Subject to Completion, Pricing Supplement dated July 15, 1998
PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 33 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated , 1998
Rule 424(b)(3)
$
Morgan Stanley Dean Witter & Co.
CANON INC. 2.25%-2.75% CURRENCY PROTECTED SECURITIES ("CPS[SM]")
DUE JULY 31, 2000
MEDIUM-TERM NOTES, SERIES C
The 2.25%-2.75% Currency Protected Securities Due July 31, 2000 (the "Canon
CPS") are Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan
Stanley Dean Witter & Co. (the "Company"), as further described below and in the
Prospectus Supplement under "Description of Notes--Fixed Rate Notes" and
"--Exchangeable Notes." The Canon CPS permit the investor to participate in the
price fluctuations of the common stock, Yen50 par value per share (the "Canon
Stock"), of Canon Inc., a company incorporated under the laws of Japan
("Canon"), without being affected by future changes in the Japanese Yen/U.S.
Dollar exchange rate. See "Hypothetical Movements in the Japanese Yen/U.S.
Dollar Exchange Rate" in this Pricing Supplement. The Canon Stock is quoted in
Japanese Yen on the Tokyo Stock Exchange. As of , 1998, the Market
Price of Canon Stock was Japanese Yen.
The principal amount of each Canon CPS being offered hereby will be $
(the "Issue Price"), which equals the quotient of (a) the Initial Stock
Price of 50 shares (the "Initial Share Control Amount") of Canon Stock
divided by (b) an exchange rate of Japanese Yen per U.S. Dollar. The
Canon CPS will mature on July 31, 2000. Interest on the Canon CPS, at a
rate in the range of 2.25%-2.75% of the principal amount per annum, is
payable semiannually in arrears on each January 31 and July 31, beginning
January 31, 1999. Interest on the Canon CPS will accrue at a higher rate
than the rate at which dividends have been paid to date on the Canon Stock.
At maturity (including as a result of acceleration or otherwise), the
Company will, with respect to the principal amount of each Canon CPS, deliver
either (i) an amount in U.S. Dollars equal to the product of the principal
amount thereof and the Stock Percentage Change (the "Cash Amount") or (ii) if
the holder so elects, the Equivalent Share Amount (see "Right to Receive the
Equivalent Share Amount" in this Pricing Supplement). The Stock Percentage
Change is a fraction, the numerator of which will be the Final Stock Price and
the denominator of which will be the Initial Stock Price. The Initial Stock
Price will equal the Market Price of Canon Stock on the Pricing Date. The Final
Stock Price will equal the Market Price of Canon Stock on the Determination
Date, which will be July 21, 2000, subject to certain market disruption events.
See "Exchange at Maturity" and "Antidilution Adjustments" in this Pricing
Supplement.
Canon is not affiliated with the Company, is not involved in this offering
of Canon CPS and will have no obligations with respect to the Canon CPS. See
"Historical Information" in this Pricing Supplement for information on the range
of Market Prices for Canon Stock on the Tokyo Stock Exchange.
The Company will cause the Market Price and any antidilution adjustments to
be determined by the Calculation Agent for The Chase Manhattan Bank, as Trustee
under the Senior Debt Indenture.
As a result of the formula for determining the amount payable at the
maturity of the Canon CPS, a holder may receive more or less than the Issue
Price per Canon CPS at maturity. In addition, an investment in the Canon CPS
entails risks not associated with similar investments in a conventional debt
security, as described under "Risk Factors" on PS-6 and PS-7 herein.
Application will be made to list the Canon CPS on the American Stock
Exchange, Inc. ("AMEX"), subject to meeting the AMEX listing requirements. It is
not possible to predict whether the Canon CPS will meet the AMEX listing
requirements or trade in the secondary market or if such market will be liquid
or illiquid.
-----------------------
PRICE $ PER CANON CPS AND ACCRUED INTEREST
-----------------------
Agent's Proceeds to
Price to Public(1) Commissions(2) Company(1)
------------------ -------------- ----------
Per Canon CPS......... $ $ $
Total................. $ $ $
- -------------------
(1) Plus accrued interest, if any, from , 1998.
(2) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
MORGAN STANLEY DEAN WITTER
Information contained herein 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 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.
(This page intentionally left blank)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABLILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CANON CPS OR THE CANON
STOCK. SPECIFICALLY, THE AGENT MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE CANON CPS OR THE CANON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "USE OF PROCEEDS AND HEDGING"
IN THIS PRICING SUPPLEMENT AND "PLAN OF DISTRIBUTION" IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
<TABLE>
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Principal Amount............................ $
Maturity Date............................... July 31, 2000
Interest Rate............................... 2.25%-2.75% per annum.
Interest Payment Dates...................... January 31 and July 31, beginning January 31, 1999
Specified Currency.......................... U.S. Dollars
Issue Price................................. $ per Canon CPS, which equals the quotient of (a) the Initial
Stock Price times the Initial Share Control Amount divided by (b) the
Initial FX Rate.
Original Issue Date (Settlement Date)....... , 1998
Pricing Date................................ For the purpose of determining the Initial Stock Price and the Initial
FX Rate, the Pricing Date will be the Trading Day in Tokyo next
succeeding the day on which the offering of the Canon CPS is
completed in the United States.
CUSIP.......................................
Book Entry Note or Certificated Note........ Book Entry
Senior Note or Subordinated Note............ Senior
Denominations............................... $ and integral multiples thereof
Trustee..................................... The Chase Manhattan Bank
Agent....................................... Morgan Stanley & Co. Incorporated
Amount Payable at Maturity.................. At maturity (including as a result of acceleration or otherwise), the
Company will, with respect to the principal amount of each Canon
CPS, upon delivery of such Canon CPS to the Trustee, deliver either
(i) an amount in U.S. Dollars equal to the product of the principal
amount thereof and the Stock Percentage Change (the "Cash
Amount") or (ii) if the holder so elects, the Equivalent Share
Amount. See "Right to Receive Equivalent Share Amount."
