Subject to Completion, Pricing Supplement dated December 8, 1998
PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 46 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated , 1998
Rule 424(b)(3)
$50,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------------
% Reset PERQS Due December 29, 2000
Mandatorily Exchangeable For
Shares of Common Stock of PFIZER INC.
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay % interest per year but do not guarantee any return
of principal at maturity. Instead the Reset PERQS will pay at maturity a
number of shares of Pfizer common stock based on the closing prices of Pfizer
common stock after one year and at maturity, in each case subject to a cap
price.
o The principal amount and issue price of each Reset PERQS is $ ,
which is the closing price of Pfizer common stock on the day we offer
the Reset PERQS for initial sale to the public.
o We will pay % interest (equivalent to $ per year) on the $
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning March 29, 1999.
o At maturity you will receive shares of Pfizer common stock in exchange
for each Reset PERQS at an exchange ratio. The initial exchange ratio
is 1 share of Pfizer common stock per Reset PERQS. But if the price
of Pfizer common stock appreciates above the cap price for December
17, 1999 or the cap price for December 27, 2000, the exchange ratio
will be adjusted downward, and you will receive less than one share of
Pfizer common stock per Reset PERQS.
o The first year cap price is $ , or % of the issue price. If on
December 17, 1999, the price of Pfizer common stock is higher than the
issue price, we will raise the cap price to % of the price on December
17, 1999. Otherwise the cap price will remain unchanged in the second
year. The maximum you can receive at maturity is Pfizer common stock
worth $ per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Pfizer common
stock.
o Pfizer Inc. is not involved in this offering of Reset PERQS in any way
and will have no financial obligation with respect to the Reset PERQS.
o We will apply to list the Reset PERQS to trade on the American Stock
Exchange, Inc., but it is not possible to predict whether the Reset
PERQS will meet the AMEX listing requirements.
You should read the more detailed description of the Reset PERQS in this
Pricing Supplement. In particular, you should review and understand the
descriptions in"Summary of Pricing Supplement" and "Description of Reset
PERQS." "Reset Performance Equity-linked Redemption Quarterly-pay Securities"
and "Reset PERQS" are our service marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
---------------
PRICE $ PER RESET PERQS
---------------
Agent's Proceeds to
Price to Public Commissions Company
--------------- ----------- -----------
Per Reset PERQS.... $ $ $
Total.............. $ $ $
If you purchase at least 25,000 Reset PERQS in any single transaction and you
comply with the holding period requirement described under "Supplemental
Information Concerning Plan of Distribution" in this Pricing Supplement, the
price will be $ per Reset PERQS (98.75% of the Issue Price). In that
case, the underwriting discounts and commissions will be $ per Reset
PERQS ( %).
The information in this pricing supplement is not complete and may be changed.
We may not deliver these securities until a final pricing supplement is
delivered. This pricing supplement and the accompanying prospectus and
prospectus supplement do not constitute an offer to sell these securities and
they are not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering
to you in general terms only. You should read the summary together with the
more detailed information that is contained in the rest of this pricing
supplement and in the accompanying prospectus and prospectus supplement. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
<TABLE>
<CAPTION>
<S> <C>
The Reset PERQS
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering % Reset Performance Equity-linked
costs $ Redemption Quarterly-pay Securities[SM] ("Reset PERQS[SM]") due December 29, 2000. The
principal amount and issue price of each Reset PERQS is $ , which is the closing
market price of the common stock of Pfizer Inc. ("Pfizer Stock") on the day we offer the
Reset PERQS for initial sale to the public. Unlike ordinary debt securities, the Reset PERQS
do not guarantee any return of principal at maturity. Instead the Reset PERQS will pay an
amount of Pfizer Stock based on the market performance of Pfizer Stock, either up or down,
after one year and at maturity, in each case subject to a cap price. Reset PERQS are not
equivalent to investing in Pfizer common stock.
% interest on the We will pay interest on the Reset PERQS, at the rate of % of the principal amount per year,
principal amount quarterly on each March 29, June 29, September 29 and December 29, beginning March 29,
1999. The interest rate we pay on the Reset PERQS is more than the current dividend rate on
the Pfizer Stock. The Reset PERQS will mature on December 29, 2000.
Your appreciation The appreciation potential of each Reset PERQS is limited in each year by the cap price. The
potential is capped cap price in year one is $ , or % of the issue price ("First Year Cap Price"). The
cap price in year two ("Second Year Cap Price") will be the higher of % of the closing
market price on December 17, 1999 and the First Year Cap Price. The maximum you can
receive at maturity is Pfizer stock worth $ per Reset PERQS.
Payment at Maturity
At maturity, for each $ principal amount of Reset PERQS you hold, we will give to you
a number of shares of Pfizer Stock equal to the exchange ratio. The initial exchange ratio is
1 share of Pfizer Stock per Reset PERQS and may be adjusted as follows:
First Year Adjustment. The exchange ratio will be adjusted downward only if the market
price of Pfizer Stock exceeds the First Year Cap Price on December 17, 1999.
The adjusted exchange ratio will be calculated as follows:
New Exchange Existing Exchange First Year Cap Price
= x -----------------------------------------
Ratio Ratio Pfizer closing price on December 17, 1999
If the market price of Pfizer Stock on December 17, 1999 is the same as or less than
the First Year Cap Price, we will not adjust the exchange ratio at the end of the
first year.
Second Year Adjustment. The exchange ratio may be adjusted downward again at
maturity, but only if the market price of Pfizer Stock at maturity exceeds the Second
Year Cap Price. The final exchange ratio will then be calculated as follows:
Final Exchange Existing Exchange Second Year Cap Price
= x --------------------------------
Ratio Ratio Pfizer closing price at maturity
If the market price of Pfizer Stock at maturity is the same as or less than the
Second Year Cap Price, we will not adjust the Exchange Ratio at maturity.
On the next page, we have provided a table titled "Hypothetical Payments on the Reset
PERQS." The table demonstrates the effect of these adjustments to the exchange ratio under
a variety of hypothetical price scenarios. You should examine the table for examples of how
the payout on the Reset PERQS could be affected under these or other potential price
scenarios. This table does not show every situation that may occur.
You can review the prices of Pfizer Stock for the last three years in the "Historical
Information" section of this Pricing Supplement.
During the life of the Reset PERQS, Morgan Stanley & Co. Incorporated ("MS & Co."),
acting as calculation agent, will also make adjustments to the effective exchange ratio to
reflect the occurrence of certain corporate events that could affect the market price of
Pfizer Stock. You should read about these adjustments in the sections called "Description
of Reset PERQS--Exchange at Maturity," "--Exchange Factor" and "--Antidilution Adjustments."
The Calculation Agent
We have appointed MS & Co. to act as calculation agent for The Chase Manhattan Bank, the
trustee for our senior notes. As calculation agent, MS & Co. will determine the exchange
ratio and the cap prices and calculate the amount of Pfizer Stock that you will receive at
maturity.
No Affiliation with Pfizer Inc.
Pfizer Inc. is not an affiliate of ours and is not involved with this offering in any way.
