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.
Subject to Completion, Pricing Supplement dated March 16, 1998
PROSPECTUS Dated March 12, 1998 Pricing Supplement No. 2 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 12, 1998 Dated , 1998
Rule 424(b)(3)
$25,000,000
Morgan Stanley, Dean Witter, Discover & Co.
Dow Jones Industrial Average(sm)
BRoad InDex Guarded Equity-linked Securities(sm)
due April 30, 2004 ("BRIDGES(sm)")
MEDIUM-TERM NOTES, SERIES C
-----------------------
The Dow Jones Industrial Average(sm) BRoad InDex Guarded Equity-linked
Securities due April 30, 2004 (the "BRIDGES") 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 BRIDGES are being issued in
minimum denominations of $10 and will mature on April 30, 2004 (the "Maturity
Date"). The issue price of each BRIDGES will be $10 (the "Issue Price"), and
there will be no periodic payments of interest on the BRIDGES. The BRIDGES will
not be redeemable by the Company in whole or in part prior to the Maturity Date.
At maturity, the holder of each BRIDGES will receive $10, the par
amount of such BRIDGES ("Par"), plus an amount (the "Supplemental
Redemption Amount") based on the percentage increase, if any, in the Final
Index Value of the Dow Jones Industrial Average(sm) (the "DJIA"), as
calculated by Dow Jones & Company, Inc. ("Dow Jones") over the Initial
Index Value, each as further described below. "Dow Jones," "Dow Jones
Industrial Average(sm)" and "DJIA(sm)" are service marks of Dow Jones &
Company, Inc. The Supplemental Redemption Amount, if any, payable with
respect to each BRIDGES at maturity will be calculated on the last of the
Determination Dates and will equal the product of Par and the DJIA Percent
Change. The DJIA Percent Change is a fraction, the numerator of which will
be the Final Index Value less the Initial Index Value and the denominator
of which will be the Initial Index Value. The Supplemental Redemption
Amount cannot be less than zero. The Initial Index Value has been set to
equal . The Final Index Value will equal the arithmetic average of the
DJIA closing values on a date to be specified occurring in the first
quarter of 2002, a date to be specified occurring in the first quarter of
2003 and April 21, 2004. See "Determination Dates" herein. The first two
Determination Dates will be specified in the final Pricing Supplement.
If the DJIA Percent Change is equal to or less than zero, the holder of
each BRIDGES will be repaid Par, but will not receive any Supplemental
Redemption Amount.
For information as to the calculation of the Supplemental Redemption
Amount, the DJIA Percent Change, the Final Index Value and certain tax
consequences to beneficial owners of the BRIDGES, see "Supplemental Redemption
Amount," "DJIA Percent Change," "Final Index Value" and "United States Federal
Taxation" in this Pricing Supplement.
The Company will cause the Supplemental Redemption Amount, the DJIA Percent
Change and the Final 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 BRIDGES entails risks not associated with similar
investments in a conventional debt security, as described under "Risk Factors"
on PS-7 and PS-8 herein.
Application will be made to list the BRIDGES on the New York Stock Exchange
("NYSE"), subject to meeting the NYSE listing requirements. It is not possible
to predict whether the BRIDGES will meet the NYSE listing requirements or trade
in the secondary market or if such market will be liquid or illiquid.
"BRIDGES" and "BRoad InDex Guarded Equity-linked Securities" are service
marks of the Company.
-----------------------
PRICE $10 Per BRIDGES
-----------------------
Agent's Proceeds
Price to Public Commission(1) to Company
--------------- ------------- ----------
Per BRIDGES............. $ $ $
Total................... $ $ $
- -----------------------------------------
(1) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY DEAN WITTER
<PAGE>
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<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE BRIDGES(sm) OR THE
INDIVIDUAL STOCKS UNDERLYING THE DJIA. SPECIFICALLY, THE AGENT MAY OVERALLOT IN
CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE BRIDGES(sm) OR
INDIVIDUAL STOCKS UNDERLYING THE DJIA IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "USE OF PROCEEDS AND HEDGING."
accompanying Prospectus Supplement.