The Company shall, or shall cause the Calculation Agent to, deliver
U.S. Dollars (or Canon ADRs, if any holder of the Canon CPS exercises
the Right to Receive the Equivalent Share Amount) to the Trustee for
delivery to the holders. References to payment "per Canon CPS" refer
to each $ principal amount of any Canon CPS.
Stock Percentage Change..................... The Stock Percentage Change is a fraction, the numerator of which
will be the Final Stock Price and the denominator of which will be
the Initial Stock Price.
Initial Stock Price......................... Yen , the Market Price of one share of Canon Stock on the
Pricing Date, as determined by the Calculation Agent.
Final Stock Price........................... The product of the Market Price of one share of Canon Stock and the
Share Ratio, each as determined on the Determination Date by the
Calculation Agent.
Initial Share Control Amount................ 50
Initial FX Rate............................. Japanese Yen per U.S. $1.00, the Japanese Yen/U.S. dollar
exchange rate as of the Pricing Date.
Share Ratio................................. The Share Ratio will initially be set at 1.0, but will be subject to
adjustment upon the occurrence of certain corporate events through
and including the Determination Date. See "Antidilution
Adjustments" below.
Right to Receive the
Equivalent Share Amount..................... On or prior to the fifteenth Business Day prior to the Maturity Date,
holders of Canon CPS will be entitled, upon completion by the
holder and delivery to the Company and the Calculation Agent of an
Official Notice of Exercise of Right to Receive Equivalent Share
Amount (in the form of Annex A attached hereto) prior to 11:00
a.m., New York City time on such date, to elect to receive the
Equivalent Share Amount at maturity, in lieu of the Cash Amount,
unless it is not reasonably practicable at such time for the Calculation
Agent, in the opinion of the Calculation Agent, to obtain such
Equivalent Share Amount, in which case the Cash Amount will be
paid.
Equivalent Share Amount..................... The Equivalent Share Amount for any Canon CPS means an amount of
American Depositary Shares, as determined by the Calculation Agent,
representing Canon Stock ("Canon ADRs") equivalent to the Cash Amount
otherwise payable on such Canon CPS determined as follows. The
Equivalent Share Amount will be a number of Canon ADRs resulting from
the conversion into Canon ADRs (at the then current ratio of Canon
Stock to Canon ADRs) of a number of shares of Canon Stock having an
aggregate Market Price on the Determination Date equal to the Cash
Amount multiplied by the Final FX Rate; provided that the Cash Amount
shall be reduced by the cost of converting such Canon Stock into Canon
ADRs assessed by Morgan Guaranty Trust Company of New York, as
Depositary for such Canon ADRs (together with any successor
depositary, the "Canon ADR Depositary") (estimated to be $0.05 per
share of Canon Stock, or $2.50 per Canon CPS, subject to any
adjustment of the Share Ratio) and by any tax or other governmental
charge levied in connection with such conversion; and provided further
that the Company will pay cash in lieu of delivering fractional Canon
ADRs, in an amount as determined by the Calculation Agent. The
Equivalent Share Amount will be delivered to the investor on the later
of (i) the Maturity Date and (ii) the first Business Day when Canon
ADRs are available with respect to shares of Canon Stock submitted to
the Canon ADR Depositary for conversion into Canon ADRs on the
Business Day immediately succeeding the Determination Date. In the
event of certain Market Disruption Events, the delivery of such Canon
ADRs may be delayed until after the Maturity Date.
Final FX Rate............................... The Japanese Yen/U.S. dollar exchange rate as of 1:00 p.m. (Tokyo
time) on the Determination Date as determined by reference to
Reuters Screen TKYFX, as determined by the Calculation Agent on
the Determination Date.
Determination Date.......................... July 21, 2000, or if such day is not a Trading Day or if there is a
Market Disruption Event on such day, the Determination Date will
be the immediately succeeding Trading Day during which no Market
Disruption Event shall have occurred; provided that the
Determination Date will be no later than the second scheduled
Trading Day preceding the Maturity Date, notwithstanding the
occurrence of a Market Disruption Event on such second scheduled
Trading Day.
Market Price................................ The Market Price for any security for any date means the official
closing price (afternoon session, as applicable) of such security as
reported by the principal exchange on which such security is traded
on such date. If the official closing price is not available for any
reason (including, without limitation, the occurrence of a Market
Disruption Event), the Market Price for such security for any date
shall be the mean, as determined by the Calculation Agent, of the bid
prices for such security obtained from as many dealers in such
security, but not exceeding three, as will make such bid prices
available to the Calculation Agent after 3:00 p.m. (local time in such
principal market) on such date.
Trading Day................................. A day on which trading is generally conducted on the Tokyo Stock
Exchange ("TSE"), and in the over-the-counter market for equity
securities in the United States and Japan, as determined by the
Calculation Agent.
Business Day................................ Any day other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which banking institutions are authorized or
required by law or regulation to close in The City of New York or in
Tokyo.
Calculation Agent........................... Morgan Stanley & Co. Incorporated ("MS & Co.")
For potential conflicts of interest that may exist between the
Calculation Agent and the holders of the Canon CPS, see "Risk Factors"
below. MS & Co. is obligated to carry out its duties as Calculation
Agent in good faith using its reasonable judgment.
All percentages resulting from any calculation on the Canon CPS 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.
Risk Factors................................ An investment in the Canon CPS entails significant risks not
associated with similar investments in a conventional debt security,
including the following: The Canon CPS combine features of equity and
debt instruments. For example, holders of Canon CPS, unlike holders of
Canon Stock, will not be entitled to receive dividends, if any, that
may be payable on Canon Stock. In addition, the terms of the Canon CPS
differ from those of ordinary debt securities in that the amount due
at maturity is not fixed, but is based on the price of the Canon Stock
at maturity. Because the price of the Canon Stock is subject to market
fluctuations, the amount of cash or the value of the ADRs received by
a holder of Canon CPS at maturity, determined as described herein, may
be more or less than the principal amount of the Canon CPS. If the
Final Stock Price is less than the Initial Stock Price, the amount of
cash or the value of the ADRs receivable upon exchange will be less
than the principal amount of the Canon CPS, in which case an
investment in the Canon CPS may result in a loss.