The obligations represented by the Reset PERQS are obligations of Morgan Stanley Dean Witter
& Co. and not of Pfizer Inc.
More Information on the Reset PERQS
The Reset PERQS are senior notes issued as part of our Series C medium-term note program.
You can find a general description of our Series C medium-term note program in the
accompanying Prospectus Supplement dated March 26, 1998. We describe the basic features
of this type of note in the sections called "Description of Reset PERQS--
Fixed Rate Notes" and "--Exchangeable Notes."
For a detailed description of terms of the Reset PERQS including the specific mechanics
and timing of the exchange ratio adjustments, you should read the "Description of Reset
PERQS" section in this Pricing Supplement. You should also read about some of the
risks involved in investing in Reset PERQS in the section called "Risk Factors."
How to reach us
You may contact your local Morgan Stanley Dean Witter branch office or our principal
executive offices at 1585 Broadway, New York, New York, telephone number
(212) 761-4000.
</TABLE>
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on a hypothetical Initial Pfizer Price of $115 per share
of Pfizer Stock and a first year cap of 119% and a second year cap of 119%,
the following table illustrates, for a range of First Year Closing Prices and
Maturity Prices, the adjustments we would make to the Exchange Ratio, Second
Year Cap Prices, the Payments at Maturity based on Pfizer Stock for each $115
principal amount of Reset PERQS and the total return including interest
payments, based on a hypothetical interest rate of 6% per annum, for each $115
principal amount of Reset PERQS.
<TABLE>
<CAPTION>
Initial 12/17/99
Initial Pfizer Exchange First Year Cap First Year Adjusted Second Year Cap
Price Ratio Price Closing Price Exchange Ratio Price
- -------------- -------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$115.00 1.00 $136.8500 $90.00 1.00000 $136.8500
$115.00 1.00 $136.8500 $90.00 1.00000 $136.8500
$115.00 1.00 $136.8500 $90.00 1.00000 $136.8500
$115.00 1.00 $136.8500 $135.00 1.00000 $160.6500
$115.00 1.00 $136.8500 $135.00 1.00000 $160.6500
$115.00 1.00 $136.8500 $135.00 1.00000 $160.6500
$115.00 1.00 $136.8500 $160.00 0.85531 $190.4000
$115.00 1.00 $136.8500 $160.00 0.85531 $190.4000
$115.00 1.00 $136.8500 $160.00 0.85531 $190.4000
$115.00 1.00 $136.8500 $136.85 1.00000 $162.8500
119% of Greater of (x)
Initial Pfizer 119% of First
Price Year Closing
Price and (y)
First Year Cap
Price
<CAPTION>
Reset PERQS
Reset PERQS Payment at
Adjusted Exchange Payment at Maturity plus 6%
Initial Pfizer Pfizer Stock Ratio Maturity Based on Coupon ("Total
Price Maturity Price(1) at Maturity Pfizer Stock Payment")
- -------------- ----------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
$115.00 $150.00 0.91233 $136.85 $150.65
$115.00 $135.00 1.00000 $135.00 $148.80
$115.00 $60.00 1.00000 $60.00 $73.80
$115.00 $175.00 0.91800 $160.65 $174.45
$115.00 $150.00 1.00000 $150.00 $163.80
$115.00 $100.00 1.00000 $100.00 $113.80
$115.00 $200.00 0.81426 $162.85 $176.65
$115.00 $195.00 0.83513 $162.85 $176.65
$115.00 $90.00 0.85531 $76.98 $90.78
$115.00 $162.85 1.00000 $162.85 $176.65
Maturity Price
times Adjusted
Exchange Ratio
- ------------
(1) The Pfizer Stock Maturity Price does not include any dividend payments
that may have been paid to holders of Pfizer Stock.
</TABLE>
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than
ordinary debt securities. Because the return to investors is linked to the
performance of Pfizer Stock, there is no guaranteed return of principal. To
the extent that the final market price of Pfizer Stock at maturity is either
less than today's market price or not sufficiently above today's market price
to compensate for a downward adjustment of the exchange ratio, if any, at
December 17, 1999, investors will lose money on their investment. Reset
PERQS are not equivalent to investing directly in Pfizer Stock. This section
describes the most significant risks relating to the Reset PERQS. You should
carefully consider whether the Reset PERQS are suited to your particular
circumstances before you decide to purchase them.
<TABLE>
<S> <C>
Reset PERQS Are Not The Reset PERQS combine features of equity and debt. The terms of the Reset
Ordinary Senior Notes -- PERQS differ from those of ordinary debt securities in that we will not pay you
No guaranteed return of a fixed amount at maturity. Our payment to you at maturity will be a number of
principal shares of Pfizer Stock based on the market price of Pfizer Stock on December
17, 1999 and at maturity. If the final market price of Pfizer Stock at
maturity is either less than today's market price or not sufficiently above
today's market price to compensate for a downward adjustment of the
exchange ratio, if any, at December 17, 1999, we will pay you less than the
principal amount of the Reset PERQS. See "Hypothetical Payments on the
Reset PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS is limited because of the cap
Potential Is Limited prices. Even though the issue price of one Reset PERQS is equal to today's
market price of one share of Pfizer Stock, you may receive less than one share
of Pfizer Stock per Reset PERQS at maturity if the exchange ratio has been
adjusted downwards. If the price of Pfizer Stock appreciates above both the cap
price for December 17, 1999 and the cap price for December 27, 2000, the
initial exchange ratio of one share of Pfizer Stock per Reset PERQS will be
reduced twice.
The exchange ratio and the final market price of Pfizer Stock at maturity will be
determined on December 27, 2000, which is two trading days prior to maturity
of the Reset PERQS. If the price of Pfizer Stock is lower on the actual maturity
date than it was on December 27, 2000, the value of any Pfizer Stock you
receive will be less. Under no circumstances will you receive an amount of
Pfizer Stock for each Reset PERQS worth more than $ .
Secondary Trading There may be little or no secondary market for the Reset PERQS. Although we
May Be Limited will apply to list the Reset PERQS on the American Stock Exchange, Inc., we
may not meet the requirements for listing. Even if there is a secondary market,
it may not provide significant liquidity. Morgan Stanley & Co. currently
intends to act as a market maker for Reset PERQS but is not required to do so.
Market Price of the Reset Several factors, many of which are beyond our control, will influence the value
PERQS Influenced by Many of the Reset PERQS. We expect that generally the market price of the Pfizer
Unpredictable Factors Stock on any day will affect the value of the Reset PERQS more than any
other single factor. Because adjustments to the exchange ratio for the Reset
PERQS are tied to the closing stock prices on two specific days, however, the
Reset PERQS may trade differently from the underlying stock. Other factors
that may influence the value of the Reset PERQS include:
o the volatility (frequency and magnitude of changes in price) of the
Pfizer Stock
o the dividend rate on Pfizer Stock economic, financial and political events
that affect stock markets generally and which may affect the market price
of the Pfizer Stock
o interest and yield rates in the market
o the time remaining to the maturity of the Reset PERQS
o our creditworthiness
These factors will influence the price you will receive if you sell your Reset
PERQS prior to maturity. For example, you may have to sell your Reset
PERQS at a substantial discount from the principal amount if the market price
of the Pfizer Stock is at, below, or not sufficiently above the initial market price.