Principal Amount............. $25,000,000
Maturity Date................ April 30, 2004
Specified Currency........... U.S. Dollars
Issue Price.................. $10
Settlement Date (Original
Issue Date)................. , 1998
CUSIP........................ 617446356
Book Entry Note or
Certificated Note........... Book Entry
Senior Note or Subordinated
Note....................... Senior
Minimum Denominations........ $10
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
BRIDGES will receive $10, the par amount of such
BRIDGES ("Par"), plus the Supplemental
Redemption Amount, if any. References herein to
"BRIDGES" refer to each $10 principal amount of
any BRIDGES. There will be no periodic payments
of interest on the BRIDGES.
Supplemental Redemption
Amount..................... The Supplemental Redemption Amount, payable with
respect to each BRIDGES at maturity, will be
calculated by the Calculation Agent on the last
of the Determination Dates and will be an amount
equal to the greater of (a) zero and (b) the
product of Par and the DJIA Percent Change.
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 the Supplemental
Redemption Amount, on or prior to 11:00 a.m. on
the Business Day preceding the Maturity Date.
See "Discontinuance of the DJIA; Alteration of
Method of Calculation" below.
All percentages resulting from any calculation
with respect to the BRIDGES 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.
DJIA Percent Change.......... The DJIA Percent Change is a fraction, the
numerator of which will be the Final Index Value
less the Initial Index Value and the denominator
of which will be the Initial Index Value. The
DJIA Percent Change is described by the
following formula:
(Final Index Value - Initial Index Value)
--------------------------------------------
Initial Index Value
Initial Index Value..........
Index Closing Value.......... The Index Closing Value, on any Determination
Date, will equal the closing value of the DJIA
or any Successor Index at the regular official
weekday close of trading on such Determination
Date. See "Discontinuance of the DJIA;
Alteration of Method of Calculation."
References herein to the DJIA will be deemed to
include any Successor Index, unless the context
requires otherwise.
Final Index Value............ The Final Index Value will equal the arithmetic
average of the Index Closing Values on each of
the Determination Dates as calculated on the
last Determination Date by the Calculation Agent
and rounded to the nearest one hundredth of a
point with five one thousandths of a point being
rounded upwards.
Determination Dates.......... The Determination Dates will be specified at the
time of pricing and will appear in the final
Pricing Supplement. The first scheduled
Determination Date may be any date from and
including January 1, 2002 through March 31,
2002; the second scheduled Determination Date
may be any date from and including January 1,
2003 through March 31, 2003; and the last
scheduled Determination Date will be April 21,
2004. The first and second scheduled
Determination Dates will be selected on the
basis of market interest rates and the
volatility of the DJIA at the time of pricing.
If either of the first two Determination Dates
is not a Trading Day or if a Market Disruption
Event occurs on either such date, 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 either of the first two Determination
Dates, then (i) such fifth succeeding Trading
Day will be deemed to be the relevant
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 DJIA on such fifth Trading Day in
accordance with the formula for and method of
calculating the DJIA last in effect prior to the
commencement of the Market Disruption Event,
using the closing price (or, if trading in the
relevant securities has been materially
suspended or materially limited, its good faith
estimate of the closing price that would have
prevailed but for such suspension or limitation)
on such Trading Day of each security most
recently comprising the DJIA.
If April 21, 2004, the last scheduled
Determination Date is not a Trading Day or if
there is a Market Disruption Event on such last
Determination Date, such last Determination Date
will be the immediately succeeding Trading Day
during which no Market Disruption Event shall
have occurred; provided that the last
Determination Date will be no later than the
second scheduled Trading Day preceding the
Maturity Date, and if such date is not a Trading
Day or if there is a Market Disruption Event on
such date, the Calculation Agent will determine
the value of the DJIA on such last Determination
Date in accordance with clause (ii) of the
preceding paragraph.
Trading Day.................. A day on which trading is generally conducted on
the New York Stock Exchange ("NYSE"), the
American Stock Exchange, Inc. ("AMEX"), the
NASDAQ National Market ("NASDAQ NMS"), the
Chicago Mercantile Exchange and the Chicago
Board of Options Exchange, as determined by the
Calculation Agent.
Market Disruption Event...... "Market Disruption Event" means, with respect to
the DJIA:
(i) a suspension, absence or material
limitation of trading of 6 or more of the
securities included in the DJIA 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 DJIA 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 BRIDGES.
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 suspension, absence or material
limitation of trading, (4) a suspension of
trading in a futures or options contract on the
DJIA 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 DJIA and (5) a "suspension,
absence or material limitation of trading" on
the primary market on which futures or options
contracts related to the DJIA are traded will
not include any time when such market is itself
closed for trading under ordinary circumstances.