Although the amount that holders of the Canon CPS are entitled to receive
at maturity is subject to adjustment for certain corporate events, such
adjustments do not cover all events that could affect the Market Price of
the Canon Stock, including, without limitation, the occurrence of a partial
tender or exchange offer for the Canon Stock by Canon or any third party.
Such other events may adversely affect the market value of the Canon CPS or
any ADRs allocated on the Determination Date (but not received by the
holder until maturity) pursuant to such holder's election to receive the
Equivalent Share Amount.
There can be no assurance as to whether there will be a secondary
market in the Canon CPS or, if there were to be such a secondary
market, whether such market will be liquid or illiquid. Securities
with characteristics similar to the Canon CPS are novel securities,
and there is currently no secondary market for the Canon CPS.
The market value for the Canon CPS will be affected by a number of
factors in addition to the creditworthiness of the Company and the
value of Canon Stock, including, but not limited to the dividend rate
on Canon Stock, market interest and yield rates and the time remaining
to the maturity of the Canon CPS. In addition, the value of Canon
Stock depends on a number of interrelated factors, including economic,
financial and political events, that can affect the capital markets
generally and the market segment of which Canon is a part and over
which the Company has no control. The market value of the Canon CPS is
expected to depend primarily on changes in the Market Price of Canon
Stock. The price at which a holder will be able to sell Canon CPS
prior to maturity may be at a discount, which could be substantial,
from the principal amount thereof, if, at such time, such Market Price
is below, equal to or not sufficiently above the Initial Stock Price.
The historical Market Prices of Canon Stock should not be taken as an
indication of Canon Stock's future performance during the term of any
Canon CPS.
The Company is not affiliated with Canon and, although the Company as
of the date of this Pricing Supplement does not have any material
non-public information concerning Canon, corporate events of Canon,
including those described below in "Antidilution Adjustments," are
beyond the Company's ability to control and are difficult to predict.
Canon is not involved in the offering of the Canon CPS and has no
obligations with respect to the Canon CPS, including any obligation to
take the interests of the Company or of holders of Canon CPS into
consideration for any reason. Canon will not receive any of the
proceeds of the offering of the Canon CPS made hereby and is not
responsible for, and has not participated in, the determination of the
timing of, prices for or quantities of, the Canon CPS offered hereby.
Holders of the Canon CPS will not be entitled to any rights with
respect to the Canon Stock (including, without limitation, the right
to receive dividends or other distributions, voting rights and the
right to tender or exchange Canon Stock in any partial tender or
exchange offer by Canon or any third party).
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 Canon CPS, including with respect to
certain adjustments to the Share Ratio and other antidilution
adjustments that may influence the determination of the amount of cash
receivable at the maturity of the Canon CPS. See "Antidilution
Adjustments" and "Market Disruption Event."
It is suggested that prospective investors who consider purchasing the
Canon CPS should reach an investment decision only after carefully
considering the suitability of the Canon CPS in light of their
particular circumstances.
Investors should also consider the tax consequences of investing in
the Canon CPS, certain aspects of which are uncertain. See "United
States Federal Income Taxation" below.
Antidilution Adjustments.................... The Share Ratio (and, in the case of paragraph 5 below, the
determination of the Cash Amount) will be adjusted as follows:
1. If Canon Stock is subject to a stock split or reverse stock
split, then once such split has become effective, the Share Ratio will
be adjusted to equal the product of the prior Share Ratio and the
number of shares issued in such stock split or reverse stock split
with respect to one share of Canon Stock.
2. If Canon Stock is subject (i) to a stock dividend (issuance of
additional shares of Canon Stock) that is given ratably to all holders
of shares of Canon Stock or (ii) to a distribution of Canon Stock as a
result of the triggering of any provision of the corporate charter of
Canon by any shareholder that is not a holder of the Canon CPS, then
once the dividend has become effective and Canon Stock is trading
ex-dividend, the Share Ratio will be adjusted so that the new Share
Ratio shall equal the prior Share Ratio plus the product of (i) the
number of shares issued with respect to one share of Canon Stock and
(ii) the prior Share Ratio.
3. There will be no adjustments to the Share Ratio to reflect
cash dividends or other distributions paid with respect to Canon 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 Canon Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or other distribution
exceeds the immediately preceding non-Extraordinary Dividend for Canon
Stock by an amount equal to at least 10% of the Market Price of Canon
Stock 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 Canon Stock, the Share
Ratio with respect to Canon Stock will be adjusted on the ex-dividend
date with respect to such Extraordinary Dividend so that the new Share
Ratio will equal the product of (i) the then current Share Ratio 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 Canon Stock will equal (i) in the case of
cash dividends or other distributions that constitute quarterly
dividends, the amount per share of such Extraordinary Dividend minus
the amount per share of the immediately preceding non-Extraordinary
Dividend for Canon Stock or (ii) in the case of cash dividends or
other distributions that do not constitute quarterly 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 Canon Stock
described in clause (v) of paragraph 5 below that also constitutes an
Extraordinary Dividend shall cause an adjustment to the Share Ratio
pursuant only to clause (v) of paragraph 5.
