Subject to Completion, Pricing Supplement, as amended, dated July 10, 1997
PROSPECTUS Dated June 2, 1997 Pricing Supplement No. 7 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-27919
Dated June 2, 1997 Dated July , 1997
Rule 424(b)(3)
$10,000,000
Morgan Stanley, Dean Witter, Discover & Co.
MEDIUM-TERM NOTES, SERIES C
EQUITY LINKED NOTES DUE JULY , 2004
--------------
The Equity Linked Notes due July , 2004 (the "Notes") are
Medium-Term Notes, Series C of Morgan Stanley, Dean Witter, Discover & Co.
(the "Company"), as further described herein and in the Prospectus Supplement
under "Description of Notes--Fixed Rate Notes" and "-- Notes Linked to
Commodity Prices, Single Securities, Baskets of Securities or Indices." The
Notes are being issued in minimum denominations of $1,000 and will mature on
July , 2004 (the "Maturity Date"). The Issue Price of each Note will be $
( % of the principal amount) (the "Issue Price"), and there will be no
periodic payments of interest on the Notes. The Issue Price represents a
minimum yield to maturity of % per annum computed on a semi-annual bond
equivalent basis based on the Issue Price calculated from the Original Issue
Date to the Maturity Date. At maturity, the holder of each Note will receive
the par amount of such Note ($1,000) ("Par"), subject to the exercise by the
holder of the Put Right, as described below. The Notes will not be redeemable
by the Company in whole or in part prior to the Maturity Date.
On any Trading Day that falls during the period beginning on
the Final Calculation Date and ending two Business Days prior to the Maturity
Date, the holder of a Note will have the right (the "Put Right") upon
completion by the holder and delivery to the Company and the Calculation Agent
of an Official Notice of Exercise of Put Right prior to 11:00 a.m. New York
City time on such date, to sell each $1,000 principal amount of a Note to the
Company for cash in an amount (the "Put Price") equal to the sum of (i) the
Issue Price and (ii) an amount (the "Supplemental Sale Amount") based on the
percentage increase, if any, in the Final Average Index Value of the S&P 500
Composite Stock Price Index (the "S&P 500 Index"), as calculated by Standard &
Poor's ("S&P"), a Division of the McGraw-Hill Companies, Inc., over the
Initial Average Index Value, each as further described below. The
Supplemental Sale Amount, if any, payable with respect to each Note will be
calculated on the Final Calculation Date and will equal the product of (i) the
Issue Price, (ii) and (iii) a fraction, the numerator of which will
be the Final Average Index Value less the Initial Average Index Value and the
denominator of which will be the Initial Average Index Value. The
Supplemental Sale Amount cannot be less than zero. The Initial Average Index
Value will equal the arithmetic average of the S&P 500 Index closing values on
each of July , 1997, October , 1997 and January , 1998 (the "Initial
Index Determination Dates"). The Final Average Index Value will equal either
(i) the arithmetic average of the S&P 500 Index closing values on each of July
, 2003, October , 2003, January , 2004, April , 2004 and July , 2004
(the "Final Index Determination Dates") or (ii) if the holder of 100% of the
outstanding Notes completes and delivers to the Company and the Calculation
Agent an Official Equity Stop Notice prior to 11:00 a.m. New York City time
on any Trading Day on or prior to July , 2003, the S&P 500 Index closing
value on such Trading Day (the "Equity Stop Option"). The Initial Index
Determination Dates and the Final Index Determination Dates are subject to
adjustment as set forth herein.
For information as to the calculation of the Supplemental Sale
Amount, the Put Price, the Initial Average Index Value and the Final Average
Index Value and certain tax consequences to beneficial owners of the Notes,
see "Supplemental Sale Amount," "Put Right," "Initial Average Index Value,"
"Final Average Index Value," "Final Calculation Date" and "United States
Federal Taxation" in this Pricing Supplement.
The Company will cause each of the "Supplemental Sale Amount,"
the "Put Price," the "Initial Average Index Value" and the "Final Average
Index Value" to be determined by Morgan Stanley & Co. Incorporated (the
"Calculation Agent") for The Chase Manhattan Bank, as Trustee under the Senior
Debt Indenture.
An investment in the Notes entails risks not associated with
similar investments in a conventional debt security, as described under "Risk
Factors" on PS-7 through PS-9 herein.
--------------
PRICE %
--------------
Price to Public Agent's Commissions(1) Proceeds to Company
--------------- ---------------------- -------------------
Per Note. % % %
Total.... $ $ $
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
MORGAN STANLEY DEAN WITTER
Information contained in this preliminary pricing supplement is
subject to completion or amendment. These securities may not be delivered
prior to the time a final pricing supplement is delivered. This pricing
supplement and the accompanying prospectus and prospectus supplement shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES OR THE INDIVIDUAL STOCKS UNDERLYING THE S&P 500. SPECIFICALLY, THE AGENT
MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE,
THE NOTES OR INDIVIDUAL STOCKS UNDERLYING THE S&P 500 IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES SEE "USE OF PROCEEDS AND HEDGING."
