PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 79 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated April 27, 1999
Rule 424(b)(3)
$53,647,688
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-------------
7.5% Currency Protected PERQS[SM]
Due May 8, 2000
Mandatorily Exchangeable for the Cash Value of
Shares of Common Stock of Sony Corporation
-------------
The CP PERQS will pay 7.5% interest per year but do not guarantee any
return of principal at maturity. Instead the CP PERQS will pay at maturity
an amount of U.S. dollars based on the closing price of Sony common stock
on the determination date (which we expect to be April 27, 2000), subject
to a cap price. The CP PERQS permit you to make an investment linked to
the price of Sony common stock without being affected by future changes in
the yen/U.S. dollar exchange rate.
o The principal amount and issue price of each CP PERQS is $1,933.25, which
represents the value of 20 shares of Sony common stock in U.S. dollars
using the market price and yen/U.S. dollar exchange rate as determined on
the first Tokyo trading day after we offer the CP PERQS for initial sale
to the public.
o We will pay 7.5% interest on the $1,933.25 principal amount of each CP
PERQS. Interest will be paid quarterly, on August 8, 1999, November 8,
1999, February 8, 2000 and at maturity.
o At maturity you will receive an amount of U.S. dollars based on the
percentage increase or decrease of Sony common stock, subject to a maximum
of $2,513.23 (130% of the issue price of each CP PERQS).
o Sony is not involved in this offering of CP PERQS in any way and will have
no financial obligation with respect to the CP PERQS.
o Investing in CP PERQS is not equivalent to investing in Sony common stock.
o The CP PERQS have been approved for listing on the American Stock
Exchange, Inc., subject to official notice of issuance. The AMEX symbol
for the CP PERQS is "YSP."
You should read the more detailed description of the CP PERQS in this pricing
supplement. In particular, you should review and understand the descriptions
in "Summary of Pricing Supplement" and "Description of CP PERQS."
"Performance Equity-linked Redemption Quarterly-pay Securities" and "CP PERQS"
are our service marks.
CP PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-5.
-----------------
PRICE $1,933.25 PER CP PERQS AND ACCRUED INTEREST
-----------------
Price to Public Agent's Commissions Proceeds to MSDW
--------------- ------------------- ----------------
Per CP PERQS... $1,933.25 $4.83 $1,928.42
Total.......... $53,647,687.50 $134,032.50 $53,513,655
MORGAN STANLEY DEAN WITTER
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SUMMARY OF PRICING SUPPLEMENT
The following summary describes the CP PERQS we are offering 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."
Overview of the CP PERQS
The CP PERQS are medium-term debt securities of Morgan Stanley Dean
Witter & Co. whose return is linked to the performance of the common stock,
Yen50 par value per share, of Sony Corporation ("Sony Stock"). The CP PERQS
permit you to participate in the price fluctuations of the Sony Stock, up to a
limit of 130% of its current level, without being affected by future changes
in the yen/U.S. dollar exchange rate.
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Each CP PERQS We, Morgan Stanley Dean Witter & Co., are offering 7.5% Currency Protected
costs $1,933.25 Performance Equity-linked Quarterly-pay Securities[SM] due May 8, 2000, which we
refer to as the CP PERQS[SM]. The principal amount and issue price of each
CP PERQS is $1,933.25. $1,933.25 represents the value of 20 shares of Sony
Stock in U.S. dollars using the market price and yen/U.S. dollar exchange rate as
The Initial Share determined on the first Tokyo trading day after we offer the CP PERQS for initial
Control Amount is 20 sale to the public.
No guaranteed return Unlike ordinary debt securities, the CP PERQS do not guarantee any return of
of principal principal at maturity. Instead the CP PERQS will pay an amount based on the
market price of Sony Stock, either up or down, at maturity, subject to a cap price.
Investing in CP PERQS is not equivalent to investing in Sony Stock.
7.5% Interest on the We will pay interest on the CP PERQS, at the rate of 7.5% of the principal amount
principal amount per year, quarterly on August 8, 1999, November 8, 1999, February 8, 2000 and at
maturity. The interest rate we pay on the CP PERQS is more than the current
dividend rate on the Sony Stock. The CP PERQS will mature on May 8, 2000.
Payment at Maturity
Your appreciation At maturity, for each $1,933.25 principal amount of CP PERQS you hold, we will
potential is capped pay to you an amount of U.S. dollars equal to the lesser of:
o the product of $1,933.25 times
the Stock Price Percentage, and
o $2,513.23 (130% of the issue
price per CP PERQS)
, where the Stock Price Percentage is a fraction equal to:
the final market price of Sony Stock
--------------------------------------
the initial market price of Sony Stock
We will determine the final market price of Sony Stock on the determination date,
which we expect will be April 27, 2000, subject to certain market disruption and
extraordinary events.
This means that no matter how high the market price of Sony Stock goes, you will
never receive more than $2,513.23 (130% of the issue price per CP PERQS).