You cannot predict the future performance of Pfizer Stock based on its historical
performance. The price of Pfizer Stock may decrease so that you will receive at
maturity shares of Pfizer Stock worth less than the principal amount of the Reset
PERQS. We cannot guarantee that the price of Pfizer Stock will increase so that
you will receive at maturity an amount in excess of the principal amount of the
Reset PERQS.
No Affiliation with Pfizer Inc. We are not affiliated with Pfizer Inc. ("Pfizer"). We do not have any non-public
information about Pfizer as of the date of this Pricing Supplement, although we
or our affiliates may presently or from time to time engage in business with
Pfizer, including extending loans to, or making equity investments in, Pfizer or
providing advisory services to Pfizer, including merger and acquisition advisory
services. Moreover, we have no ability to control or predict the actions of
Pfizer, including any corporate actions of the type that would require the
calculation agent to adjust the payment to you at maturity. Pfizer is not
involved in the offering of the Reset PERQS in any way and has no obligation
to consider your interest as a holder of Reset PERQS in taking any corporate
actions that might affect the value of your Reset PERQS. None of the money
you pay for the Reset PERQS will go to Pfizer.
You Have No Shareholder As a holder of Reset PERQS, you will not have voting rights or rights to receive
Rights dividends or other distributions or any other rights with respect to the Pfizer
Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the amount payable at maturity for
Adjustments certain events affecting the Pfizer Stock, such as stock splits and stock
dividends, and certain other corporate actions involving Pfizer, such as mergers.
However, the calculation agent is not required to make an adjustment for every
corporate event that can affect the Pfizer Stock. For example, the calculation
agent is not required to make any adjustments if Pfizer or anyone else makes a
partial tender or partial exchange offer for the Pfizer Stock. If an event occurs
that does not require the calculation agent to adjust the amount payable at
maturity, the market price of the Reset PERQS may be materially and adversely
affected.
Potential Conflicts of Interest As calculation agent, MS & Co. will calculate the payment to you at maturity of
between You and the the Reset PERQS. MS & Co. and other affiliates may carry out hedging
Calculation Agent activities related to Reset PERQS, including trading in Pfizer Stock as well as in
other instruments related to Pfizer Stock. MS & Co. and some of our other
subsidiaries also trade Pfizer Stock and other financial instruments related to
Pfizer Stock on a regular basis as part of their general broker dealer businesses.
Any of these activities could influence MS & Co.'s determination of
adjustments made to Reset PERQS and, accordingly, could affect your payout
on the Reset PERQS.
Tax Treatment You should also consider the tax consequences of investing in the Reset
PERQS. There is no direct legal authority as to the proper tax treatment of the
Reset PERQS, and therefore significant aspects of the tax treatment of the Reset
PERQS are uncertain. We do not plan to request a ruling from the Internal
Revenue Service ("IRS") regarding the tax treatment of the Reset PERQS, and
the IRS or a court may not agree with the tax treatment described in this Pricing
Supplement. Please read carefully the section "Description of Reset
PERQS--United States Federal Income Taxation" in this Pricing Supplement.
</TABLE>
DESCRIPTION OF RESET PERQS
Capitalized terms not defined herein have the meanings given to such terms
in the accompanying Prospectus Supplement.
Principal Amount.............. $50,000,000
Maturity Date................. December 29, 2000
Interest Rate................. % per annum (equivalent to $ per annum
per Reset PERQS)
Interest Payment Dates........ Each March 29, June 29, September 29 and
December 29, beginning March 29, 1999.
Specified Currency............ U.S. Dollars
Issue Price................... $ per Reset PERQS
Initial Pfizer Price.......... $
Original Issue Date
(Settlement Date) , 1998
CUSIP......................... 617446265
Denominations................. $ and integral multiples thereof
First Year Cap Price.......... $ ( % of the Initial Pfizer
Price)
First Year Determination Date. December 17, 1999 (or if such date is not a
Trading Day on which no Market Disruption
Event occurs, the immediately succeeding
Trading Day on which no Market Disruption
Event occurs)
First Year Closing Price...... First Year Closing Price means the product
of (i) the Market Price of one share of
Pfizer Stock and (ii) the Exchange
Factor, each determined as of the First
Year Determination Date.
Second Year Cap Price......... Second Year Cap Price means the greater of
(x) % of the First Year Closing Price
and (y) the First Year Cap Price. See
"Exchange at Maturity" below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one share of Pfizer
Stock and (ii) the Exchange Factor, each
determined as of the second scheduled
Trading Day immediately prior to
maturity.
Exchange at Maturity.......... At maturity (including as a result of
acceleration under the terms of the
indenture or otherwise), upon delivery
of each Reset PERQS to the Trustee, we
will apply each $ principal amount of
such Reset PERQS as payment for a number
of shares of Pfizer Stock at the
Exchange Ratio. The Exchange Ratio,
initially set at 1.0, is subject to
adjustment on the First Year
Determination Date and at maturity in
order to cap the value of the Pfizer
Stock to be received upon delivery of
the Reset PERQS at $ per principal
amount of each Reset PERQS ( % of the
Initial Pfizer Price). Solely for
purposes of adjustment upon the
occurrence of certain corporate events,
the number of shares of Pfizer Stock to
be delivered at maturity will also be
adjusted by an Exchange Factor,
initially set at 1.0. See "Exchange
Factor" and "Antidilution Adjustments"
below.
If the First Year Closing Price is less
than or equal to % of the Initial Pfizer
Price (the "First Year Cap Price"), no
adjustment to the Exchange Ratio will be
made at such time. If the First Year
Closing Price exceeds the First Year Cap
Price, the Exchange Ratio will be
adjusted so that the new Exchange Ratio
will equal the product of (i) the
existing Exchange Ratio and (ii) a
fraction the numerator of which will be
the First Year Cap Price and the
denominator of which will be the First
Year Closing Price. In addition, on the
First Year Determination Date, the
Calculation Agent will establish the
"Second Year Cap Price" that will be
equal to the greater of (x) % of the
First Year Closing Price and (y) the
First Year Cap Price. Notice of the
Second Year Cap Price and of any such
adjustment to the Exchange Ratio shall
promptly be sent by first-class mail to
The Depository Trust Company, New York,
New York (the "Depositary"). If the
Maturity Price is less than or equal to
the Second Year Cap Price, no further
adjustment to the Exchange Ratio will be
made. If the Maturity Price exceeds the
Second Year Cap Price, the existing
Exchange Ratio will be adjusted so that
the final Exchange Ratio will equal the
product of (i) the existing Exchange
Ratio and (ii) a fraction the numerator
of which will be the Second Year Cap
Price and the denominator of which will
be the Maturity Price. Please review
each example in the table called
"Hypothetical Payments on the Reset
PERQS" on PS-5.