Capitalized terms not defined herein have the meanings given
to such terms in the accompanying Prospectus Supplement.
Principal Amount.............. $10,000,000
Maturity Date................. July , 2004
Stated Interest Rate.......... 0.00%
Minimum Yield to Maturity..... %
Specified Currency............ U.S. Dollars
Issue Price................... %
Settlement Date (Original
Issue Date)................... , 1997
CUSIP.........................
Book Entry Note or
Certificated Note............. Book Entry
Senior Note or Subordinated
Note.......................... Senior
Minimum Denominations......... $1,000
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
Maturity Redemption Amount.... At maturity (including as a result of
acceleration or otherwise), the holder of
each Note will receive the par amount of such
Note ($1,000) ("Par"), subject to the
exercise by the holder of the Put Right.
References herein to "Notes" refer to each
$1,000 principal amount of any Note.
Put Right..................... On any Trading Day that falls during the
period beginning on the Final Calculation
Date and ending two Business Days prior to the
Maturity Date (each a "Put Date"), the holder
of a Note will have the right (the "Put
Right") upon (i) completion by the holder and
delivery to the Company and the Calculation
Agent of an Official Notice of Exercise of
Put Right (in the form of Annex A hereto)
prior to 11:00 a.m. New York City time on
such date (the "Put Notice Date") and (ii)
delivery on such date of such Notes to the
Trustee, to sell each $1,000 principal amount
of a Note to the Company for cash in an
amount (the "Put Price") equal to the sum of
(i) the Issue Price and (ii) the Supplemental
Sale Amount, if any.
The Calculation Agent will calculate the Put
Price on the Final Determination Date and, if
the Put Price is greater than Par, will
provide written notice to the holders of the
Notes on the next succeeding Business Day.
On the earlier of three Business Days after
the Put Notice Date and the Maturity Date,
the Company shall, or shall cause the
Calculation Agent to, deliver the Put Price
to the Trustee for delivery to the holder.
If a holder does not exercise the Put Right
with respect to a Note, such holder will
receive the Maturity Redemption Amount on the
Maturity Date.
Supplemental Sale Amount...... The Supplemental Sale Amount, payable with
respect to each Note, will be calculated on
the Final Calculation Date and will be an
amount equal to the greater of (a) the
product of (i) the Issue Price, (ii)
and (iii) a fraction, the numerator of which
will be the Final Average Index Value less
the Initial Average Index Value and the
denominator of which will be the Initial
Average Index Value and (b) zero. The
Supplemental Sale Amount is described by the
following formula:
(Final Average Index Value - Initial Average Index Value)
Issue Price x x --------------------------------------------------------
Initial Average Index Value
; provided that the Supplemental Sale Amount
will not be less than zero.
Promptly upon receipt of an Official Notice
of Exercise of Put Right, but in no event
later than 11:00 a.m. on the Business Day
preceding the Maturity Date, the Company will
cause the Calculation Agent to provide
written notice to the Trustee at its New York
office, on which notice the Trustee may
conclusively rely, of its receipt of such
Official Notice of Exercise of Put Right and
of the Put Price. See "Discontinuance of the
S&P 500 Index; Alteration of Method of
Calculation" below.
All percentages resulting from any
calculation with respect to the Notes will be
rounded to the nearest one hundred-thousandth
of a percentage point, with five
one-millionths of a percentage point rounded
upwards (e.g., 9.876545% (or .09876545) would
be rounded to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from
such calculation will be rounded to the
nearest cent with one-half cent being rounded
upwards.
Index Closing Value........... The Index Closing Value, on any Trading Day,
will equal the closing value of the S&P 500
Index or any Successor Index at the regular
official weekday close of trading on such
Trading Day. See "Discontinuance of the S&P
500 Index; Alteration of Method of
Calculation."
References herein to the S&P 500 Index will
be deemed to include any Successor Index,
unless the context requires otherwise.
Initial Average Index Value... The Initial Average Index Value will equal
the arithmetic average of the Index Closing
Values on each of the Initial Index
Determination Dates. The Initial Average
Index Value will be calculated on the last
Initial Index Determination Date by the
Calculation Agent. The Calculation Agent
will provide information as to the Initial
Average Index Value upon written request by
any holder of the Notes on any Business Day
after the last Initial Index Determination
Date.
Initial Index Determination
Dates.......................... The Initial Index Determination Dates will
be July , 1997, October , 1997
and January , 1998 or, if any such date
is not a Trading Day, the next succeeding
Trading Day, unless there is a Market
Disruption Event on any such Trading Day. If
a Market Disruption Event occurs on any such
Trading Day, such Determination Date will be
the immediately succeeding Trading Day during
which no Market Disruption Event shall have
occurred; provided that if a Market
Disruption Event has occurred on each of the
five Trading Days immediately succeeding any
of July , 1997, October , 1997 or
January , 1997, as the case may be, then
(i) such fifth succeeding Trading Day will be
deemed to be the relevant Initial Index
Determination Date, notwithstanding the
occurrence of a Market Disruption Event on
such day and (ii) with respect to any such
fifth Trading Day on which a Market
Disruption Event occurs, the Calculation
Agent will determine the value of the S&P 500
Index on such fifth Trading Day in accordance
with the formula for and method of
calculating the S&P 500 Index last in effect
prior to the commencement of the Market
Disruption Event, using the closing price
(or, if trading in the relevant securities
has been materially suspended or materially
limited, its good faith estimate of the
closing price that would have prevailed but
for such suspension or limitation) on such
Trading Day of each security most recently
comprising the S&P 500 Index.