Payment at maturity not The formula for payment at maturity depends on the percentage change in the price
affected by fluctuations in of the Sony Stock on the Tokyo Stock Exchange and not the value of the
the Japanese yen/U.S. dollar underlying shares translated back to U.S. dollars. Therefore, any payment we make
exchange rate to you at maturity will not be affected by future changes in the yen/U.S. dollar
exchange rate. This means that, no matter how much the value of the Japanese yen
declines or appreciates against the U.S. dollar, you will not share in that decline or
appreciation.
The Sony Stock is currently Sony Stock is currently quoted in Japanese yen on the Tokyo Stock Exchange. As
11,556 yen per share of April 27, 1999, the market price of Sony Stock was 11,556 Japanese yen. You
can review the prices of Sony Stock for the last three years in the "Historical
Information" section of this pricing supplement.
The Calculation Agent We have appointed Morgan Stanley & Co. Incorporated ("MS & Co.") to act as
calculation agent for The Chase Manhattan Bank, the trustee for the CP PERQS.
As calculation agent, MS & Co. will determine the market price of the Sony Stock
and the amount of cash that you receive at maturity. As calculation agent, MS &
Co. will also adjust any payment to you at maturity for certain corporate events that
could affect the price of the Sony Stock and that we describe in the section called
"Description of CP PERQS--Antidilution Adjustments" in this pricing supplement.
No Affiliation with Sony Corporation is not an affiliate of ours and is not involved with this offering
Sony Corporation in any way. The obligations represented by the CP PERQS are obligations of
Morgan Stanley Dean Witter & Co. and not of Sony Corporation.
More Information on The CP PERQS are senior notes issued as part of our Series C medium-term note
the CP PERQS 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 Notes--Fixed Rate Notes" and "--Exchangeable Notes."
For a detailed description of the terms of the CP PERQS including the specific
mechanics and timing of the payment determinations, you should read the
"Description of CP PERQS" section in this pricing supplement. You should
also read about some of the risks involved in investing in CP PERQS in the
section called "Risk Factors." The tax and accounting treatment of
investments in equity-linked notes such as the CP PERQS may differ from that
of investments in ordinary debt securities or common stock. We urge you to
consult with your investment, legal, tax, accounting and other advisers with
regards to any proposed or actual investment in the CP PERQS.
How to reach us Please contact our principal executive offices at 1585 Broadway, New York, New
York 10036, telephone number (212) 761-4000.
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RISK FACTORS
The CP PERQS are not secured debt and are riskier than ordinary
debt securities. Because the return to investors is linked to the performance
of Sony Stock, there is no guaranteed return of principal. To the extent that
the final market price of Sony Stock decreases form the date we offer the CP
PERQS for initial sale to the public, investors will lose money on their
investment. CP PERQS are not equivalent to investing directly in Sony Stock.
Among other differences, investors in CP PERQS will not receive any dividends
paid on Sony Stock. This section describes the most significant risks
relating to the CP PERQS. You should carefully consider whether the CP PERQS
are suited to your particular circumstances before you decide to purchase them.
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CP PERQS are not The CP PERQS combine features of equity and debt. The terms of the
Ordinary Senior Notes -- CP PERQS differ from those of ordinary debt securities in that we will not pay
No guaranteed return you a fixed amount at maturity. Our payment to you at maturity is based on the
of principal price of the Sony Stock on the determination date. If, on the determination
date, the final market price of Sony Stock is less than the market price on
the first Japanese trading day after we offer the CP PERQS for initial sale
to the public, we will pay you less than the principal amount of the
CP PERQS.
Your Appreciation The appreciation potential of the CP PERQS is limited because of the cap price.
Potential is Limited Even if the final market price in Japanese Yen on the determination date is more
than 130% of the initial market price, you will receive only $2,513.23 (130% of
the issue price of each CP PERQS) for each of your CP PERQS at maturity.
Secondary Trading There may be little or no secondary market for the CP PERQS. Although the
May be Limited CP PERQS have been approved for listing on the American Stock Exchange,
Inc., it is not possible to predict whether the CP PERQS will trade in the
secondary market. Even if there is a secondary market, it may not provide
significant liquidity. MS & Co. currently intends to act as a market maker for
CP PERQS but is not required to do so.
Market Price of the Several factors, many of which are beyond our control, will influence the value
CP PERQS Influenced of the CP PERQS. We expect that generally the market price of Sony Stock
by Many Unpredictable on any day will affect the value of the CP PERQS more than any other
Factors single factor. Other factors that may influence the value of the CP PERQS
include:
o the volatility (frequency and
magnitude of changes in price) of
the Sony Stock
o the dividend rate on Sony Stock
o economic, financial, regulatory and
political events that affect stock
markets generally and which may
affect the market price of Sony
Stock
o interest and yield rates in the
market
o the value of the Japanese yen
relative to other currencies,
including the U.S. dollar
o the time remaining to the maturity of
the CP PERQS
o our creditworthiness
These factors (and the currency exchange
rate fluctuations explained below) will
influence the price you receive if you
sell your CP PERQS prior to maturity.