4. If Canon issues rights or warrants to all holders of Canon
Stock to subscribe for or purchase Canon Stock at an exercise price
per share less than the Market Price of the Canon Stock on (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 Canon CPS, then the Share Ratio will be adjusted to equal the
product of the prior Share Ratio and a fraction, the numerator of
which shall be the number of shares of Canon Stock outstanding
immediately prior to such issuance plus the number of additional
shares of Canon Stock offered for subscription or purchase pursuant to
such rights or warrants and the denominator of which shall be the
number of shares of Canon Stock outstanding immediately prior to such
issuance plus the number of additional shares of Canon Stock which the
aggregate offering price of the total number of shares of Canon 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 or change of Canon
Stock, (ii) Canon, or any surviving entity or subsequent surviving
entity of Canon (a "Canon Successor") has been subject to a merger,
combination or consolidation and is not the surviving entity, (iii)
any statutory exchange of securities of Canon or any Canon Successor
with another corporation occurs (other than pursuant to clause (ii)
above), (iv) Canon is liquidated, (v) Canon issues to all of its
shareholders equity securities of an issuer other than Canon (other
than in a transaction described in clauses (ii), (iii) or (iv) above)
(a "Spin-off Event") or (vi) a tender or exchange offer is consummated
for all the outstanding shares of Canon Stock (any such event in
clauses (i) through (vi) a "Reorganization Event"), the method of
determining the amount payable at maturity for each Canon CPS will be
adjusted to provide that each holder of Canon CPS will receive at
maturity, in respect of the principal amount of each Canon CPS and in
lieu of the Cash Amount, U.S. Dollars in an amount equal to the
Transaction Value (as defined below); provided that, if the Exchange
Property (as defined below) received in any such Reorganization Event
consists only of cash, the maturity date of the Canon CPS will be
deemed to be accelerated to the date on which such cash is distributed
to holders of Canon Stock. "Exchange Property" means the securities,
cash or any other assets distributed in any such Reorganization Event,
including, in the case of a Spin-off Event, the share of Canon Stock
with respect to which the spun-off security was issued. "Transaction
Value" means (i) for any cash received in any such Reorganization
Event, the amount of cash received per share of Canon Stock multiplied
by the product of the Initial Share Control Amount and the then
current Share Ratio divided by the Initial FX Rate, (ii) for any
property other than cash or securities received in any such
Reorganization Event, the market value (as determined by the
Calculation Agent) of such Exchange Property received for each share
of Canon Stock at the date of the receipt of such Exchange Property
multiplied by the product of the Initial Share Control Amount and the
then current Share Ratio divided by the Initial FX Rate and (iii) for
any security received in any such Reorganization Event, an amount
equal to the Market Price per share of such security on the
Determination Date multiplied by the quantity of such security
received for each share of Canon Stock multiplied by the product of
the Initial Share Control Amount and the then current Share Ratio
divided by the Initial FX Rate.
6. In the event of a general revaluation of the Japanese Yen
pursuant to any governmental action by Japan, the Share Ratio will be
adjusted by the Calculation Agent so that the new Share Ratio will
reflect the effect of such revaluation on the Japanese Yen /U.S.
dollar exchange rate. For example, if Japan were to revalue the Yen by
the issuance of a new currency (the "New Currency") whose value per
currency unit against the U.S. dollar was equivalent to a multiple or
fraction of the then prevailing Japanese Yen/U.S. dollar rate (and the
price of Canon Stock was to be quoted in such New Currency), the
Market Price will be determined by reference to the market price of
Canon Stock as quoted in such New Currency and the Share Ratio will be
adjusted by such multiple or fraction so that the US dollar value of
the Canon CPS would remain constant i.e. the Cash Amount, if
determined immediately after such revaluation would be the same as the
Cash Amount as determined immediately prior to such revaluation.
For purposes of paragraph 5 above, in the case of a consummated tender
or exchange offer for all 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). In
the event of a tender or exchange offer 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 Share Ratio will be required unless such Share
Ratio adjustment would require a change of at least 0.1% in the Share
Ratio then in effect. The Share Ratio resulting from any of the
adjustments specified above will be rounded to the nearest one
thousandth with five ten-thousandths being rounded upward.
No adjustments to the Share Ratio or to the amount payable at maturity
of the Canon CPS will be required other than those specified above.
However, the Company may, at its sole discretion, cause the
Calculation Agent to make additional adjustments to the Share Ratio to
reflect changes occurring in relation to the Canon Stock or any other
Exchange Property in other circumstances where the Company determines
that it is appropriate, but only to reflect such changes, and not with
the aim of spreading investment risk. The required adjustments
specified above do not cover all events that could affect the Market
Price of the Canon Stock, including, without limitation, a partial
tender or exchange offer for the Canon Stock.
The Calculation Agent shall be solely responsible for the
determination and calculation of any adjustments to the Share 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 Share Ratio upon written request by any holder of the Canon
CPS.
Market Disruption Event..................... "Market Disruption Event" means:
(i) a suspension, absence (including the absence of an official
closing price) or material limitation of trading of Canon Stock
on the Tokyo Stock Exchange for more than two hours of trading or
during the one-half hour period preceding or at the close of
trading in such market; or the suspension or material limitation
on the primary market for trading in options contracts related to
Canon Stock, if available, during the one-half hour period
preceding or at 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 Canon CPS or to purchase Canon Stock for the
purpose of delivering the Equivalent Share Amount.
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 any rule or regulation enacted or
promulgated by the Tokyo Stock Exchange (or other regulatory
organization in Japan with jurisdiction over the Tokyo Stock Exchange)
on trading during significant market fluctuations will constitute a
suspension or material limitation of trading in Canon Stock, (4) a
suspension of trading in an options contract on Canon 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 Canon Stock and (5) a
suspension, absence or material limitation of trading on the primary
securities market on which options contracts related to Canon Stock
are traded will not include any time when such securities 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 Canon CPS shall
have occurred and be continuing, the amount declared due and
payable upon any acceleration of the Canon CPS will be determined
by the Calculation Agent and will be equal to the Cash Amount
determined as though the Determination Date were the date of
acceleration plus any accrued but unpaid interest to but not including
the date of acceleration.