Final Average Index Value..... The Final Average Index Value will equal
either (i) the arithmetic average of the
Index Closing Values on each of the Final
Index Determination Dates as calculated on
the Final Calculation Date by the Calculation
Agent or (ii) if the holder of 100% of the
outstanding Notes completes and delivers to
the Company and the Calculation Agent an
Official Equity Stop Notice (in the form of
Annex B attached hereto) prior to 11:00 a.m.
New York City time on any Trading Day on or
prior to July , 2003 (the "Equity Stop
Date"), the Index Closing Value on such
Equity Stop Date (the "Equity Stop Option"),
determined as if the Equity Stop Date were
a Final Index Determination Date.
If (a) a Market Disruption Event has
occurred on any Equity Stop Date or (b) any
notice to elect the Equity Stop Option is
received by the Company after 11:00 a.m. New
York City time on any Trading Day on or
prior to July , 2003 so that the Equity
Stop Date is the scheduled Trading Day
following the day on which such notice is
received, the Final Average Index Value will
be the Index Closing Value on the next
succeeding Trading Day on which there is no
Market Disruption Event. If there are no
such Trading Days prior to the Final
Calculation Date, the Calculation Agent will
determine the value of the S&P 500 Index in
accordance with the formula for and method of
calculating the S&P 500 Index last in effect
prior to the commencement of the Market
Disruption Event, using the closing price
(or, if trading in the relevant securities
has been materially suspended or materially
limited, its good faith estimate of the
closing price that would have prevailed but
for such suspension or limitation) on the
Equity Stop Date of each security most
recently comprising the S&P 500 Index.
If any notice to elect the Equity Stop Option
is received by the Company after 11:00 a.m.
New York City time on July , 2003, the
Final Average Index Value will be calculated
in accordance with clause (i) of the second
preceding paragraph.
Notwithstanding election by a holder of the
Equity Stop Option, the Supplemental Sale
Amount will be calculated on the Final
Calculation Date and the Supplemental Sale
Amount will be paid only upon exercise of the
Put Right by the holder.
Final Index Determination
Dates......................... The Final Index Determination Dates will be
July , 2003, October , 2003, January
, 2004, April , 2004 and July , 2004
or, if any such date is not a Trading Day,
the next succeeding Trading Day, unless there
is a Market Disruption Event on any such
Trading Day. If a Market Disruption Event
occurs on any such Trading Day, such Final
Index Determination Date will be the
immediately succeeding Trading Day during
which no Market Disruption Event shall have
occurred; provided that if a Market
Disruption Event has occurred on each of the
five Trading Days immediately succeeding any
of July , 2003, October , 2003, January
, 2004, April , 2004 or July , 2004, as
the case may be, then (i) such fifth
succeeding Trading Day will be deemed to be
the relevant Final Index Determination Date,
notwithstanding the occurrence of a Market
Disruption Event on such day and (ii) with
respect to any such fifth Trading Day on
which a Market Disruption Event occurs, the
Calculation Agent will determine the value of
the S&P 500 Index on such fifth Trading Day
in accordance with the formula for and method
of calculating the S&P 500 Index last in
effect prior to the commencement of the
Market Disruption Event, using the closing
price (or, if trading in the relevant
securities has been materially suspended or
materially limited, its good faith estimate
of the closing price that would have
prevailed but for such suspension or
limitation) on such Trading Day of each
security most recently comprising the S&P 500
Index.
Notwithstanding the foregoing, no Final Index
Determination Date will be later than the
Final Calculation Date. If such Final
Calculation Date is a Final Index
Determination Date but is not a Trading Day
or if there is a Market Disruption Event on
such Final Calculation Date, the Calculation
Agent will determine the value of the S&P 500
Index on such Final Calculation Date in
accordance with clause (ii) of the preceding
paragraph.
Trading Day................... A day on which trading is generally conducted
(i) on the New York Stock Exchange ("NYSE"),
the American Stock Exchange, Inc. ("AMEX")
and the NASDAQ National Market ("NASDAQ NMS"),
(ii) on the Chicago Mercantile Exchange and
(iii) on the Chicago Board of Options
Exchange, as determined by the Calculation
Agent.
Final Calculation Date........ The Final Calculation Date will be the
fourteenth Business Day prior to the Maturity
Date.