Alternative Determination
Date in case of an Event
of Default .................. In case an Event of Default with respect to any
BRIDGES shall have occurred and be continuing,
the amount declared due and payable upon any
acceleration of the BRIDGES will be determined
by the Calculation Agent and will be equal to
Par plus the Supplemental Redemption Amount, if
any, determined as though each Determination
Date scheduled to occur on or after such date of
acceleration were the date of acceleration.
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
BRIDGES.
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 BRIDGES, including with respect
to certain determinations and judgments that the
Calculation Agent must make in determining the
DJIA Percent Change, the Final Index Value, the
Supplemental Redemption Amount or whether a
Market Disruption Event has occurred. See
"Discontinuance of the DJIA; 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
BRIDGES to restrict the use of information
relating to the calculation of the DJIA Percent
Change, the Final Index Value and the
Supplemental Redemption Amount prior to the
dissemination of such information. 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 BRIDGES entails significant
risks not associated with similar investments in
a conventional security, including the
following.
If the DJIA Percent Change is equal to or less
than zero, the holders of the BRIDGES will
receive only the par amount of each BRIDGES at
maturity.
There will be no periodic payments of interest
on the BRIDGES as there would be on a
conventional fixed-rate debt security having the
same maturity date as the BRIDGES and issued by
the Company on the Original Issue Date. Because
the Supplemental Redemption Amount may be equal
to zero, the effective yield to maturity of the
BRIDGES 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 each
BRIDGES at maturity will 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 DJIA based on the Final Index Value over the
Initial Index Value does not reflect the payment
of dividends on the stocks underlying the DJIA.
Therefore, the yield to maturity based on the
Final Index Value relative to the Initial 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 BRIDGES are not currently listed on any
exchange, but the Company intends to apply to
list the BRIDGES on the NYSE, subject to meeting
the NYSE listing requirements. It is not
possible to predict whether the BRIDGES will
meet the NYSE listing requirements, and there
can be no assurance as to whether there will be
a secondary market in the BRIDGES 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
BRIDGES will be affected by the creditworthiness
of the Company and by a number of factors,
including, but not limited to, the volatility of
the DJIA, dividend rates on the stocks
underlying the DJIA, the time remaining to each
Determination Date and to the maturity of the
BRIDGES and market interest rates. In addition,
the Final 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 BRIDGES
prior to maturity is expected to depend
primarily on market interest rates, market
volatility and the extent of the appreciation or
depreciation of the DJIA from the Initial Index
Value on each of the Determination Dates. The
price at which a holder will be able to sell the
BRIDGES prior to maturity may be at a discount,
which could be substantial, from the par amount
thereof, if, at such time, or on any previous
Determination Date the DJIA (or the Final Index
Value, if determined) is below, equal to or not
sufficiently above the Initial Index Value, if
market interest rates rise substantially or if
market volatility decreases.
The historical DJIA values should not be taken
as an indication of the future performance of
the DJIA during the term of the BRIDGES. While
the trading prices of the stocks underlying the
DJIA will determine the value of the DJIA, it is
impossible to predict whether the value of the
DJIA will rise or fall. Trading prices of the
stocks underlying the DJIA 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 Dow Jones concerning additions,
deletions and substitutions of the stocks
underlying the DJIA and the manner in which Dow
Jones takes account of certain changes affecting
such underlying stocks may affect the value of
the DJIA. The policies of Dow Jones with respect
to the calculation of the DJIA could also affect
the value of the DJIA. Dow Jones may discontinue
or suspend calculation or dissemination of the
DJIA. Any such actions could affect the value of
the BRIDGES. See "The Dow Jones Industrial
Average" and "Discontinuance of the DJIA;
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 BRIDGES, including with respect
to certain determinations and judgments that the
Calculation Agent must make in determining the
DJIA Percent Change, the Final Index Value, the
Supplement Redemption Amount or whether a Market
Disruption Event has occurred. See "Market
Disruption Event" and "Calculation Agent" above
and "Discontinuance of the DJIA; Alteration of
Method of Calculation" below.
It is suggested that prospective investors who
consider purchasing the BRIDGES should reach an
investment decision only after carefully
considering the suitability of the BRIDGES in
light of their particular circumstances.