Canon Stock; Public Information............. Canon is engaged in the design, development, manufacture and
distribution of business machines, cameras and optical and other
products. American Depositary Shares representing Canon Stock are
registered under the Exchange Act of 1934, as amended (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
Office 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 assessed 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 Canon pursuant to the Exchange Act can be
located by reference to Commission file number 0-12131. In
addition, information regarding Canon 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 CANON CPS OFFERED HEREBY
AND DOES NOT RELATE TO CANON STOCK OR OTHER SECURITIES OF CANON. ALL
DISCLOSURES CONTAINED IN THIS PRICING SUPPLEMENT REGARDING CANON ARE
DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE
PRECEDING PARAGRAPH. NEITHER THE COMPANY NOR THE AGENT HAS
PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE
DILIGENCE INQUIRY WITH RESPECT TO CANON. NEITHER THE COMPANY NOR THE
AGENT MAKES ANY REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS
OR ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING CANON ARE
ACCURATE OR COMPLETE. FURTHERMORE, THERE CAN BE NO 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 CANON STOCK (AND THEREFORE THE INITIAL STOCK PRICE)
HAVE BEEN PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS
OR THE DISCLOSURE OF OR FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING CANON COULD AFFECT THE VALUE RECEIVED AT MATURITY WITH
RESPECT TO THE CANON CPS AND THEREFORE THE TRADING PRICES OF THE CANON
CPS. NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKE ANY
REPRESENTATION TO ANY PURCHASER OF CANON CPS AS TO THE PERFORMANCE OF
CANON STOCK.
The Company or its affiliates may presently or from time to time
engage in business with Canon including extending loans to, or making
equity investments in, Canon or providing advisory services to Canon,
including merger and acquisition advisory services. In the course of
such business, the Company or its affiliates may acquire non-public
information with respect to Canon and, in addition, one or more
affiliates of the Company may publish research reports with respect to
Canon. The statement in the preceding sentence is not intended to
affect the right of holders of the Canon CPS under the securities
laws. Any prospective purchaser of a Canon CPS should undertake an
independent investigation of Canon as in its judgment is appropriate
to make an informed decision with respect to an investment in Canon
Stock.
Historical Information...................... The following table sets forth the high and low Market Price during
1995, 1996, 1997, and during 1998 through July 15, 1998. The Market
Price on July 15, 1998 was Yen3,300. The Market Prices and Dividends
Per Share listed below were obtained from Bloomberg Financial Markets
and the Company believes such information to be accurate. The
historical prices of Canon Stock should not be taken as an indication
of future performance, and no assurance can be given that the price of
Canon Stock will not decrease so that the beneficial owners of the
Canon CPS will receive at maturity cash in an amount that is less than
the principal amount of the Canon CPS. Nor can assurance be given that
the price of Canon Stock will increase above the Initial Stock Price
so that at maturity the beneficial owners of the Canon CPS will
receive cash in an amount in excess of the principal amount of the
Canon CPS.
</TABLE>
Dividends Per
Canon High Low Share(1)
- -------------------------- ----------- --------- ----------------
(SEDOL #6172323)
1995
First Quarter.......... Yen1,700 Yen1,330 Yen -
Second Quarter......... 1,420 1,230 6.25
Third Quarter.......... 1,860 1,380 -
Fourth Quarter......... 1,920 1,670 6.75
1996
First Quarter.......... 2,170 1,800 -
Second Quarter......... 2,330 2,000 6.50
Third Quarter.......... 2,300 2,000 -
Fourth Quarter......... 2,580 2,150 8.50
1997
First Quarter.......... 2,780 2,330 -
Second Quarter......... 3,270 2,690 7.50
Third Quarter.......... 3,780 3,080 -
Fourth Quarter......... 3,670 2,750 9.50
1998
First Quarter.......... 3,190 2,620 -
Second Quarter......... 3,300 3,010 8.50
Third Quarter
(through July 15,
1998)............... 3,300 3,150
- --------------
(1) Dividends are reported at ex-dividend date. The Company makes no
representation as to the amount of dividends, if any, that Canon will
pay in the future. In any event, holders of the Canon CPS will not be
entitled to receive dividends, if any, that may be payable on Canon
Stock.
<TABLE>
<S> <C>
Comparative Historical Returns.............. The following table sets forth, for each of the years in the left hand
column, (i) the historical annual rate of return (including dividends)
of the Canon Stock in Japanese Yen, (ii) the historical rate of return
(including dividends) of the Canon Stock stated in U.S. dollars, using
the Japanese Yen/ U.S. Dollar exchange rate at the beginning and
end of each yearly period, and (iii) the hypothetical annualized rate
of return of the Canon CPS (including a 2.5% coupon), calculated as
if the Stock Percentage Change were determined for each one-year
period (although the Stock Percentage Change will actually be
calculated on the basis of a two-year term).
The historical returns of Canon Stock in either Japanese Yen or U.S.
Dollars should not be taken as an indication of future performance,
and no asssurance can be given that the price of Canon Stock will not
decrease with the result that the beneficial owners of the Canon CPS
would receive at maturity cash in an amount that is less than the
principal amount of the Canon CPS.
</TABLE>
Annual Total Annual Total Hypothetical
Return of Return of Annualized Return
Canon Stock in Yen Canon Stock in $ of Canon CPS
------------------ ------------------ -----------------
1994 10.55% 24.17% 12.24%
1995 11.42% 7.19% 13.15%
1996 37.70% 23.19% 39.40%
1997 19.41% 5.81% 21.25%
<TABLE>
<S> <C>
Hypothetical Movements in the Japanese
Yen/U.S. Dollar Exchange Rate............... By linking the amount payable at maturity to the Stock Percentage
Change rather than the U.S. Dollar value of Canon Stock at maturity,
the Canon CPS permit the investor to participate in price fluctuations
of the Canon Stock without being affected by future changes in the
Japanese Yen/U.S. Dollar exchange rate. Based on an initial
Japanese Yen/ U.S. Dollar exchange rate of Yen140/1 U.S. $, a
coupon rate of 2.5% and a Market Price of Canon Stock of Yen3,300
(or U.S. $23.57 at such initial exchange rate) and assuming, solely
For the purpose of illustrating the lack of effect of changes in such
exchange rate, a hypothetical 20% increase in the Market Price of
Canon Stock to Yen3,960, the following table illustrates, for a range
of Final FX Rates, the variations in the U.S. Dollar value of Canon
Stock at maturity (excluding dividends) and compares such values to
the total payment on the Canon CPS.