All calculations with respect to the
Exchange Ratios for the Reset PERQS will
be rounded to the nearest one hundred-
thousandth, with five one-millionths
rounded upwards (e.g. .876545 would be
rounded to .87655); all calculations
with respect to the Second Year Cap
Price will be rounded to the nearest
ten-thousandth, with five one-hundred-
thousandths rounded upwards (e.g.
$12.34567 would be rounded to $12.3457);
and all dollar amounts related to
payments at maturity resulting from such
calculations will be rounded to the
nearest cent with one-half cent being
rounded upwards.
Morgan Stanley Dean Witter & Co.
(referred to in the first person plural
or as the "Company" in this Pricing
Supplement) shall, or shall cause the
Calculation Agent to, (i) provide
written notice to the Trustee and to the
Depositary, on or prior to 10:30 a.m. on
the Trading Day immediately prior to
maturity of the Reset PERQS, of the
amount of Pfizer Stock to be delivered
with respect to each $ principal amount
of each Reset PERQS and (ii) deliver
such shares of Pfizer Stock (and cash in
respect of interest and any fractional
shares of Pfizer Stock) to the Trustee
for delivery to the holders. The
Calculation Agent shall determine the
Exchange Ratio applicable at the
maturity of the Reset PERQS and
calculate the Exchange Factor.
References to payment "per Reset PERQS"
refer to each $ principal amount of any
Reset PERQS.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a
result of acceleration or otherwise), we
will pay cash in lieu of issuing
fractional shares of Pfizer Stock in an
amount equal to the corresponding
fractional Market Price of such fraction
of a share of Pfizer Stock as determined
by the Calculation Agent as of the
second scheduled Trading Day prior to
maturity of the Reset PERQS.
Exchange Factor............... The Exchange Factor will be set initially
at 1.0, but will be subject to
adjustment upon the occurrence of
certain corporate events through and
including the second scheduled Trading
Day immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price.................. If Pfizer Stock (or any other security for
which a Market Price must be determined)
is listed on a national securities
exchange, is a security of The Nasdaq
National Market ("NASDAQ NMS") or is
included in the OTC Bulletin Board
Service ("OTC Bulletin Board") operated
by the National Association of
Securities Dealers, Inc. (the "NASD"),
the Market Price for one share of Pfizer
Stock (or one unit of any such other
security) on any Trading Day means (i)
the last reported sale price, regular
way, on such day on the principal United
States securities exchange registered
under the Securities Exchange Act of
1934, as amended (the "Exchange Act"),
on which Pfizer Stock (or any such other
security) is listed or admitted to
trading or (ii) if not listed or
admitted to trading on any such
securities exchange or if such last
reported sale price is not obtainable,
the last reported sale price on the
over-the-counter market as reported on
the NASDAQ NMS or OTC Bulletin Board on
such day. If the last reported sale
price is not available pursuant to
clause (i) or (ii) of the preceding
sentence, the Market Price for any
Trading Day shall be the mean, as
determined by the Calculation Agent, of
the bid prices for Pfizer Stock (or any
such other security) obtained from as
many dealers in such stock (which may
include MS & Co. or any of our other
subsidiaries or affiliates), but not
exceeding three, as will make such bid
prices available to the Calculation
Agent. A "security of the NASDAQ NMS"
shall include a security included in any
successor to such system and the term
"OTC Bulletin Board Service" shall
include any successor service thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock Exchange
("NYSE"), the AMEX, the NASDAQ NMS, the
Chicago Mercantile Exchange, and the
Chicago Board of Options Exchange and in
the over-the-counter market for equity
securities in the United States.
Acceleration Event............ If on any date the product of the Market
Price per share of Pfizer Stock and the
Exchange Factor is less than $2.00, the
maturity date of the Reset PERQS will be
deemed to be accelerated to such date,
and we will apply each $ principal
amount of each Reset PERQS as payment
for a number of shares of Pfizer Stock
at the then current Exchange Ratio, as
adjusted by the then current Exchange
Factor. See also "Antidilution
Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to
the Maturity Date.
Book Entry Note or
Certificated Note............. Book Entry
Senior Note or Subordinated
Note.......................... Senior
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
Calculation Agent............. Morgan Stanley & Co. Incorporated and its
successors ("MS & Co.").
Because the Calculation Agent is our
affiliate, potential conflicts of
interest may exist between the
Calculation Agent and you as a holder of
the Reset PERQS, including with respect
to certain determinations and judgments
that the Calculation Agent must make in
making adjustments to the Exchange
Factor or other antidilution adjustments
or determining any Market Price or
whether a Market Disruption Event has
occurred. See "Antidilution
Adjustments" and "Market Disruption
Event" below. MS & Co. is obligated to
carry out its duties as Calculation
Agent in good faith using its reasonable
judgment.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If Pfizer Stock is subject to a
stock split or reverse stock split, then
once such split has become effective,
the Exchange Factor will be adjusted to
equal the product of the prior Exchange
Factor and the number of shares issued
in such stock split or reverse stock
split with respect to one share of
Pfizer Stock.
2. If Pfizer Stock is subject (i)
to a stock dividend (issuance of
additional shares of Pfizer Stock) that
is given ratably to all holders of
shares of Pfizer Stock or (ii) to a
distribution of Pfizer Stock as a result
of the triggering of any provision of
the corporate charter of Pfizer, then
once the dividend has become effective
and Pfizer Stock is trading ex-dividend,
the Exchange Factor will be adjusted so
that the new Exchange Factor shall equal
the prior Exchange Factor plus the
product of (i) the number of shares
issued with respect to one share of
Pfizer Stock and (ii) the prior Exchange
Factor.
3. There will be no adjustments to
the Exchange Factor to reflect cash
dividends or other distributions paid
with respect to Pfizer Stock other than
distributions described in clause (v) of
paragraph 5 below and Extraordinary
Dividends as described below. A cash
dividend or other distribution with
respect to Pfizer Stock will be deemed
to be an "Extraordinary Dividend" if
such dividend or other distribution
exceeds the immediately preceding non-
Extraordinary Dividend for Pfizer Stock
by an amount equal to at least 10% of
the Market Price of Pfizer Stock (as
adjusted for any subsequent corporate
event requiring an adjustment hereunder,
such as a stock split or reverse stock
split) on the Trading Day preceding the
ex-dividend date for the payment of such
Extraordinary Dividend (the "ex-dividend
date"). If an Extraordinary Dividend
occurs with respect to Pfizer Stock, the
Exchange Factor with respect to Pfizer
Stock will be adjusted on the ex-
dividend date with respect to such
Extraordinary Dividend so that the new
Exchange Factor will equal the product
of (i) the then current Exchange Factor
and (ii) a fraction, the numerator of
which is the Market Price on the Trading
Day preceding the ex-dividend date, and
the denominator of which is the amount
by which the Market Price on the Trading
Day preceding the ex-dividend date
exceeds the Extraordinary Dividend
Amount. The "Extraordinary Dividend
Amount" with respect to an Extraordinary
Dividend for Pfizer Stock will equal (i)
in the case of cash dividends or other
distributions that constitute regular
dividends, the amount per share of such
Extraordinary Dividend minus the amount
per share of the immediately preceding
non-Extraordinary Dividend for Pfizer
Stock or (ii) in the case of cash
dividends or other distributions that do
not constitute regular dividends, the
amount per share of such Extraordinary
Dividend. To the extent an
Extraordinary Dividend is not paid in
cash, the value of the non-cash
component will be determined by the
Calculation Agent, whose determination
shall be conclusive. A distribution on
the Pfizer Stock described in clause (v)
of paragraph 5 below that also
constitutes an Extraordinary Dividend
shall cause an adjustment to the
Exchange Factor pursuant only to clause
(v) of paragraph 5.