Investors should also consider the tax
consequences of investing in the BRIDGES. See
"United States Federal Taxation" below. U.S.
taxable investors will be subject to annual
income tax based on the comparable yield of the
BRIDGES even though they will not receive any
payments thereon prior to maturity and at
maturity may only receive the return of the par
amount of the BRIDGES. In addition, any gain
recognized by U.S. taxable investors on the
sale, exchange or retirement of the BRIDGES will
be treated as ordinary income.
The Dow Jones Industrial
Average...................... Unless otherwise stated, all information herein
on the DJIA is derived from Dow Jones or other
publicly available sources. Such information
reflects the policies of Dow Jones as stated in
such sources and such policies are subject to
change by Dow Jones. Dow Jones is under no
obligation to continue to publish the DJIA and
may discontinue publication of the DJIA at any
time.
The DJIA is a price-weighted index (i.e., the
weight of a component stock in the DJIA is based
on its price per share rather than the total
market capitalization of the issuer of such
component stock) comprised of 30 common stocks
chosen by the editors of the Wall Street Journal
("WSJ") as representative of the broad market of
U.S. industry. The corporations represented in
the DJIA tend to be leaders within their
respective industries and their stocks are
typically widely held by individuals and
institutional investors. Changes in the
composition of the DJIA are made entirely by the
editors of the WSJ without consultation with the
corporations represented in the DJIA, any stock
exchange, any official agency or the Company.
Changes to the common stocks included in the
DJIA tend to be made infrequently. Historically,
most substitutions have been the result of
mergers, but from time to time, changes may be
made to achieve what the editors of the WSJ deem
to be a more accurate representation of the
broad market of U.S. industry. In choosing a new
corporation for the DJIA, the editors of the WSJ
look for leading industrial companies with a
successful history of growth and wide interest
among investors. The component stocks of the
DJIA may be changed at any time for any reason.
Dow Jones, publisher of the WSJ, is not
affiliated with the Company and has not
participated in any way in the creation of the
BRIDGES.
The DJIA initially consisted of twelve common
stocks and was first published in the WSJ in
1896. The DJIA was increased to include 20
common stocks in 1916 and to 30 common stocks in
1928. The number of common stocks in the DJIA
has remained at 30 since 1928, and, in an effort
to maintain continuity, the constituent
corporations represented in the DJIA have been
changed on a relatively infrequent basis.
The value of the DJIA is the sum of the primary
exchange prices of each of the 30 common stocks
included in the DJIA, divided by a divisor that
is designed to provide meaningful continuity in
the value of the DJIA. Because the DJIA is
price-weighted, stock splits or changes in the
component stocks could result in distortions in
the DJIA value. In order to prevent such
distortions related to extrinsic factors, the
divisor is changed in accordance with a
mathematical formula that reflects adjusted
proportions within the DJIA. The current divisor
of the DJIA is published daily in the WSJ and
other publications. In addition, other
statistics based on the DJIA may be found in a
variety of publicly available sources.
The divisor is adjusted due to corporate actions
that change the price of any of the stocks
underlying the DJIA. The most frequent reason
for such an adjustment is a stock split. For
example, suppose a company in the DJIA issues
one new share for each share outstanding. After
this two-for-one "split," each share of stock is
worth half what it was immediately before, other
things being equal. But without an adjustment in
the divisor, this split would produce a
distortion in the DJIA. An adjustment must be
made to compensate so that the "average" will
remain unchanged. At Dow Jones, this adjustment
is handled by changing the divisor.* The formula
used to calculate divisor adjustments is:
Adjusted Sum of Prices
New Divisor = Current Divisor x ------------------------
Unadjusted Sum of Prices
Issuer of Component
Stock(1) Symbol
-------------------------------------------------------
Allied-Signal Inc................................. ALD
Aluminum Co. of America........................... AA
American Express Co............................... AXP
AT&T Corp........................................ T
Boeing Co., The................................... BA
Caterpillar Inc................................... CAT
Chevron Corp..................................... CHV
Coca-Cola Co., The .............................. KO
Disney (Walt) Co.................................. DIS
DuPont (E.I.) De Nemours & Co.................... DD
Eastman Kodak Co.................................. EK
Exxon Corp....................................... XON
General Electric Co............................... GE
General Motors Corp.............................. GM
Goodyear Tire & Rubber Co......................... GT
Hewlett-Packard Co................................ HWP
International Business Machines Corp.............. IBM
International Paper Co............................ IP
Johnson & Johnson................................. JNJ
McDonald's Corp................................... MCD
Merck & Co........................................ MRK
Minnesota Mining & Manufacturing Co............... MMM
Morgan (J.P.) & Co................................ JPM
Morris (Philip) Cos............................... MO
Procter & Gamble Co............................... PG
Sears, Roebuck & Co............................... S
Travelers Group Inc............................... TRV
Union Carbide Corp................................ UK
United Technologies Corp.......................... UTX
- --------
*Currently, the divisor is recalculated after the close of business on the day
prior to the occurrence of the split.