Market Disruption Event....... "Market Disruption Event" means, with respect
to the S&P 500 Index:
(i) a suspension, absence or material
limitation of trading of 100 or more of
the securities included in the S&P 500
Index on the primary market for such
securities for more than two hours of
trading or during the one-half hour period
preceding the close of trading in such
market; or the suspension, absence or
material limitation of trading on the
primary market for trading in futures or
options contracts related to the S&P 500
Index during the one-half hour period
preceding the close of trading in the
applicable market, in each case as
determined by the Calculation Agent in its
sole discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that the
event described in clause (i) above
materially interfered with the ability of
the Company or any of its affiliates to
unwind all or a material portion of the
hedge with respect to the Notes.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange or market, (2)
a decision to permanently discontinue trading
in the relevant futures or options contract
will not constitute a Market Disruption
Event, (3) limitations pursuant to New York
Stock Exchange Rule 80A (or any applicable
rule or regulation enacted or promulgated by
the NYSE, any other self-regulatory
organization or the Securities and Exchange
Commission of similar scope as determined by
the Calculation Agent) on trading during
significant market fluctuations will
constitute a Market Disruption Event, (4) a
suspension of trading in a futures or options
contract on the S&P 500 Index by the primary
securities market related to such contract by
reason of (a) a price change exceeding limits
set by such exchange or market, (b) an
imbalance of orders relating to such
contracts or (c) a disparity in bid and ask
quotes relating to such contracts will
constitute a suspension or material
limitation of trading in futures or options
contracts related to the S&P 500 Index and (5)
a "suspension, absence or material limitation
of trading" on the primary market on which
futures or options contracts related to the
S&P 500 Index are traded will not include any
time when such market is itself closed for
trading under ordinary circumstances.
Alternative Determination
Date in case of an Event of
Default....................... In case an Event of Default with respect to
any Notes shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the Notes
will be determined by the Calculation Agent
and will be equal to Par plus the Supplemental
Sale Amount, if any, determined as though
each Initial Index Determination Date and
each Final Index Determination Date scheduled
to occur on or after such date of
acceleration were the date of acceleration.
The Equity Stop Option will not be available
upon an Event of Default with respect to the
Notes.
Calculation Agent............. Morgan Stanley & Co. Incorporated ("MS & Co.")
All determinations made by the Calculation
Agent will be at the sole discretion of the
Calculation Agent and will, in the absence of
manifest error, be conclusive for all
purposes and binding on the Company and
holders of the Notes.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in determining the Initial Average Index
Value and the Final Average Index Value or
whether a Market Disruption Event has
occurred. See "Discontinuance of the S&P 500
Index; Alteration of Method of Calculation"
below and "Market Disruption Event" above.
MS & Co. is obligated to carry out its duties
and functions as Calculation Agent in good
faith and using its reasonable judgment.
Risk Factors.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional security,
including the following.
There will be no periodic payments of
interest on the Notes as there would be on a
conventional fixed-rate debt security having
the same maturity date as the Notes and
issued by the Company on the Original Issue
Date. Because the holder will receive only
Par at maturity and because the Supplemental
Sale Amount may be equal to zero so that it
would not be economical to exercise the Put
Right, the effective yield to maturity may be
less than that which would be payable on such
a conventional fixed-rate debt security.
The return of only the par amount of a Note
at maturity may not compensate the holder for
any opportunity cost implied by inflation and
other factors relating to the time value of
money. The percentage appreciation of the
S&P 500 Index based on the Final Average
Index Value over the Initial Average Index
Value does not reflect the payment of
dividends on the stocks underlying the S&P
500 Index. Therefore, the yield to maturity
taking into account the exercise of the Put
Right based on the Final Average Index Value
relative to the Initial Average Index Value
will not be the same yield as would be
produced if such underlying stocks were
purchased and held for a similar period.
The Notes will not be listed on any exchange.
There can be no assurance as to whether there
will be a secondary market in the Notes or if
there were to be such a secondary market,
whether such market would be liquid or
illiquid. It is expected that the secondary
market for the Notes will be affected by the
creditworthiness of the Company and by a
number of factors, including, but not limited
to, the volatility of the S&P 500 Index,
dividend rates on the stocks underlying the
S&P 500 Index, the time remaining to the Final
Calculation Date and to the maturity of the
Notes and market interest rates. In
addition, the Initial Average Index Value and
the Final Average Index Value depends on a
number of interrelated factors, including
economic, financial and political events,
over which the Company has no control. The
value of the Notes prior to maturity is
expected to depend primarily on market
interest rates and the extent of the
appreciation or depreciation of the S&P 500
Index from the Initial Average Index Value
through the later of the last Final Index
Determination Date and the Equity Stop Date.
The price at which a holder will be able to
sell the Notes prior to maturity may be at a
discount, which could be substantial, from
the par amount thereof, if, at such time, the
S&P 500 Index or the Final Average Index
Value, if determined, is below, equal to or
not sufficiently above the Initial Average
Index Value.
The historical S&P 500 Index values should
not be taken as an indication of the future
performance of the S&P 500 Index during the
term of the Notes. While the trading prices
of the stocks underlying the S&P 500 Index
will determine the value of the S&P 500
Index, it is impossible to predict whether
the value of the S&P 500 Index will rise or
fall. Trading prices of the stocks underlying
the S&P 500 Index will be influenced by both
the complex and interrelated political,
economic, financial and other factors that can
affect the capital markets generally and the
equity trading markets on which the
underlying stocks are traded, and by various
circumstances that can influence the values
of the underlying stocks in a specific market
segment or a particular underlying stock.