4. If Pfizer issues rights or
warrants to all holders of Pfizer Stock
to subscribe for or purchase Pfizer
Stock at an exercise price per share
less than the Market Price of the Pfizer
Stock on both (i) the date the exercise
price of such rights or warrants is
determined and (ii) the expiration date
of such rights or warrants, and if the
expiration date of such rights or
warrants precedes the maturity of the
Reset PERQS, then the Exchange Factor
will be adjusted to equal the product of
the prior Exchange Factor and a
fraction, the numerator of which shall
be the number of shares of Pfizer Stock
outstanding immediately prior to the
issuance of such rights or warrants plus
the number of additional shares of
Pfizer Stock offered for subscription or
purchase pursuant to such rights or
warrants and the denominator of which
shall be the number of shares of Pfizer
Stock outstanding immediately prior to
the issuance of such rights or warrants
plus the number of additional shares of
Pfizer Stock which the aggregate
offering price of the total number of
shares of Pfizer Stock so offered for
subscription or purchase pursuant to
such rights or warrants would purchase
at the Market Price on the expiration
date of such rights or warrants, which
shall be determined by multiplying such
total number of shares offered by the
exercise price of such rights or
warrants and dividing the product so
obtained by such Market Price.
5. If (i) there occurs any
reclassification of Pfizer Stock, (ii)
Pfizer or any surviving entity or
subsequent surviving entity of Pfizer (a
"Pfizer Successor") has been subject to
a merger, combination or consolidation
and is not the surviving entity, (iii)
any statutory exchange of securities of
Pfizer or any Pfizer Successor with
another corporation occurs (other than
pursuant to clause (ii) above), (iv)
Pfizer is liquidated, (v) Pfizer issues
to all of its shareholders equity
securities of an issuer other than
Pfizer (other than in a transaction
described in clauses (ii), (iii) or (iv)
above) (a "Spin-off Event") or (vi) a
tender or exchange offer or going-
private transaction is consummated for
all the outstanding shares of Pfizer
Stock (any such event in clauses (i)
through (vi) a "Reorganization Event"),
the method of determining the amount
payable upon exchange at maturity for
each Reset PERQS will be adjusted to
provide that each holder of Reset PERQS
will receive at maturity, in respect of
each $ principal amount of each Reset
PERQS, securities, cash or any other
assets distributed in any such
Reorganization Event, including, in the
case of a Spin-off Event, the share of
Pfizer Stock with respect to which the
spun-off security was issued
(collectively, the "Exchange Property")
in an amount with a value equal to (a)
if the Exchange Ratio has not been
adjusted prior to maturity, the
Transaction Value or (b) if the Exchange
Ratio has been adjusted, an amount equal
to the product of the final Exchange
Ratio and the Transaction Value. In
addition, following a Reorganization
Event, the method of determining the
Maturity Price will be adjusted so that
the Maturity Price will mean the
Transaction Value as of the second
scheduled Trading Day immediately prior
to maturity, and if the Reorganization
Event occurs prior to the First Year
Determination Date, the First Year
Closing Price will mean the Transaction
Value determined as of the First Year
Determination Date. Notwithstanding the
above, if the Exchange Property received
in any such Reorganization Event
consists only of cash, the maturity date
of the Reset PERQS will be deemed to be
accelerated to the date on which such
cash is distributed to holders of Pfizer
Stock and holders will receive in lieu
of any Pfizer Stock and as liquidated
damages in full satisfaction of the
Company's obligations under the Reset
PERQS the product of (i) the Transaction
Value as of such date and (ii) the then
current Exchange Ratio adjusted as if
such date were the next to occur of
either the First Year Determination Date
or the second scheduled Trading Day
prior to maturity. If Exchange Property
consists of more than one type of
property, holders of Reset PERQS will
receive at maturity a pro rata share of
each such type of Exchange Property. If
Exchange Property includes a cash
component, holders will not receive any
interest accrued on such cash component.
"Transaction Value" at any date means
(i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of Pfizer Stock, as
adjusted by the Exchange Factor, (ii)
for any property other than cash or
securities received in any such
Reorganization Event, the market value,
as determined by the Calculation Agent,
as of the date of receipt, of such
Exchange Property received for each
share of Pfizer Stock, as adjusted by
the Exchange Factor and (iii) for any
security received in any such
Reorganization Event, an amount equal to
the Market Price, as of the date on
which the Transaction Value is
determined, per share of such security
multiplied by the quantity of such
security received for each share of
Pfizer Stock, as adjusted by the
Exchange Factor.
For purposes of paragraph 5 above, in
the case of a consummated tender or
exchange offer or going-private
transaction involving Exchange Property
of a particular type, Exchange Property
shall be deemed to include the amount of
cash or other property paid by the
offeror in the tender or exchange offer
with respect to such Exchange Property
(in an amount determined on the basis of
the rate of exchange in such tender or
exchange offer or going-private
transaction). In the event of a tender
or exchange offer or a going-private
transaction with respect to Exchange
Property in which an offeree may elect
to receive cash or other property,
Exchange Property shall be deemed to
include the kind and amount of cash and
other property received by offerees who
elect to receive cash.
No adjustments to the Exchange Factor
will be required unless such adjustment
would require a change of at least 0.1%
in the Exchange Factor then in effect.
The Exchange Factor resulting from any
of the adjustments specified above will
be rounded to the nearest one hundred-
thousandth with five one-millionths
being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio
will be made other than those specified
above. The adjustments specified above
do not cover all events that could
affect the Market Price of the Pfizer
Stock, including, without limitation, a
partial tender or exchange offer for the
Pfizer Stock.
Notwithstanding the foregoing, the
amount payable by us at maturity with
respect to each Reset PERQS, determined
as of the second scheduled Trading Day
prior to maturity, will not under any
circumstances exceed an amount of Pfizer
Stock having a market price of $ as of
such second scheduled Trading Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Exchange Factor or method of calculating
the Exchange Ratio and of any related
determinations and calculations with
respect to any distributions of stock,
other securities or other property or
assets (including cash) in connection
with any corporate event described in
paragraph 5 above, and its
determinations and calculations with
respect thereto shall be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating
the Exchange Ratio upon written request
by any holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with
respect to Pfizer Stock:
(i) a suspension, absence or material
limitation of trading of Pfizer Stock
on the primary market for Pfizer
Stock for more than two hours of
trading or during the one-half hour
period preceding the close of trading
in such market; or a breakdown or
failure in the price and trade
reporting systems of the primary
market for Pfizer Stock as a result
of which the reported trading prices
for Pfizer Stock during the last one-
half hour preceding the closing of
trading in such market are materially
inaccurate; or the suspension or
material limitation on the primary
market for trading in options
contracts related to Pfizer Stock, if
available, 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 Reset
PERQS.