Wal-Mart Stores Inc.................. WMT
(1) Although all 30 stocks underlying the DJIA
are currently listed on the New York Stock
Exchange, listing on the New York Stock Exchange
is not a criterion for selection.
The Company or its affiliates may presently or
from time to time engage in business with Dow
Jones or one or more of the issuers of the
component stocks of the DJIA, including
extending loans to, or making equity investments
in, Dow Jones or such issuers or providing
advisory services to such issuers, including
merger and acquisition advisory services. In the
course of such business with issuers, the
Company or its affiliates may acquire non-public
information with respect to such issuers. The
Company may also act as market maker for the
common stocks of such issuers. The Company does
not make any representation to any purchaser of
BRIDGES with respect to any matters whatsoever
relating to Dow Jones or such issuers. Any
prospective purchaser of BRIDGES should
undertake an independent investigation of the
issuers of the component stocks of the DJIA and
with respect to the competency of Dow Jones to
formulate and calculate the DJIA as in its
judgment is appropriate to make an informed
decision with respect to an investment in the
BRIDGES. The composition of the DJIA does not
reflect any investment or sell recommendations
of the Company or its affiliates.
"Dow Jones," "Dow Jones Industrial
Average(sm)," and "DJIA(sm)" are service
marks of Dow Jones & Company, Inc. and have
been licensed for use for certain purposes
by the Company. The Company's BRIDGES
based on the Dow Jones Industrial
Average(sm), are not sponsored, endorsed,
sold or promoted by Dow Jones, and Dow
Jones makes no representation regarding the
advisability of investing in such
product(s).
Discontinuance of the DJIA;
Alteration of Method of
Calculation.................. If Dow Jones discontinues publication of the
DJIA and Dow Jones or another entity publishes a
successor or substitute index that the
Calculation Agent determines, in its sole
discretion, to be comparable to the discontinued
DJIA (such index being referred to herein as a
"Successor Index"), then any subsequent Index
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 the relevant Determination
Date.
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 BRIDGES within three Trading Days of such
selection.
If Dow Jones discontinues publication of the
DJIA prior to, and such discontinuance is
continuing on, any Determination Date and the
Calculation Agent determines that no Successor
Index is available at such time, then on such
Determination Date, the Calculation Agent will
determine the Index Closing Value that would be
used in computing the DJIA Percent Change on
such Determination Date. The Index Closing Value
will be computed by the Calculation Agent in
accordance with the formula for and method of
calculating the DJIA last in effect prior to
such discontinuance, using the closing price
(or, if trading in the relevant securities has
been materially suspended or materially limited,
its good faith estimate of the closing price
that would have prevailed but for such
suspension or limitation) on such Determination
Date of each security most recently comprising
the DJIA. Notwithstanding these alternative
arrangements, discontinuance of the publication
of the DJIA may adversely affect the value of
the BRIDGES.
If at any time the method of calculating the
DJIA or a Successor Index, or the value thereof,
is changed in a material respect, or if the DJIA
or a Successor Index is in any other way
modified so that such index does not, in the
opinion of the Calculation Agent, fairly
represent the value of the DJIA or such
Successor Index had such changes or
modifications not been made, then, from and
after such time, the Calculation Agent will, at
the close of business in New York City on each
Determination Date make such calculations and
adjustments as, in the good faith judgment of
the Calculation Agent, may be necessary in order
to arrive at a value of a stock index comparable
to the DJIA or such Successor Index, as the case
may be, as if such changes or modifications had
not been made, and calculate the Supplemental
Redemption Amount with reference to the DJIA or
such Successor Index, as adjusted. Accordingly,
if the method of calculating the DJIA or a
Successor Index is modified so that the value of
such index is a fraction of what it would have
been if it had not been modified (e.g., due to a
split in the index), then the Calculation Agent
will adjust such index in order to arrive at a
value of the DJIA or such Successor Index as if
it had not been modified (e.g., as if such split
had not occurred).