The policies of S&P concerning additions,
deletions and substitutions of the stocks
underlying the S&P 500 Index and the manner
in which S&P takes account of certain changes
affecting such underlying stocks may affect
the value of the S&P 500 Index. The policies
of S&P with respect to the calculation of the
S&P 500 Index could also affect the value of
the S&P 500 Index. S&P may discontinue or
suspend calculation or dissemination of the
S&P 500 Index. Any such actions could affect
the value of the Notes. See "S&P 500 Index"
and "Discontinuance of the S&P 500 Index;
Alteration of Method of Calculation" below.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Notes, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in determining the Initial Average Index
Value, the Final Average Index Value or
whether a Market Disruption Event has
occurred. See "Discontinuance of the S&P 500
Index; Alteration of Method of Calculation"
below and "Market Disruption Event" above.
MS & Co., as a registered broker-dealer, is
required to maintain policies and procedures
regarding the handling and use of confidential
proprietary information, and such policies
and procedures will be in effect throughout
the term of the Notes to restrict the use of
information relating to the calculation of
the Initial Average Index Values and the
Final Average Index Values that the
Calculation Agent may be required to make
prior to its dissemination. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good faith
and using its reasonable judgment.
It is suggested that prospective investors
who consider purchasing the Notes should
reach an investment decision only after
carefully considering the suitability of the
Notes in light of their particular
circumstances.
Investors should also consider the tax
consequences of investing in the Notes. See
"United States Federal Taxation" below.
S&P 500 Index................. The S&P 500 Index is published by S&P and is
intended to provide a performance benchmark
for the U.S. equity markets. The calculation
of the value of the S&P 500 Index (discussed
below in further detail) is based on the
relative value of the aggregate Market Value
(as defined below) of the common stocks of
500 companies (the "Component Stocks") as of
a particular time as compared to the
aggregate average Market Value of the common
stocks of 500 similar companies during the
base period of the years 1941 through 1943.
The "Market Value" of any Component Stock is
the product of the market price per share and
the number of the then outstanding shares of
such Component Stock. The 500 companies are
not the 500 largest companies listed on the
NYSE and not all 500 companies are listed on
such exchange. S&P chooses companies for
inclusion in the S&P 500 Index with an aim of
achieving a distribution by broad industry
groupings that approximates the distribution
of these groupings in the common stock
population of the U.S. equity market. S&P
may from time to time, in its sole
discretion, add companies to, or delete
companies from, the S&P 500 Index to achieve
the objectives stated above. Relevant
criteria employed by S&P include the
viability of the particular company, the
extent to which that company represents the
industry group to which it is assigned, the
extent to which the company's common stock is
widely-held and the Market Value and trading
activity of the common stock of that company.
The S&P 500 Index is calculated using a
base-weighted aggregate methodology: the
level of the Index reflects the total Market
Value of all 500 Component Stocks relative to
the S&P 500 Index's base period of 1941-43
(the "Base Period").
An indexed number is used to represent the
results of this calculation in order to make
the value easier to work with and track over
time.
The actual total Market Value of the
Component Stocks during the Base Period has
been set equal to an indexed value of 10.
This is often indicated by the notation
1941-43=10. In practice, the daily
calculation of the S&P 500 Index is computed
by dividing the total Market Value of the
Component Stocks by a number called the Index
Divisor. By itself, the Index Divisor is an
arbitrary number. However, in the context of
the calculation of the S&P 500 Index, it is
the only link to the original base period
value of the Index. The Index Divisor keeps
the Index comparable over time and is the
manipulation point for all adjustments to the
S&P 500 Index ("Index Maintenance").
Index maintenance includes monitoring and
completing the adjustments for company
additions and deletions, share changes, stock
splits, stock dividends, and stock price
adjustments due to company restructurings or
spinoffs.
To prevent the value of the Index from
changing due to corporate actions, all
corporate actions which affect the total
Market Value of the Index require an Index
Divisor adjustment. By adjusting the Index
Divisor for the change in total Market Value,
the value of the S&P 500 Index remains
constant. This helps maintain the value of
the Index as an accurate barometer of stock
market performance and ensures that the
movement of the Index does not reflect the
corporate actions of individual companies in
the Index. All Index Divisor adjustments are
made after the close of trading and after the
calculation of the closing value of the S&P
500 Index. Some corporate actions, such as
stock splits and stock dividends, require
simple changes in the common shares
outstanding and the stock prices of the
companies in the Index and do not require
Index Divisor adjustments.
The table below summarizes the types of S&P
500 Index maintenance adjustments and
indicates whether or not an Index Divisor
adjustment is required.