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,
(2) a decision to permanently
discontinue trading in the relevant
option 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 shall constitute a
suspension, absence or material
limitation of trading, (4) a suspension
of trading in an options contract on
Pfizer Stock by the primary securities
market trading in such options, if
available, by reason of (x) a price
change exceeding limits set by such
securities exchange or market, (y) an
imbalance of orders relating to such
contracts or (z) a disparity in bid and
ask quotes relating to such contracts
will constitute a suspension or material
limitation of trading in options
contracts related to Pfizer Stock and
(5) a suspension, absence or material
limitation of trading on the primary
securities market on which options
contracts related to Pfizer Stock are
traded will not include any time when
such securities market is itself closed
for trading under ordinary
circumstances.
Pfizer Stock; Public
Information................... Pfizer discovers, develops, manufactures
and sells healthcare products including
pharmaceuticals, medical instruments and
implants and personal care products.
Pfizer Stock is registered under the
Exchange Act. Companies with securities
registered under the Exchange Act are
required to file periodically certain
financial and other information
specified by the Securities and Exchange
Commission (the "Commission").
Information provided to or filed with
the Commission can be inspected and
copied at the public reference
facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its
Regional Offices located at Suite 1400,
Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of
such material can be obtained from the
Public Reference Section of the
Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed
rates. In addition, information
provided to or filed with the Commission
electronically can be accessed through a
Website maintained by the Commission.
The address of the Commission's Website
is http:/www.sec.gov. Information
provided to or filed with the Commission
by Pfizer pursuant to the Exchange Act
of 1934 can be located by reference to
Commission file number 1-3619. In
addition, information regarding Pfizer
may be obtained from other sources
including, but not limited to, press
releases, newspaper articles and other
publicly disseminated documents. The
Company makes no representation or
warranty as to the accuracy or
completeness of such reports.
This pricing supplement relates only to
the Reset PERQS offered hereby and does
not relate to Pfizer Stock or other
securities of Pfizer. We have derived
all disclosures contained in this
pricing supplement regarding Pfizer from
the publicly available documents
described in the preceding paragraph.
Neither we nor the Agent has
participated in the preparation of such
documents or made any due diligence
inquiry with respect to Pfizer in
connection with the offering of the
Reset PERQS. Neither we nor the Agent
makes any representation that such
publicly available documents or any
other publicly available information
regarding Pfizer are accurate or
complete. Furthermore, we cannot give
any assurance that all events occurring
prior to the date hereof (including
events that would affect the accuracy or
completeness of the publicly available
documents described in the preceding
paragraph) that would affect the trading
price of Pfizer Stock (and therefore the
Initial Pfizer Price, the First Year Cap
Price and the maximum appreciation
amount) have been publicly disclosed.
Subsequent disclosure of any such events
or the disclosure of or failure to
disclose material future events
concerning Pfizer could affect the value
received at maturity with respect to the
Reset PERQS and therefore the trading
prices of the Reset PERQS.
Neither we nor any of our affiliates makes
any representation to you as to the
performance of Pfizer stock.
We, or our affiliates, may presently or
from time to time engage in business
with Pfizer, including extending loans
to, or making equity investments in,
Pfizer or providing advisory services to
Pfizer, including merger and acquisition
advisory services. In the course of
such business, we, or our affiliates,
may acquire non-public information with
respect to Pfizer and, in addition, one
or more of our affiliates may publish
research reports with respect to Pfizer.
The statement in the preceding sentence
is not intended to affect the right of
holders of the Reset PERQS under the
securities laws. As a prospective
purchaser of a Reset PERQS, you should
undertake an independent investigation
of Pfizer as in your judgment is
appropriate to make an informed decision
with respect to an investment in Pfizer
Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1995, 1996, 1997
and 1998 through December 8, 1998. The
Market Price on December 8, 1998 was
$116 3/16. We obtained the Market
Prices listed below from Bloomberg
Financial Markets and we believe such
information to be accurate. You should
not take the historical prices of Pfizer
Stock as an indication of future
performance. The price of Pfizer Stock
may decrease so that you will receive at
maturity shares of Pfizer Stock worth
less than the principal amount of the
Reset PERQS. We cannot give you any
assurance that the price of Pfizer Stock
will increase so that at maturity you
will receive an amount in excess of the
principal amount of the Reset PERQS.
Because your return is linked to the
performance of Pfizer Stock, there is no
guaranteed return of principal. To the
extent that Pfizer Stock drops below the
issue price and the shortfall is not
offset by the coupon paid on the Reset
PERQS, you will lose money on your
investment.
Dividends
Pfizer High Low per Share
------ ---- --- ---------
(CUSIP 717081103)
1995
First Quarter................. 22 3/8 18 21/32 0.13
Second Quarter................ 23 1/2 20 5/16 0.13
Third Quarter................. 26 7/8 21 15/16 0.13
Fourth Quarter................ 33 1/8 26 5/8 0.13
1996
First Quarter................. 35 1/8 30 3/8 0.15
Second Quarter................ 37 7/8 32 5/16 0.15
Third Quarter................. 39 9/16 34 15/16 0.15
Fourth Quarter................ 45 1/4 40 3/8 0.15
1997
First Quarter................. 49 3/8 40 15/16 0.17
Second Quarter................ 61 41 11/16 0.17
Third Quarter................. 63 3/4 52 7/16 0.17
Fourth Quarter................ 77 13/16 60 1/4 0.17
1998
First Quarter................. 99 11/16 73 15/16 0.19
Second Quarter................ 118 1/4 97 9/16 0.19
Third Quarter................. 118 11/16 93 0.19
Fourth Quarter
(through December 8, 1998).. 116 3/8 89 3/8 0.19
Historical prices have been adjusted for
two 2 for 1 stock splits of Pfizer
stock, which became effective in the
third quarter of 1995 and the third
quarter of 1997, respectively.
We make no representation as to the amount of
dividends, if any, that Pfizer will pay in
the future. In any event, as a holder of the
Reset PERQS, you will not be entitled to
receive dividends, if any, that may be
payable on Pfizer Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale
of the Reset PERQS will be used for
general corporate purposes and, in part,
by us or by one or more of our
affiliates in connection with hedging
our obligations under the Reset PERQS.
See also "Use of Proceeds" in the
accompanying Prospectus.
On or prior to the date of this Pricing
Supplement, we, through our subsidiaries
or others, may hedge our anticipated
exposure in connection with the Reset
PERQS by taking positions in Pfizer
Stock, in options contracts on Pfizer
Stock listed on major securities markets
or positions in any other instruments
that we may wish to use in connection
with such hedging. In the event that we
pursue such a hedging strategy, the
price at which we are able to purchase
such positions may be a factor in
determining the pricing of the Reset
PERQS. Purchase activity could
potentially increase the price of Pfizer
Stock, and therefore effectively
increase the level to which Pfizer Stock
must rise before you would receive at
maturity an amount of Pfizer Stock worth
as much as or more than the principal
amount of the Reset PERQS. Although we
have no reason to believe that our
hedging activity will have a material
impact on the price of Pfizer Stock, we
cannot give any assurance that we will
not affect such price as a result of our
hedging activities. Through our
subsidiaries, we are likely to modify
our hedge position throughout the life
of the Reset PERQS, including on the
First Year Determination Date, by
purchasing and selling the securities
and instruments listed above and any
other available securities and
instruments that we may wish to use in
connection with such hedging.