Public Information........... All disclosure contained in this Pricing
Supplement regarding the DJIA, including,
without limitation, its make-up, method of
calculation and changes in its components, are
derived from publicly available information
prepared by Dow Jones. 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 DJIA for each quarter in
the period from January 1, 1992 through March
16, 1998. 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 DJIA
should not be taken as an indication of future
performance, and no assurance can be given that
the DJIA will increase sufficiently to cause the
holders of the BRIDGES to receive any
Supplemental Redemption Amount.
Daily Index Closing Values
-------------------------------
Period
High Low End
---- --- ------
1992
First Quarter............ 3290.25 3172.41 3235.47
Second Quarter........... 3413.21 3181.35 3318.52
Third Quarter............ 3395.40 3228.17 3271.66
Fourth Quarter........... 3333.26 3136.58 3301.11
1993
First Quarter............ 3478.35 3241.96 3435.11
Second Quarter........... 3554.84 3370.82 3516.08
Third Quarter............ 3652.10 3449.94 3555.12
Fourth Quarter........... 3794.34 3577.77 3754.09
1994
First Quarter............ 3978.37 3626.76 3635.96
Second Quarter........... 3814.84 3593.36 3624.96
Third Quarter............ 3953.88 3646.65 3843.19
Fourth Quarter........... 3936.04 3674.63 3834.44
1995
First Quarter............ 4172.56 3832.08 4157.69
Second Quarter........... 4589.64 4168.41 4556.10
Third Quarter............ 4801.80 4580.62 4789.08
Fourth Quarter........... 5216.47 4703.82 5117.12
1996
First Quarter............ 5683.60 5032.94 5587.14
Second Quarter........... 5778.00 5420.95 5654.63
Third Quarter............ 5894.74 5346.55 5882.17
Fourth Quarter........... 6560.91 5904.90 6448.27
1997
First Quarter............ 7085.16 6442.49 6583.48
Second Quarter........... 7796.51 6391.69 7672.79
Third Quarter............ 8259.31 7622.42 7945.26
Fourth Quarter........... 8178.31 7161.15 7908.25
1998
First Quarter (through
March 16, 1998).......... 8718.85 7580.42 8718.85
Use of Proceeds and
Hedging...................... The net proceeds to be received by the Company
from the sale of the BRIDGES 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 BRIDGES, including hedging
market risks associated with the Supplemental
Redemption 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 BRIDGES by the purchase and sale of exchange
traded and over the counter options on the DJIA,
individual stocks included in the DJIA, futures
contracts on the DJIA 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. The Company,
through its subsidiaries, is likely to modify
its hedge position throughout the life of the
BRIDGES, including on each Determination Date,
by purchasing and selling the securities and
instruments listed above and other available
securities and instruments. 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 or
on the value of the DJIA, there can be no
assurance that the Company will not affect such
prices as a result of its hedging activities.
See also "Use of Proceeds" in the accompanying
Prospectus.
License Agreement............ Dow Jones 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 DJIA, which
is owned and published by Dow Jones, in
connection with certain securities, including
the BRIDGES.
The license agreement between Dow Jones and MS &
Co. provides that the following language must be
set forth in this Pricing Supplement:
The BRIDGES are not sponsored, endorsed,
sold or promoted by Dow Jones. Dow Jones
makes no representation or warranty,
express or implied, to the owners of the
BRIDGES or any member of the public
regarding the advisability of investing in
securities generally or in the BRIDGES
particularly. Dow Jones' only relationship
to the Company is the licensing of certain
trademarks, trade names and service marks
of Dow Jones and of the Dow Jones
Industrial Average(sm) which is determined,
composed and calculated by Dow Jones
without regard to the Company or the
BRIDGES. Dow Jones has no obligation to
take the needs of the Company or the owners
of the BRIDGES into consideration in
determining, composing or calculating the
Dow Jones Industrial Average(sm). Dow
Jones is not responsible for and has not
participated in the determination of the
timing of, prices at, or quantities of the
BRIDGES to be issued or in the
determination or calculation of the
equation by which the BRIDGES are to be
converted into cash. Dow Jones has no
obligation or liability in connection with
the administration, marketing or trading of
the BRIDGES.