Divisor
Type of Adjustment
Corporate Action Adjustment Factor Required
- ----------------------- ------------------------ ----------
Stock split Shares Outstanding No
(i.e. 2x1) multiplied by 2;
Stock Price divided by 2
Share issuance Shares Outstanding plus Yes
(i.e. Change > 5%) newly issued Shares
Share repurchase Shares Outstanding minus Yes
(i.e. Change > 5%) Repurchased Shares
Special cash Share Price minus Special Yes
dividends Dividend
Company change Add new company Market Yes
Value minus old company
Market Value
Rights offering Price of parent company Yes
minus
( Price of Rights )
( --------------- )
( Right Ratio )
Spinoffs Price of parent company Yes
minus
( Price of Spinoff Co. )
( -------------------- )
( Share Exchange Ratio )
Stock splits and stock dividends do not
affect the Index Divisor of the S&P 500
Index, because following a split or dividend
both the stock price and number of shares
outstanding are adjusted by S&P so that there
is no change in the Market Value of the
Component Stock. All stock split and
dividend adjustments are made after the close
of trading on the day before the ex-date.
Each of the corporate events exemplified in
the table requiring an adjustment to the
Index Divisor has the effect of altering the
Market Value of the Component Stock and
consequently of altering the aggregate Market
Value of the Component Stocks (the "Post-Event
Aggregate Market Value"). In order that the
level of the Index (the "Pre-Event Index
Value") not be affected by the altered Market
Value (whether increase or decrease) of the
affected Component Stock, a new Index Divisor
("New Divisor") is derived as follows:
Post-Event Aggregate Market Value
--------------------------------- = Pre-Event Index Value
New Divisor
Post-Event Aggregate Market Value
New Divisor = ---------------------------------
Pre-Event Index Value
A large part of the S&P 500 Index maintenance
process involves tracking the changes in the
number of shares outstanding of each of the
S&P 500 Index companies. Four times a year,
on a Friday close to the end of each calendar
quarter, the share totals of companies in the
Index are updated as required by any changes
in the number of shares outstanding. After
the totals are updated, the Index Divisor is
adjusted to compensate for the net change in
the total Market Value of the Index. In
addition, any changes over 5% in the current
common shares outstanding for the S&P 500
Index companies are carefully reviewed on a
weekly basis, and when appropriate, an
immediate adjustment is made to the Index
Divisor.
Discontinuance of the S&P 500
Index; Alteration of Method
of Calculation................ If S&P discontinues publication of the S&P
500 Index and S&P or another entity publishes
a successor or substitute index that the
Calculation Agent determines, in its sole
discretion, to be comparable to the
discontinued S&P 500 Index (such index being
referred to herein as a "Successor Index"),
then each subsequent Index Closing Value will
be determined by reference to the value of
such Successor Index at the close of trading
on the NYSE, the AMEX, NASDAQ NMS or the
relevant exchange or market for the Successor
Index on such Initial Index Determination
Date, Final Index Determination Date or
Equity Stop Date, as the case may be.
Upon any selection by the Calculation Agent
of a Successor Index, the Calculation Agent
will cause written notice thereof to be
furnished to the Trustee, to the Company and
to the holders of the Notes within three
Trading Days of such selection.
If S&P discontinues publication of the S&P
500 Index prior to, and such discontinuance
is continuing on, any Initial Index
Determination Date, Final Index Determination
Date or Equity Stop Date and the Calculation
Agent determines that no Successor Index is
available at such time, then on such Initial
Index Determination Date, Final Index
Determination Date or Equity Stop Date, the
Calculation Agent will determine the Index
Closing Value that would be used in computing
the Supplemental Sale Amount on such Initial
Index Determination Date, Final Index
Determination Date or Equity Stop Date. The
Index Closing Value will be computed by the
Calculation Agent in accordance with the
formula for and method of calculating the S&P
500 Index last in effect prior to such
discontinuance, using the closing price (or,
if trading in the relevant securities has
been materially suspended or materially
limited, its good faith estimate of the
closing price that would have prevailed but
for such suspension or limitation) on such
Initial Index Determination Date, Final Index
Determination Date or Equity Stop Date of
each security most recently comprising the
S&P 500 Index. Notwithstanding these
alternative arrangements, discontinuance of
the publication of the S&P 500 Index may
adversely affect the value of the Notes.
If at any time the method of calculating the
S&P 500 Index or a Successor Index, or the
value thereof, is changed in a material
respect, or if the S&P 500 Index or a
Successor Index is in any other way modified
so that such index does not, in the opinion
of the Calculation Agent, fairly represent
the value of the S&P 500 Index or such
Successor Index had such changes or
modifications not been made, then, from and
after such time, the Calculation Agent will,
at the close of business in New York City on
each subsequent Initial Index Determination
Date, Final Index Determination Date or Equity
Stop Date, as the case may be, make such
calculations and adjustments as, in the good
faith judgment of the Calculation Agent, may
be necessary in order to arrive at a value of
a stock index comparable to the S&P 500 Index
or such Successor Index, as the case may be,
as if such changes or modifications had not
been made, and calculate the Supplemental
Sale Amount with reference to the S&P 500
Index or such Successor Index, as adjusted.
Accordingly, if the method of calculating the
S&P 500 Index or a Successor Index is
modified so that the value of such index is a
fraction of what it would have been if it had
not been modified (e.g., due to a split in
the index), then the Calculation Agent will
adjust such index in order to arrive at a
value of the S&P 500 Index or such Successor
Index as if it had not been modified (e.g.,
as if such split had not occurred).