Supplemental Information
Concerning Plan of
Distribution.................. In order to facilitate the offering of the
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset
PERQS or the Pfizer Stock.
Specifically, the Agent may overallot in
connection with the offering, creating a
short position in the Reset PERQS for
its own account. In addition, to cover
allotments or to stabilize the price of
the Reset PERQS, the Agent may bid for,
and purchase, the Reset PERQS or the
Pfizer Stock in the open market. See
"Use of Proceeds and Hedging" above.
The Agent proposes initially to offer
the Reset PERQS directly to the public
at the public offering price set forth
on the cover page hereof plus accrued
interest, if any, from , 1998; provided
that the price will be $ per Reset
PERQS and the underwriting discounts and
commissions will be $ per Reset PERQS
for purchasers of greater than or equal
to 25,000 Reset PERQS in any case single
transaction, subject to the holding
period requirements described below.
Delivery of approximately 98.75% of the
Reset PERQS to a purchaser of 25,000 or
more Reset PERQS at the reduced price
(the "Delivered Reset PERQS") will be
made on the date of delivery of the
Reset PERQS referred to on the cover of
this Pricing Supplement. The balance of
approximately 1.25% of the Reset PERQS
(the "Escrowed Reset PERQS") purchased
by each such investor will be held in
escrow at MS & Co. for the benefit of
the investor and delivered to such
investor if the investor and any
accounts in which the investor may have
deposited any of its Delivered Reset
PERQS have held all of the Delivered
Reset PERQS for 45 calendar days
following the date of the Pricing
Supplement or any shorter period deemed
appropriate by the Agent. If an
investor or any account in which the
investor has deposited any of its
Delivered Reset PERQS fails to satisfy
the holding period requirement, as
determined by the Agent, all of the
investor's Escrowed Reset PERQS will be
forfeited by the investor and not
delivered to it. The Escrowed Reset
PERQS will instead be delivered to the
Agent for sale to investors. This
forfeiture will have the effect of
increasing the purchase price per Reset
PERQS for such investors to 100% of the
principal amount of the Reset PERQS.
Should investors who are subject to the
holding period requirement sell their
Reset PERQS once the holding period is
no longer applicable, the market price
of the Reset PERQS may be adversely
affected. See also "Plan of
Distribution" in the accompanying
Prospectus Supplement.
ERISA Matters for Pension Plans
and Insurance Companies....... The Company and certain affiliates of the
Company, including MS & Co. and Dean
Witter Reynolds Inc. ("DWR"), may each
be considered a "party in interest"
within the meaning of the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), or a "disqualified
person" within the meaning of the
Internal Revenue Code of 1986, as
amended (the "Code") with respect to
many employee benefit plans. Prohibited
transactions within the meaning of ERISA
or the Code may arise, for example, if
the Reset PERQS are acquired by or with
the assets of a pension or other
employee benefit plan with respect to
which MS & Co., DWR or any of their
affiliates is a service provider, unless
the Reset PERQS are acquired pursuant to
an exemption from the prohibited
transaction rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets
of a bank collective investment fund and
(ii) satisfies the requirements and
conditions of Prohibited Transaction
Class Exemption ("PTCE") 91-38 issued by
the Department of Labor ("DOL");
(b) (i) is made solely with assets of
an insurance company pooled separate
account and (ii) satisfies the
requirements and conditions of PTCE 90-1
issued by the DOL;
(c) (i) is made solely with assets
managed by a qualified professional
asset manager and (ii) satisfies the
requirements and conditions of PTCE 84-
14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to
the provisions of Section 401 of the
Code;
(e) (i) is made solely with assets of
an insurance company general account and
(ii) satisfies the requirements and
conditions of PTCE 95-60 issued by the
DOL; or
(f) (i) is made solely with assets
managed by an in-house asset manager and
(ii) satisfies the requirements and
conditions of PTCE 96-23 issued by the
DOL.
The assets of a pension or other
employee benefit plan may include assets
held in the general account of an
insurance company that are deemed to be
"plan assets" under ERISA. In addition,
employee benefit plans subject to ERISA
(or insurance companies deemed to be
investing ERISA plan assets) purchasing
Reset PERQS should consider the possible
implications of owning the Pfizer Stock.
Any insurance company or pension or
employee benefit plan proposing to
invest in the Reset PERQS should consult
with its legal counsel.
United States Federal Income
Taxation..................... The following summary is based on the
advice of Davis Polk & Wardwell, special
tax counsel to the Company ("Tax
Counsel"), and is a general discussion
of the principal potential U.S. federal
income tax consequences to U.S. Holders
(as defined below) who are initial
holders of the Reset PERQS purchasing
the Reset PERQS at the Issue Price, and
who will hold the Reset PERQS as capital
assets within the meaning of Section
1221 of the Code. This summary is based
on the Code, administrative
pronouncements, judicial decisions and
currently effective and proposed
Treasury Regulations, changes to any of
which subsequent to the date of this
Pricing Supplement may affect the tax
consequences described herein. This
summary does not address all aspects of
the U.S. federal income taxation that
may be relevant to a particular holder
in light of its individual circumstances
or to certain types of holders subject
to special treatment under the U.S.
federal income tax laws (e.g., certain
financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset
PERQS as a part of a hedging
transaction, straddle, conversion or
other integrated transaction). As the
law applicable to the U.S. federal
income taxation of instruments such as
the Reset PERQS is technical and
complex, the discussion below
necessarily represents only a general
summary. Moreover, the effect of any
applicable state, local or foreign tax
laws is not discussed.
As used herein, the term "U.S. Holder"
means an owner of a Reset PERQS that is,
for U.S. federal income tax purposes,
(i) a citizen or resident of the United
States, (ii) a corporation or other
entity created or organized under the
laws of the United States or any
political subdivision thereof or (iii)
an estate or trust the income of which
is subject to United States federal
income taxation regardless of its
source.
General
Pursuant to the terms of the Reset
PERQS, the Company and every holder of a
Reset PERQS agree (in the absence of an
administrative determination or judicial
ruling to the contrary) to characterize
a Reset PERQS for all tax purposes as an
investment unit consisting of the
following components (the "Components"):
(i) a contract (the "Forward Contract")
that requires the holder of the Reset
PERQS to purchase, and the Company to
sell, for an amount equal to $ (the
"Forward Price"), the Pfizer Stock at
maturity (or, alternatively, upon an
earlier redemption of the Reset PERQS),
and (ii) a deposit with the Company of a
fixed amount of cash to secure the
holder's obligation to purchase the
Pfizer Stock (the "Deposit"). For this
purpose, the Company has determined
that, of the quarterly payments on the
Reset PERQS, % is attributable to
interest on the Deposit. This
determination is based on the Company's
judgment as to, among other things, the
Company's normal borrowing cost and the
value of the Forward Contract. Under
this characterization, the remainder of
the quarterly payments on the Reset
PERQS represents payments attributable
to the holders' entry into the Forward
Contract (the "Contract Fees").