DOW JONES DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE DOW JONES
INDUSTRIAL AVERAGE(sm) OR ANY DATA
INCLUDED THEREIN AND DOW JONES SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. DOW JONES MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE COMPANY, OWNERS OF
THE BRIDGES, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE DOW JONES INDUSTRIAL
AVERAGE(sm) OR ANY DATA INCLUDED THEREIN.
DOW JONES MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES, OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE DOW JONES INDUSTRIAL
AVERAGE(sm) OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL DOW JONES HAVE ANY LIABILITY
FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY THEREOF. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS
OR ARRANGEMENTS BETWEEN DOW JONES AND THE
COMPANY.
United States Federal
Taxation..................... The BRIDGES 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 annually. Based
on the Company's determination of the comparable
yield, the "projected payment schedule" for a
BRIDGES (assuming a par amount of $10 or with
respect to each integral multiple thereof)
consists of a projected amount due at maturity,
equal to $____.
The following table states the amount of
interest that will be deemed to have accrued
with respect to a BRIDGES during each accrual
period, based upon the Company's determination
of the comparable yield and the projected
payment schedule:
TOTAL INTEREST
DEEMED TO
INTEREST HAVE ACCRUED
DEEMED TO FROM ORIGINAL
ACCRUE ISSUE DATE PER
DURING BRIDGES(sm) AS
ACCRUAL OF END OF
PERIOD (PER ACCRUAL
ACCRUAL PERIOD BRIDGES(sm)) PERIOD
-------------- ------------ ------
Original Issue Date through December
31, 1998............................. $ $
January 1, 1999 through December 31,
1999................................ $ $
January 1, 2000 through December 31,
2000 ............................... $ $
January 1, 2001 through December 31,
2001................................ $ $
January 1, 2002 through December 31,
2002................................ $ $
January 1, 2003 through December 31,
2003................................ $ $
January 1, 2004 through April 30,
2004................................ $ $
THE COMPARABLE YIELD AND THE PROJECTED PAYMENT
SCHEDULE ARE NOT PROVIDED FOR ANY PURPOSE OTHER
THAN THE DETERMINATION OF UNITED STATES HOLDERS'
INTEREST ACCRUALS AND ADJUSTMENTS THEREOF IN
RESPECT OF THE BRIDGES(sm) AND DO NOT CONSTITUTE
A REPRESENTATION REGARDING THE ACTUAL AMOUNTS OF
THE PAYMENTS ON THE BRIDGES(sm).
Additional Disclosure for Non-U.S. Holders. The
following discussion is based on the opinion of
Davis Polk & Wardwell, special tax counsel to
the Company. As used herein, the term "Non-U.S.
Holder" means an owner of a BRIDGES that is, for
United States federal income tax purposes, (i) a
nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary
of a foreign trust or estate or (iv) a foreign
partnership one or more of the members of which
is, for United States federal income tax
purposes, a nonresident alien individual, a
foreign corporation or a nonresident alien
fiduciary of a foreign trust or estate. The
following summary does not deal with persons
that are not Non-U.S. Holders or that are
subject to special rules, such as nonresident
alien individuals who have lost United States
citizenship or who have ceased to be taxed as
United States resident aliens, corporations that
are treated as foreign personal holding
companies, controlled foreign corporations or
passive foreign investment companies, and
certain other Non-U.S. Holders that are owned or
controlled by persons subject to United States
federal income tax. In addition, unless
otherwise noted, the following summary does not
apply to persons for whom interest or gain on a
BRIDGES is effectively connected with a trade or
business in the United States. Persons
considering the purchase of the BRIDGES should
consult their tax advisors with regard to the
application of the United States federal income
tax laws to their particular situations as well
as any tax consequences arising under the laws
of any state, local or foreign taxing
jurisdiction. This discussion is based on the
Code and administrative interpretations as of
the date hereof, all of which are subject to
change, including changes with retroactive
effect. Capitalized terms appearing herein and
not defined have the meanings assigned to such
terms in the Prospectus Supplement.