</TABLE>
<TABLE>
Final CPS
Internal Rate of
Canon Change Final Canon Canon Change Final CPS Return (including
Final FX Rate on TSE (%) Price (in $) in $ (%) Value ($) 2.5% Coupon)
------------- ------------ ------------ ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
160 20.00% 24.75 5.00% 1,414.29 25.00%
156 20.00% 25.38 7.69% 1,414.29 25.00%
152 20.00% 26.05 10.53% 1,414.29 25.00%
148 20.00% 26.76 13.51% 1,414.29 25.00%
144 20.00% 27.50 16.67% 1,414.29 25.00%
Hypothetical Initial FX Rate--> 140 20.00% 28.29 20.00% 1,414.29 25.00%
136 20.00% 29.12 23.53% 1,414.29 25.00%
132 20.00% 30.00 27.27% 1,414.29 25.00%
128 20.00% 30.94 31.25% 1,414.29 25.00%
124 20.00% 31.94 35.48% 1,414.29 25.00%
120 20.00% 33.00 40.00% 1,414.29 25.00%
</TABLE>
<TABLE>
<S> <C>
Use of Proceeds and Hedging................. The net proceeds to be received by the Company from the sale of the
Canon CPS 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 Canon CPS. See also
"Use of Proceeds" in the accompanying Prospectus. On or prior to
the date of this Pricing Supplement, the Company, through its
subsidiaries and others, may hedge its anticipated exposure in
connection with the Canon CPS by taking positions in Canon Stock,
options contracts on Canon Stock listed on major securities markets
or positions in any other instruments that it may wish to use in
connection with such hedging. In the event that the Company
pursues such a hedging strategy, the price at which the Company is
able to purchase such positions may be a factor in determining the
Issue Price of the Canon CPS. Purchase activity could potentially
increase the price of Canon Stock, and therefore effectively increase
the level to which Canon Stock must rise before a holder of a Canon
CPS would receive at maturity cash in an amount that is equal to or
greater than the principal amount of the Canon CPS. The Company,
through its subsidiaries, is likely to modify its hedge position
throughout the life of the Canon CPS, including on the
Determination Date, by purchasing and selling the securities and
instruments listed above. Although the Company has no reason to
believe that its hedging activity will have a material impact on the
price of Canon Stock, there can be no assurance that the Company
will not affect such price as a result of its hedging activities.
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 holders who are initial holders of the Canon
CPS purchasing the Canon CPS at the Issue Price, and who will hold
the Canon CPS as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code").
This summary is based on the Code, administrative pronouncements,
judicial decisions and Treasury Regulations currently in effect,
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 Canon CPS 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 Canon CPS 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.
Pursuant to the terms of the Canon CPS, the Company and every holder
of a Canon CPS agree (in the absence of an administrative
determination or judicial ruling to the contrary) to characterize a
Canon CPS for all U.S. 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 Canon CPS to pay
an amount as described below under "United States Federal Income
Taxation--Settlement of the Forward Contract" and entitles the holder
to receive a cash amount at maturity as provided above in "Amount
Payable at Maturity", and (ii) a deposit with the Company of a fixed
amount of cash to secure the holder's obligation under the Forward
Contract (the "Deposit"), which Deposit bears a yield of % per annum.
Furthermore, based on the Company's determination of the relative fair
market values of the Components at the time of issuance of the Canon
CPS, the Company will allocate 100% of the Issue Price of the Canon
CPS 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 a Canon CPS, 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 Canon
CPS 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 Canon CPS or instruments similar to the Canon CPS for U.S. federal
income tax purposes, and no ruling is being requested from the IRS
with respect to the Canon CPS. DUE TO THE ABSENCE OF AUTHORITIES THAT
DIRECTLY ADDRESS INSTRUMENTS THAT ARE SIMILAR TO A CANON CPS, TAX
COUNSEL IS UNABLE TO RENDER AN OPINION AS TO THE PROPER U.S. FEDERAL
INCOME TAX CHARACTERIZATION OF THE CANON CPS. AS A RESULT, SIGNIFICANT
ASPECTS OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT
IN THE CANON CPS ARE NOT CERTAIN, AND NO ASSURANCE CAN BE GIVEN THAT
THE IRS OR THE COURTS WILL AGREE WITH THE CHARACTERIZATION DESCRIBED
ABOVE. ACCORDINGLY, PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR
TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN A CANON CPS (INCLUDING ALTERNATIVE CHARACTERIZATIONS OF
A CANON CPS) AND WITH RESPECT TO ANY TAX CONSEQUENCES ARISING UNDER
THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. UNLESS
OTHERWISE STATED, THE FOLLOWING DISCUSSIONS ARE BASED ON THE
ASSUMPTION THAT THE TREATMENT AND THE ALLOCATION DESCRIBED ABOVE ARE
ACCEPTED FOR U.S. FEDERAL INCOME TAX PURPOSES.
U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of a
Canon CPS that is, for U.S. federal income tax purposes, (i) a citizen
or resident of the U.S., (ii) a corporation created or organized under
the laws of the U.S. or any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
Tax Treatment of an Investment in a Canon CPS
Interest on the Deposit. As described above, the Deposit is treated as
bearing a yield of % per annum, which is greater than the stated
interest rate on the Deposit. Accordingly, the Deposit will be subject
to the "original issue discount" rules. A U.S. Holder will include
"qualified stated interest" equal to the stated interest on the Canon
CPS in income in accordance with the U.S. Holder's method of
accounting for federal income tax purposes. Additionally, each U.S.