Furthermore, based on the Company's
determination of the relative fair
market values of the Components at the
time of issuance of the Reset PERQS, the
Company will allocate 100% of the Issue
Price of the Reset PERQS to the Deposit
and none to the Forward Contract. The
Company's allocation of the Issue Price
among the Components will be binding on
a holder of the Reset PERQS, unless such
holder timely and explicitly discloses
to the Internal Revenue Service (the
"IRS") that its allocation is different
from the Company's. The treatment of
the Reset PERQS described above and the
Company's allocation are not, however,
binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS
for U.S. federal income tax purposes,
and no ruling is being requested from
the IRS with respect to the Reset PERQS.
Due to the absence of authorities that
directly address instruments that are
similar to the Reset PERQS, tax counsel
is unable to render an opinion as to the
proper U.S. federal income tax
characterization of the Reset PERQS. As
a result, significant aspects of the
U.S. federal income tax consequences of
an investment in the Reset PERQS are not
certain, and no assurance can be given
that the IRS or the courts will agree
with the characterization described
herein. Accordingly, prospective
purchasers are urged to consult their
tax advisors regarding the U.S. federal
income tax consequences of an investment
in the Reset PERQS (including
alternative characterizations of the
Reset PERQS) and with respect to any tax
consequences arising under the laws of
any state, local or foreign taxing
jurisdiction. Unless otherwise stated,
the following discussion is based on the
treatment and the allocation described
above.
Tax Treatment of the Reset PERQS
Assuming the characterization of the
Reset PERQS and the allocation of the
Issue Price as set forth above, Tax
Counsel believes that the following U.S.
federal income tax consequences should
result.
Quarterly Payments on the Reset PERQS.
To the extent attributable to interest
on the Deposit, quarterly payments on
the Reset PERQS will generally be
taxable to a U.S. Holder as ordinary
income at the time accrued or received
in accordance with the U.S. Holder's
method of accounting for U.S. federal
income tax purposes. Although the
federal income tax treatment of the
Contract Fees is uncertain, the Company
intends to take the position that the
Contract Fees constitute taxable income
to the holders at the time accrued or
received in accordance with the U.S.
Holder's method of accounting for U.S.
federal income tax purposes.
Tax Basis. Based on the Company's
determination set forth above, the U.S.
Holder's tax basis in the Forward
Contract will be zero, and the U.S.
Holder's tax basis in the Deposit will
be 100% of the Issue Price.
Settlement of the Forward Contract.
Upon the maturity of the Forward
Contract, a U.S. Holder would, pursuant
to the Forward Contract, be deemed to
have applied the Forward Price toward
the purchase of Pfizer Stock, and a U.S.
Holder would not recognize any gain or
loss with respect to any Pfizer Stock
received thereon. With respect to any
cash received upon maturity, a U.S.
Holder would recognize gain or loss.
The amount of such gain or loss would be
the extent to which the amount of such
cash received differs from the pro rata
portion of the Forward Price allocable
to the cash. Any such gain or loss
would generally be capital gain or loss,
as the case may be. With respect to any
Pfizer Stock received upon maturity, the
U.S. Holder would have an adjusted tax
basis in such Pfizer Stock equal to the
pro rata portion of the Forward Price
allocable thereto. The allocation of
the Forward Price between cash and
Pfizer Stock should be based on the
amount of the cash received and the
relative fair market value, as of the
maturity, of the Pfizer Stock. The U.S.
Holder's holding period of any Pfizer
Stock received would start on the day
after the maturity of the Reset PERQS.
Sale or Exchange of the Reset PERQS.
Upon a sale or exchange of a Reset PERQS
prior to the maturity of the Reset
PERQS, a U.S. Holder would recognize
taxable gain or loss equal to the
difference between the amount realized
on such sale or exchange and such U.S.
Holder's tax basis in the Reset PERQS so
sold or exchanged. Any such gain or
loss would generally be capital gain or
loss, as the case may be. Such U.S.
Holder's tax basis in the Reset PERQS
would generally equal the U.S. Holder's
tax basis in the Deposit. For these
purposes, the amount realized does not
include any amount attributable to
accrued but unpaid interest payments on
the Deposit, which would be taxed as
described under "--Quarterly Payments on
the Reset PERQS" above. It is uncertain
whether the amount realized includes any
amount attributable to accrued but
unpaid Contract Fees. U.S. Holders
should consult their tax advisers
regarding the treatment of accrued but
unpaid Contract Fees upon the sale or
exchange of a Reset PERQS.
The Internal Revenue Service
Restructuring and Reform Act of 1998
eliminated the 18-month holding period
requirement for certain individual
taxpayers to qualify for the lowest tax
rate for capital gain. The minimum
holding period required to qualify for
the lowest tax rate currently is 12
months.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper
characterization of the Reset PERQS, no
assurance can be given that the IRS will
accept, or that a court will uphold, the
characterization and tax treatment
described above. In particular, the IRS
could seek to analyze the U.S. federal
income tax consequences of owning a
Reset PERQS under Treasury regulations
governing contingent payment debt
instruments (the "Contingent Payment
Regulations").
If the IRS were successful in asserting
that the Contingent Payment Regulations
applied to the Reset PERQS, the timing
and character of income thereon would be
significantly affected. Among other
things, a U.S. Holder would be required
to accrue as original issue discount
income, subject to adjustments, at a
"comparable yield" on the Issue Price.
Furthermore, any gain realized with
respect to the Reset PERQS would
generally be treated as ordinary income.
Even if the Contingent Payment
Regulations do not apply to the Reset
PERQS, other alternative federal income
tax characterizations or treatments of
the Reset PERQS are also possible, and
if applied could also affect the timing
and the character of the income or loss
with respect to the Reset PERQS. It is
possible, for example, that a Reset
PERQS could be treated as constituting a
prepaid forward contract. Other
alternative characterizations are also
possible. Accordingly, prospective
purchasers are urged to consult their
tax advisors regarding the U.S. federal
income tax consequences of an investment
in the Reset PERQS.
Backup Withholding and Information
Reporting
A U.S. Holder of a Reset PERQS may be
subject to information reporting and to
backup withholding at a rate of 31
percent of the amounts paid to the U.S.
Holder, unless such U.S. Holder
provides proof of an applicable
exemption or a correct taxpayer
identification number, and otherwise
complies with applicable requirements of
the backup withholding rules. The
amounts withheld under the backup
withholding rules are not an additional
tax and may be refunded, or credited
against the U.S. Holder's U.S. federal
income tax liability, provided the
required information is furnished to the
IRS. In addition, the effective date of
the New Regulations (as defined in
"United States Federal Taxation --
Backup Withholding" in the accompanying
Prospectus Supplement) has been changed
so that the New Regulations will apply
to payments made after December 31,
1999.
