis Polk & Wardwell
 
Based upon the foregoing, and subject to the limitations, qualifications and
assumptions set forth herein, we are of the opinion that:
 
1.           The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business.
 
2.           Each of Morgan Stanley & Co. Incorporated and Morgan Stanley
International Holdings Inc. (the “Material Subsidiaries”) is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business.
 
3.           The Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company. This Agreement and is a valid
and binding agreements of the Company, enforceable in accordance with their
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and equitable principles of general applicability
and except as rights to indemnification and contribution under the Registration
Rights Agreement may be limited under applicable law.
 
4.           The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Securities Issuance
Agreements and Transaction Documents.
 
5.           The stock purchase contracts, the purchase contract and pledge
agreement and the junior subordinated indenture have been duly authorized,
executed and delivered by the Company and are valid and binding agreements of
the Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally
and equitable principles of general applicability.
 
6.           The junior subordinated debentures have been duly authorized by the
Company and, when executed and authenticated in accordance with the provisions
of the stock purchase contracts, the purchase contract and pledge agreement and
the junior subordinated indenture, and delivered to and paid for by the
purchasers in accordance with the terms of this Agreement, will be entitled to
the benefits of the stock purchase contracts, the purchase contract and pledge
agreement and the junior subordinated indenture, and will be valid and binding
obligations of the Company, enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors’
rights generally and equitable principles of general applicability.
 
7.           The Guarantee has been duly authorized, executed and delivered by
the Company and is a valid and binding obligation of the Company enforceable in
accordance
 
 
A-1-1

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with its terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors’ rights generally and equitable principals of general
applicability.
 
8.           The shares of Common Stock initially issuable upon exercise of the
stock purchase contracts have been duly authorized and reserved and, when issued
upon exercise of the stock purchase contracts in accordance with the terms of
the stock purchase contracts, will be validly issued, fully paid and
non-assessable, and the issuance of such shares will not be subject to any
statutory or preemptive rights under the Delaware General Corporation Law or the
Company’s Charter or Bylaws.
 
9.           The Company has taken all necessary corporate action to authorize
the execution, delivery and performance of its obligations under the
Securities.  When the Securities are executed by the Company, authenticated by
the Trustee in accordance with the terms of the stock purchase contracts, the
purchase contract and pledge agreement and the junior subordinated indenture,
and issued and delivered to and paid for by the Investor pursuant to the
Agreement on the Closing Date, such Securities will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors’ rights generally and equitable principles of general
applicability.  The stock purchase contracts, the purchase contract and pledge
agreement and the junior subordinated indenture conform in all material respects
to the descriptions thereof, contained in the Offering Memorandum under the
captions “Description of the Stock Purchase Contracts,” “Certain Other
Provisions of the Purchase Contract and Pledge Agreement” and “Description of
the Junior Subordinated Debentures.”
 
10.           Based on the representations, warranties and agreements of the
Company and the Investor in the Agreements and compliance with the statements
set forth in the Offering Memorandum under the caption “Transfer Restrictions,”
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Investor, in the manner provided for by the Agreements and the
Offering Memorandum, to register the Securities under the Securities Act or to
qualify the Junior Subordinated Indenture under the Trust Indenture Act of 1939,
as amended.  We express no opinion, however, as to when or under what
circumstances any Securities initially sold by the Company may be reoffered or
resold.
 
11.           The execution and delivery by the Company of each Agreement, the
stock purchase contracts, the purchase contract and pledge agreement and the
junior subordinated indenture, and the Securities and the performance by the
Company of its obligations thereunder do not contravene any provision of the
certificate of incorporation or the bylaws of the Company.
 
12.           The Company is not, and after receipt of payment for the
Securities and the application of the proceeds thereof will not be, an
“investment company” as defined in the Investment Company Act of 1940, as
amended.
 