Holder, including a taxpayer who otherwise uses the cash method of
accounting, will be required to include original issue discount
("OID") on the Deposit in income as it accrues, in accordance with a
constant yield method based on a compounding of interest. Such method
will generally cause the U.S. Holder to include OID in each accrual
period in an amount equal to the product of the adjusted issue price
of the Deposit at the beginning of the accrual period and the yield of
the Deposit, less the amount of any qualified stated interest
allocable to the accrual period. Because the yield on the Deposit is
higher than the stated interest rate, the amount of income recognized
by the U.S. Holder will generally be more than the stated interest
paid to the U.S. Holder and will increase during the term of the Canon
CPS.
Tax Basis. Based on the Company's determination set forth above, the
U.S. Holder's tax basis in the Deposit would initially be 100% of the
Issue Price. The U.S. Holder's tax basis in the Deposit will be
subsequently increased by OID accrued with respect thereto.
Settlement of the Forward Contract. Upon the final settlement of the
Forward Contract, a U.S. Holder receiving cash would, pursuant to the
Forward Contract, be deemed to have applied the Deposit (including the
amount of OID accrued) toward the exchange for the cash payment at
maturity, and 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 U.S. Holder's tax basis in the Deposit.
U.S. Holders should note that while the accrued but unpaid OID on the
Deposit would be taxable as ordinary income, any gain or loss
recognized upon the final settlement of the Forward Contract would be
capital gain or loss. The distinction between capital gain or loss and
ordinary gain or loss is potentially significant in several respects.
For example, limitations apply to a U.S. Holder's ability to offset
capital losses against ordinary income, and certain U.S. Holders may
be subject to lower U.S. federal income tax rates with respect to
long-term capital gain than with respect to ordinary gain. U.S.
Holders should consult their tax advisors with respect to the
treatment of capital gain or loss on a Canon CPS.
A U.S. Holder receiving the Equivalent Share Amount pursuant to the
Forward Contract would be deemed to have applied the Deposit toward
the purchase of such Equivalent Share Amount, and such U.S. Holder
would not recognize any gain or loss with respect to the Equivalent
Share Amount received upon the final settlement of the Forward
Contract. A U.S. Holder's tax basis in the Equivalent Share Amount so
received would be equal to the U.S. Holder's tax basis in the Deposit
allocable thereto. Such U.S. Holder's holding period of the Equivalent
Share Amount would start on the day after the Maturity Date.
Sale or Exchange of the Canon CPS. Upon a sale or exchange of a Canon
CPS prior to the maturity of the Canon CPS, 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 Canon CPS 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 Canon CPS would generally equal the Holder's
tax basis in the Deposit. For these purposes, the amount realized
would not include any amount attributable to accrued interest or OID
on the Deposit, which would be taxed as described under "-- Interest
on the Deposit" above.
Possible Alternative Tax Treatments of an Investment in a
Canon CPS
Due to the absence of authorities that directly address the proper
characterization of the Canon CPS, 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 Canon CPS
under Treasury regulations governing contingent payment debt
instruments (the "Contingent Payment Regulations").
The Company will take the position that the Contingent Payment
Regulations do not apply to the Canon CPS. If the IRS were successful
in asserting that the Contingent Payment Regulations applied to the
Canon CPS, the timing and character of income thereon would be
significantly affected. Among other things, a U.S. Holder would be
required to accrue as OID, subject to the adjustments described below,
income at a "comparable yield" on the Issue Price, regardless of the
U.S. Holder's usual method of accounting for federal income tax
purposes. In addition, the Contingent Payment Regulations require that
a projected payment schedule, which results in such a "comparable
yield," be determined, and that adjustments to income accruals be made
to account for differences between actual payments and projected
amounts (including upon receipt of the Equivalent Share Amount at
Maturity). Furthermore, any gain realized with respect to a Canon CPS
would generally be treated as ordinary income, and any loss realized
would generally be treated as ordinary loss to the extent of the U.S.
Holder's prior ordinary income inclusions (which were not previously
reversed) with respect to the Canon CPS.
Even if the Contingent Payment Regulations do not apply to the Canon
CPS, other alternative U.S. federal income characterizations or
treatments of the Canon CPS are also possible, which may also affect
the timing and the character of the income or loss with respect to the
Canon CPS. It is possible, for example, that a Canon CPS could be
treated as including a pre-paid forward contract. Accordingly,
prospective purchasers are urged to consult their tax advisors
regarding the U.S. federal income tax consequences of an investment in
a Canon CPS.
Proposed Legislation
On February 4, 1998, Representative Barbara Kennelly released H.R.
3170 (the "Kennelly Bill"), which, if enacted, would treat a taxpayer
owning certain types of derivative positions in property as having
"constructive ownership" in that property, with the result that all or
a portion of the long term capital gain recognized by such taxpayer
with respect to the derivative position would be recharacterized as
short term capital gain. It is unclear whether, if enacted in its
present form, the Kennelly Bill would apply to a Canon CPS. If the
Kennelly Bill were to apply to a Canon CPS, the effect on a U.S.
Holder of a Canon CPS would be to treat all or a portion of the long
term capital gain recognized by such U.S. Holder on sale or maturity
of the Canon CPS (or the Equivalent Share Amount received thereon) as
short term capital gain, but only to the extent such long term capital
gain exceeds the long term capital gain that would have been
recognized by such U.S. Holder if the U.S. Holder had acquired Canon
Stock itself on the issue date of the Canon CPS and disposed of the
Canon Stock upon disposition of the Canon CPS (or, where the U.S.
Holder elects to receive the Equivalent Share Amount, upon disposition
of the Equivalent Share Amount). In addition, the Kennelly Bill would
impose an interest charge on the gain that was recharacterized on the
sale or maturity of the Canon CPS (or the Equivalent Share Amount
received thereon). As proposed, the Kennelly Bill would be effective
for gains recognized after the date of enactment. U.S. Holders should
consult their tax advisors regarding the potential application of the
Kennelly Bill to the purchase, ownership and disposition of a Canon
CPS.
Backup Withholding and Information Reporting
A U.S. Holder of a Canon CPS 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.