Subject to the discussion below concerning
backup withholding, payments of principal and
the Supplemental Redemption Amount, if any, at
maturity of a BRIDGES by the Company or a paying
agent to a Non-U.S. Holder, and gain realized on
the sale, exchange or other disposition of such
BRIDGES, will not be subject to United States
federal income or withholding tax, provided
that: (i) such Non-U.S. Holder does not own,
actually or constructively, 10 percent or more
of the total combined voting power of all
classes of stock of the Company entitled to
vote, is not a controlled foreign corporation
related, directly or indirectly, to the Company
through stock ownership, and is not a bank
receiving interest described in Section
881(c)(3)(A) of the Code; (ii) the statement
required by Section 871(h) or Section 881(c) of
the Code has been provided with respect to the
beneficial owner, as discussed below; (iii) such
Non-U.S. Holder is not an individual who is
present in the United States for 183 days or
more in the taxable year of disposition, or such
individual does not have a "tax home" (as
defined in Section 911(d)(3) of the Code) or an
office or other fixed place of business in the
United States; and (iv) such payment and gain
are not effectively connected with the conduct
by such Holder of a trade or business in the
United States.
Sections 871(h) and 881(c) of the Code require
that, in order to obtain the portfolio interest
exemption from withholding tax, either the
beneficial owner of the BRIDGES, or a securities
clearing organization, bank or other financial
institution that holds customers' securities in
the ordinary course of its trade or business (a
"Financial Institution") and that is holding the
BRIDGES on behalf of such beneficial owner, file
a statement with the withholding agent to the
effect that the beneficial owner of the BRIDGES
is not a United States person. Under United
States Treasury Regulations, such requirement
will be fulfilled if the beneficial owner of a
BRIDGES certifies on Internal Revenue Service
Form W-8, under penalties of perjury, that it is
not a United States person and provides its name
and address, and any Financial Institution
holding the BRIDGES on behalf of the beneficial
owner files a statement with the withholding
agent to the effect that it has received such a
statement from the Holder (and furnishes the
withholding agent with a copy thereof). With
respect to BRIDGES held by a foreign
partnership, under current law, the Form W-8 may
be provided by the foreign partnership. However,
for payments with respect to a BRIDGES after
December 31, 1998, unless the foreign
partnership has entered into a withholding
agreement with the Internal Revenue Service, a
foreign partnership will be required, in
addition to providing an intermediary Form W-8,
to attach an appropriate certification by each
partner. Prospective investors, including
foreign partnerships and their partners, should
consult their tax advisors regarding possible
additional reporting requirements.
Under Section 2105(b) of the Code, a BRIDGES
held by an individual who is not a citizen or
resident of the United States at the time of his
death will not be subject to United States
federal estate tax as a result of such
individual's death, provided that the individual
does not own, actually or constructively, 10
percent or more of the total combined voting
power of all classes of stock of the Company
entitled to vote and, at the time of such
individual's death, payments with respect to
such BRIDGES would not have been effectively
connected to the conduct by such individual of a
trade or business in the United States.
Under current Treasury Regulations, backup
withholding at 31% will not apply to payments by
the Company made on a BRIDGES if the
certifications required by Sections 871(h) and
881(c) are received, provided in each case that
the Company or such paying agent, as the case
may be, does not have actual knowledge that the
payee is a United States person.
Under current Treasury Regulations, payments on
the sale, exchange or other disposition of a
BRIDGES made to or through a foreign office of a
broker generally will not be subject to backup
withholding. However, if such broker is a United
States person, a controlled foreign corporation
for United States tax purposes, a foreign person
50 percent or more of whose gross income is
effectively connected with a United States trade
or business for a specified three-year period
or, in the case of payments made after December
31, 1998, a foreign partnership with certain
connections to the United States, information
reporting will be required unless the broker has
in its records documentary evidence that the
beneficial owner is not a United States person
and certain other conditions are met or the
beneficial owner otherwise establishes an
exemption. Backup withholding may apply to any
payment which such broker is required to report
if such broker has actual knowledge that the
payee is a United States person. Payments to or
through the United States office of a broker
will be subject to backup withholding and
information reporting unless the Holder
certifies, under penalties of perjury, that it
is not a United States person or otherwise
establishes an exemption.
Non-U.S. Holders of BRIDGES should consult their
tax advisors regarding the application of
information reporting and backup withholding in
their particular situations, the availability of
an exemption therefrom, and the procedure for
obtaining such an exemption, if available. Any
amounts withheld from a payment to a Non-U.S.
Holder under the backup withholding rules will
be allowed as a credit against such Holder's
United States federal income tax liability and
may entitle such Holder to a refund, provided
that the required information is furnished to
the Internal Revenue Service.