Public Information............ All disclosure contained in this Pricing
Supplement regarding the S&P 500 Index,
including, without limitation, its make-up,
method of calculation and changes in its
components, are derived from publicly
available information prepared by S&P.
Neither the Company nor the Agent take any
responsibility for the accuracy or
completeness of such information.
Historical Information........ The following table sets forth the high and
low daily closing values, as well as
end-of-quarter closing values, of the S&P 500
Index for each quarter in the period from
January 1, 1992 through July 9, 1997. The
Index Closing Values listed below were
obtained from Bloomberg Financial Markets.
The Company believes all such information to
be accurate. The historical values of the
S&P 500 Index should not be taken as an
indication of future performance, and no
assurance can be given that the S&P 500 Index
will increase sufficiently to cause the
holders of the Notes to receive any
Supplemental Sale Amount.
Daily Index Closing Values
----------------------------------------
Period
High Low End
------ ------ ------
1992
First Quarter 420.77 403.00 403.69
Second Quarter 418.49 394.50 408.14
Third Quarter 425.27 409.16 417.80
Fourth Quarter 441.28 402.66 435.71
1993
First Quarter 456.34 429.05 451.67
Second Quarter 453.85 433.54 450.53
Third Quarter 463.56 441.43 458.93
Fourth Quarter 470.94 457.48 466.45
1994
First Quarter 482.00 445.55 445.76
Second Quarter 462.37 438.92 444.27
Third Quarter 476.07 446.13 462.71
Fourth Quarter 473.77 445.45 459.27
1995
First Quarter 503.90 459.11 500.71
Second Quarter 551.07 501.85 544.75
Third Quarter 586.77 547.09 584.41
Fourth Quarter 621.69 576.72 615.93
1996
First Quarter 661.45 598.48 645.50
Second Quarter 678.51 631.18 670.63
Third Quarter 687.31 626.65 687.31
Fourth Quarter 757.03 689.08 740.74
1997
First Quarter 816.29 737.01 757.12
Second Quarter 898.70 737.65 885.14
Third Quarter (through
July 9, 1997) 918.75 891.03 907.54
Use of Proceeds and Hedging... The net proceeds to be received by the
Company from the sale of the Notes will be
used for general corporate purposes and, in
part, by the Company or one or more of its
affiliates in connection with hedging the
Company's obligations under the Notes,
including hedging market risks associated
with the Supplemental Sale Amount. On or
prior to the date of this Pricing Supplement,
the Company, through its subsidiaries and
others, may hedge some or all of its
anticipated exposure in connection with the
Notes by the purchase and sale of exchange
traded and over the counter options on the
S&P 500 Index, individual stocks included in
the S&P 500 Index, futures contracts on the
S&P 500 Index and options on such futures
contracts or by taking positions in any other
instruments that it may wish to use in
connection with such hedging. Although the
Company has no reason to believe that its
hedging activity will have a material impact
on the price of such options, stocks, futures
contracts, and options on futures contracts,
there can be no assurance that the Company
will not affect such prices as a result of
its hedging activities. The Company, through
its subsidiaries, is likely to modify its
hedge position throughout the life of the
Notes, including on each Initial Index
Determination Date, Final Index Determination
Date or Equity Stop Date, by purchasing and
selling the securities and instruments listed
above and other available securities and
instruments. See also "Use of Proceeds" in
the accompanying Prospectus.
License Agreement............. S&P and MS & Co. have entered into a
non-exclusive license agreement providing for
the license to MS & Co., and any of its
affiliated or subsidiary companies, in
exchange for a fee, of the right to use the
S&P 500 Index, which is owned and published
by S&P, in connection with certain
securities, including the Notes.
The license agreement between S&P and MS &
Co. provides that the following language must
be set forth in this Pricing Supplement:
The Notes are not sponsored, endorsed, sold
or promoted by S&P. S&P makes no
representation or warranty, express or
implied, to the holders of the Notes or any
member of the public regarding the
advisability of investing in securities
generally or in the Notes particularly or the
ability of the S&P 500 Index to track general
stock market performance. S&P's only
relationship to the Company is the licensing
of certain trademarks and trade names of S&P
and of the S&P 500 Index, which is
determined, composed and calculated by S&P
without regard to the Company or the Notes.
S&P has no obligation to take the needs of
the Company or the holders of the Notes into
consideration in determining, composing or
calculating the S&P 500 Index. S&P is not
responsible for and has not participated in
the determination of the timing of, prices
at, or quantities of the Notes to be issued
or in the determination or calculation of the
equation by which the Notes are to be
converted into cash. S&P has no obligation
or liability in connection with the
administration, marketing or trading of the
Notes.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P 500 INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY THE COMPANY, HOLDERS OF THE
NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P INDEX OR ANY DATA INCLUDED
THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED UNDER THE LICENSE AGREEMENT
DESCRIBED HEREIN OR FOR ANY OTHER USE. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
"Standard & Poor's[Registered]",
"S&P[Registered]", "S&P 500[Registered]",
"Standard & Poor's 500," and "500" are
trademarks of McGraw-Hill, Inc. and have been
licensed for use by MS & Co.