Non-U.S. Holders
As used herein, the term "Non-U.S. Holder" means an owner of a Canon
CPS 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 addresses certain U.S. federal
income tax consequences to holders who are initial holders of the
Canon CPS purchasing the Canon CPS at the Issue Price, and who will
hold the Canon CPS as capital assets within the meaning of Section
1221 of the Code. This 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 that have lost United States citizenship
or that 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, the following summary does not apply to persons for whom
interest or gain on a Canon CPS is effectively connected with a trade
or business in the United States.
As described above in "United States Federal Income
Taxation--General," the Company and every holder of a Canon CPS agree
(in the absence of an administrative determination or judicial ruling
to the contrary) to characterize a Canon CPS for all U.S. tax purposes
as an investment unit consisting of the Forward Contract and the
Deposit.
Subject to the discussion below concerning backup withholding,
payments with respect to a Canon CPS (including the delivery of the
Equivalent Share Amount) 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 Canon CPS, should 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 Non-U.S. Holder
of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and applicable regulations
require that, in order to obtain the portfolio interest exemption from
withholding tax, either the beneficial owner of the Canon CPS, 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 Canon
CPS on behalf of such beneficial owner, file a statement with the
withholding agent to the effect that the beneficial owner of the Canon
CPS is not a United States person. Under United States Treasury
Regulations, such requirement will be fulfilled if the beneficial
owner of a Canon CPS 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 Canon CPS 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 Non-U.S. Holder (and furnishes the withholding
agent with a copy thereof). With respect to Canon CPS 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
Canon CPS after December 31, 1999, 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 the treatment of a Canon CPS as a unit consisting of the Deposit
and the Forward Contract (as described above), a Canon CPS held by a
Non-U.S. Holder at the time of his death is likely to be subject to
United States federal estate tax as a result of such individual's
death, to the extent of the value of the Forward Contract, if any,
unless a relevant estate tax treaty applies.
Possible Alternative Tax Treatments of an Investment in a
Canon CPS
As described above in "United States Federal Income Taxation--U.S.
Holders--Possible Alternative Tax Treatments of an Investment in a
Canon CPS," the IRS may seek to treat the Canon CPS as a debt
instrument subject to the Contingent Payment Regulations. If
such a characterization were successful, the tax consequences to a Non-U.S.
Holder of ownership and disposition of a Canon CPS would be the same as those
described immediately above. However, if the IRS sought to
recharacterize a Canon CPS as a pre-paid forward contract, it is possible
that payments of stated interest made with respect to a Canon CPS would be
subject to withholding at a rate of 30%, unless a relevant income tax treaty
applies. The Company does not currently intend to withhold on payments of
stated interest with respect to a Canon CPS, but will do so if required
by law. Due to the absence of authorities that directly address
instruments that are similar to a Canon CPS, significant aspects of the
U.S. federal income tax consequences of an investment in a Canon CPS
are not certain, and no assurance can be given that the IRS or the courts
will agree with the characterization of a Canon CPS as an investment
unit consisting of the Forward Contract and the Deposit. Accordingly,
prospective purchasers are urged to consult their tax advisors regarding the
U.S. federal income tax consequences of an investment in a Canon CPS.
Backup Withholding and Information Reporting
Under current Treasury Regulations, backup withholding at 31% will not
apply to payments by the Company made on a Canon CPS if the
certifications required by Sections 871(h) or 881(c) are received.
Under current Treasury Regulations, payments on the sale, exchange or
other disposition of a Canon CPS 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, 1999, 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. Payments to or through the United
States office of a broker will be subject to backup withholding and
information reporting unless the Non-U.S. Holder certifies, under
penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
Non-U.S. Holders of Canon CPS 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 Non-U.S. Holder's United States federal income
tax liability and may entitle such Non-U.S. Holder to a refund,
provided that the required information is furnished to the Internal
Revenue Service.
</TABLE>
ANNEX A
OFFICIAL NOTICE OF EXERCISE OF RIGHT TO
RECEIVE EQUIVALENT SHARE AMOUNT
CANON INC. 2.25%-2.75% CURRENCY PROTECTED SECURITIES ("CPS[SM]")
DUE JULY 31, 2000
MEDIUM-TERM NOTES
Dated: [On or prior to the fifteenth
Business Day prior to July 31, 2000]
Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. Incorporated, as
Calculation Agent
1585 Broadway
New York, New York 10036
Fax No.: (212) 761-0674
(Attn: 5th Fl. Equity Derivatives
Trader Support/Syndicates)
Dear Sirs:
The undersigned holder of the Canon Inc. 2.25%-2.75% Currency Protected
Securities ("CPS[SM]") Due July 31, 2000 of Morgan Stanley Dean Witter & Co.
(the "Canon CPS") hereby irrevocably elects to exercise with respect to the
number of Canon CPS indicated below, as of the date hereof, provided that such
day is prior to the fifteenth Business Day prior to July 31, 2000, the Right to
Receive the Equivalent Share Amount as described in Pricing Supplement No. 33
dated , 1998 (the "Pricing Supplement") to the Prospectus
Supplement dated March 26, 1998 and the Prospectus dated March 26, 1998 related
to Registration Statement No. 333-46935. Capitalized terms not defined herein
have the meanings given to such terms in the Pricing Supplement. Please date and
acknowledge receipt of this notice in the place provided below on the date of
receipt, and fax a copy to the fax number indicated, whereupon the Company will
deliver Canon ADRs, in accordance with the terms of the Canon CPS described in
the Pricing Supplement.
Very truly yours,
____________________________________________
[Name of Holder]
By:_________________________________________
[Title]
____________________________________________
[Fax No.]
$___________________________________________
Number of Canon CPS surrendered for exchange
Receipt of the above Official
Notice of Exchange is hereby acknowledged
MORGAN STANLEY DEAN WITTER & CO., as Issuer
MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By:______________________________________________
Title:
Date and time of acknowledgment__________________