 
A-1-2

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13.           The execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Securities Issuance Agreements will
not contravene any provision of the laws of the State of New York or any federal
law of the United States of America that in our experience is normally
applicable to general business corporations in relation to transactions of the
type contemplated by the Securities Issuance Agreements, or the General
Corporation Law of the State of Delaware; provided, however, that we express no
opinion as to (i) federal or state securities laws or (ii) whether the purchase
of the Capital Securities and the Guarantee constitutes a “prohibited
transaction” under Section 406 of the Employee Retirement Income Security Act of
1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as
amended.
 

A-1-3

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Exhibit A-2
 
Opinion of Richards, Layton & Finger
 
1.  Each of the Trusts has been duly created and is validly existing in good
standing as a statutory trust under the Delaware Statutory Trust Act and, under
the Delaware Statutory Trust Act and the applicable Trust Agreement, has the
trust power and authority to conduct its business, all as described in the
Offering Memorandum.
 
2.  Each Trust Agreement is a legal, valid and binding agreement of the Company,
the Administrators and the Trustees, and is enforceable against the Company, the
Administrators and the Trustees, in accordance with its terms.
 
3.  Under each Trust Agreement and the Delaware Statutory Trust Act, the
execution and delivery of the transaction documents by the applicable Trust, and
the performance by such Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of such Trust.
 
4.  The trust preferred securities have been duly authorized by the applicable
Trust Agreement and are duly and validly issued and, subject to the
qualifications set forth herein, will be fully paid and nonassessable undivided
beneficial interests in the assets of the applicable Trust.  The Holders of
trust preferred securities, as beneficial owners of the Trust, will be entitled
to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.  We note that the Holders of trust preferred securities may be
obligated, pursuant to the applicable Trust Agreement, to (i) provide indemnity
and security in connection with and pay taxes or governmental charges arising
from transfers of certificates of the trust preferred securities and the
issuance of replacement certificates of trust preferred securities, (ii) provide
security and indemnity in connection with requests of or directions to the
property trustee to exercise its rights and powers under such Trust Agreement,
and (iii) undertake as a party litigant to pay costs in any suit for the
enforcement of any right or remedy under such Trust Agreement or against the
property trustee, to the extent provided in such Trust Agreement.
 
5.  The common securities have been duly authorized by the applicable Trust
Agreement and are duly and validly issued undivided beneficial interests in the
assets of the  applicable Trust.
 
6.  The issuance of the trust preferred securities and common securities is not
subject to preemptive rights under the applicable Trust Agreement or the
Delaware Statutory Trust Act.
 
7.  The issuance and sale by each Trust of the trust preferred securities and
common securities, the execution, delivery and performance by each Trust of the
transaction documents, the consummation by each Trust of the transactions
contemplated therein and
 
 
A-2-1

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the compliance by each Trust with its obligations thereunder do not violate (A)
the Certificate or the applicable Trust Agreement, or (B) any applicable
Delaware law or Delaware administrative regulation.
 
8.  After due inquiry, limited to, and solely to the extent reflected on a day
prior to closing, the results of computer searches of the court dockets for
active cases of the Court of Chancery of the State of Delaware in and for New
Castle County, Delaware, of the Superior Court of the State of Delaware in and
for New Castle County, Delaware, and of the United States District Court sitting
in the State of Delaware, we do not know of any legal or governmental proceeding
pending against any of the Trusts.
 
9.  No authorization, approval, consent or order of any Delaware court or
Delaware governmental authority or Delaware agency is required to be obtained by
any Trust solely in connection with the issuance and sale of the trust preferred
securities and common securities.
 
10.  The Holders of the trust preferred securities (other than those Holders who
reside or are domiciled in the State of Delaware) will have no liability for
income taxes imposed by the State of Delaware solely as a result of their
participation in the applicable Trust, and no Trust will not be liable for any
income tax imposed by the State of Delaware.
 
 
A-2-2

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Exhibit B
 
Press Release and Related Financial Supplement
 

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