United States Federal Taxation The Notes are Notes Linked to an Index and
investors should refer to the discussion
under "United States Federal
Taxation--Notes--Notes Linked to Commodity
Prices, Single Securities, Baskets of
Securities or Indices" and "United States
Federal Taxation--Notes--Optionally
Exchangeable Notes" in the accompanying
Prospectus Supplement. In connection with the
discussion thereunder, the Company has
determined that the "comparable yield" is an
annual rate of %, compounded semi-
annually. Based on the Company's
determination of the comparable yield, the
"projected payment schedule" for a Note
(assuming a par amount of $1,000 or with
respect to each integral multiple thereof)
consists of a projected amount due at
maturity, equal to $ (the "Projected
Amount").
THE COMPARABLE YIELD, THE PROJECTED PAYMENT
SCHEDULE AND THE PROJECTED AMOUNT ARE NOT
PROVIDED FOR ANY PURPOSE OTHER THAN THE
DETERMINATION OF UNITED STATES HOLDERS'
INTEREST ACCRUALS AND ADJUSTMENTS IN RESPECT
OF THE NOTES, AND THE COMPANY MAKES NO
REPRESENTATION REGARDING THE ACTUAL AMOUNTS
OF THE PAYMENTS ON A NOTE.
ANNEX A
OFFICIAL NOTICE OF EXERCISE OF PUT RIGHT
Dated: [On any Put Date (as defined in the attached Pricing Supplement)]
Morgan Stanley, Dean Witter, Discover & Co.
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. Incorporated, as
Calculation Agent
1585 Broadway
New York, New York 10036
Fax No.: (212) 761-0674
(Attn: Lily Lam)
Dear Sirs:
The undersigned holder of the Medium Term Notes, Series C,
Equity Linked Notes, Due July , 2004 of Morgan Stanley, Dean Witter,
Discover & Co. (the "Notes") hereby irrevocably elects to exercise with
respect to the principal amount of the Notes indicated below, as of the date
hereof (or, if this letter is received after 11:00 a.m. on any Trading Day, as
of the next Trading Day, provided that such day is two days prior to July
, 2004), the Put Right as described in Pricing Supplement dated July , 1997
to the Prospectus Supplement dated June 2, 1997 and the Prospectus dated June
2, 1997 related to Registration Statement No. 333-27919. Capitalized terms
not defined herein have the meanings given to such terms in the Pricing
Supplement. Please date and acknowledge receipt of this notice in the place
provided below on the date of receipt, and fax a copy to the fax number
indicated. Upon receipt of this notice, the Company will deliver cash on the
earlier of 3 Business Days after the Put Notice Date and July , 2004 in
accordance with the terms of the Notes, as described in the Pricing Supplement.
Very truly yours,
___________________________________
[Name of Holder]
By:________________________________
[Title]
___________________________________
[Fax No.]
$__________________________________
Principal Amount of Notes
Receipt of the above Official
Notice of Put is hereby acknowledged
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as Issuer
MORGAN STANLEY & CO. INCORPORATED,
as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED,
as Calculation Agent
By:___________________________________
Title:
Date and time of acknowledgment_______
ANNEX B
OFFICIAL EQUITY STOP NOTICE
Dated: [On or before July , 2003]
Morgan Stanley, Dean Witter, Discover & Co.
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. Incorporated, as Calculation Agent
1585 Broadway
New York, New York 10036
(Attn: Lily Lam)
Fax: 212-761-0674
Dear Sirs:
The undersigned holder of the Medium Term Notes, Series C,
Equity Linked Notes, Due July , 2004 of Morgan Stanley, Dean Witter,
Discover & Co. (the "Notes") hereby represents that such holder owns directly
or indirectly the principal amount of the Notes recorded in the space provided
below such holder's signature, which must, under the terms of the Notes,
represent 100% of the principal amount of the outstanding Notes for this
Official Equity Stop Notice to be effective and irrevocably elects to exercise
the Equity Stop Option as of the date hereof (or, if this letter is received
after 11:00 a.m. on any Trading Day on or prior to July , 2003, as of the
next Trading Day), subject to the description contained in the Pricing
Supplement dated , 1997 to the Prospectus Supplement dated June 2, 1997
and the Prospectus dated June 2, 1997 related to Registration Statement No.
333-27919. Capitalized terms not defined herein have the meanings given to
such terms in the Prospectus Supplement. Please confirm that the principal
amount recorded in the space below represents 100% of the principal amount of
the outstanding Notes (which confirmation will be evidenced by dating and
acknowledging receipt of this notice in the place provided below on the date
of receipt and faxing a copy of to the fax number indicated below).
Very truly yours,
___________________________________
[Name of Holder]
By:________________________________
[Title]
___________________________________
[Fax No.]
$__________________________________
Principal Amount of Notes Held
Receipt of the above Official
Equity Stop Notice is hereby acknowledged
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO., as Issuer
MORGAN STANLEY & CO. INCORPORATED,
as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED,
as Calculation Agent
By:___________________________________
Date and time of acknowledgment_______