For example, you may have to sell your
CP PERQS at a substantial discount from
the principal amount if the market price
of the Sony Stock is at or below the
initial market price.
You cannot predict the future
performance of Sony Stock based on its
historical performance. The price of
Sony Stock may decrease so that you will
receive at maturity less than the
principal amount of the CP PERQS. We
cannot guarantee that the price of Sony
Stock will increase so that you will
receive at maturity an amount in excess
of the principal amount of the CP PERQS
or that the price of Sony Stock will not
increase above 130% of the initial
market price. You will no longer share
in the performance of the Sony Stock at
market prices above 130% of the initial
market price.
Currency Fluctuations By purchasing CP PERQS rather than the underlying Sony
May Impact the Value Stock, you have a hedge against a decline in the value
of Your CP PERQS of the Japanese yen against the U.S. dollar. However,
Relative to Sony Stock you will not benefit from any appreciation of the
Japanese yen against the U.S. dollar during the term of the
CP PERQS.
Any appreciation in the value of the Japanese yen against the U.S. dollar
during the term of the CP PERQS will not affect the amount you are paid at
maturity. However, appreciation in the yen may decrease the value of your CP
PERQS in relation to the Sony Stock, because you will not benefit from any
such appreciation.
In addition, fluctuations in the value of the Japanese yen relative to other
currencies may influence investors to buy or sell yen denominated assets and
thus affect the value of the Sony Stock.
No Affiliation with We are not affiliated with Sony Corporation. Although we do not have any non-
Sony Corporation public information about Sony as of the date of this pricing supplement, we or
our affiliates may presently or from time to time engage in business with Sony,
including extending loans to, or making equity investments in, Sony or
providing advisory services to Sony, including merger and acquisition advisory
services. Moreover, we have no ability to control or predict any actions of
Sony, including any corporate actions of the type that would require the
calculation agent to adjust the payment to you at maturity. Sony is not involved
in the offering of the CP PERQS in any way and has no obligation to consider
your interest as a holder of CP PERQS in taking any corporate actions that
might affect the value of your CP PERQS. None of the money you pay for the
CP PERQS will go to Sony.
You Have No As a holder of CP PERQS, you will not have voting rights or rights to receive
Shareholder Rights dividends or other distributions or any other rights with respect to the Sony
Stock.
Antidilution Adjustments MS & Co., as calculation agent, will adjust the amount payable at maturity for
Can Adversely Affect the certain events affecting the Sony Stock, such as stock splits and stock dividends,
Value of the CP PERQS and certain other corporate actions involving Sony, such as mergers. In
addition, the calculation agent may, but is not required to, make adjustments for
corporate events that can affect the Sony Stock other than those specified. The
determination by the calculation agent to adjust, or not adjust, the amount
payable at maturity may materially and adversely affect the market price of the
CP PERQS. In addition, we may, at our sole discretion, cause the calculation
agent to alter the specified antidilution adjustments, if we determine that such
existing adjustments do not properly take into account the consequences of the
events enumerated in such antidilution adjustments. Any alterations to the
specified antidilution adjustments set forth above may be materially adverse
to the holders of the CP PERQS.
Potential Risks of Investing An investment in CP PERQS involves considerations that may not be associated
in a Security Linked to a with a security linked to stocks of U.S. issuers. These considerations relate to
Foreign Security foreign market factors generally and may include, for example, different
accounting requirements and regulations, different and in some cases more
adverse economic environments, like the recession experienced by the Japanese
economy and other Asian economies, and greater governmental involvement in
the economy.
Potential Conflicts of As calculation agent, MS & Co. will calculate the payment to you at maturity of
Interest between You and the CP PERQS. MS & Co. and other affiliates may carry out hedging activities
the Calculation Agent related to CP PERQS, including trading in Sony Stock as well as in other
instruments related to Sony Stock. MS & Co. and some of our other subsidiaries
also trade Sony Stock and other financial instruments related to Sony 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
CP PERQS and, accordingly, could affect your payout on the CP PERQS.
Tax Treatment You should also consider the tax consequences of investing in the CP PERQS.
There is no direct legal authority as to the proper tax treatment of the
CP PERQS, and therefore significant aspects of the tax treatment of the
CP PERQS are uncertain. We do not plan to request a ruling from the Internal
Revenue Service ("IRS") regarding the tax treatment of the CP 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
CP PERQS--United States Federal Income Taxation" in this pricing
supplement.
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DESCRIPTION OF CP PERQS
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying prospectus supplement. The term "CP PERQS" refers to each
$1,933.25 principal amount of our 7.5% Currency Protected PERQS(sm) due May 8,
2000 Mandatorily Exchangeable for the Cash Value of Common Stock of Sony
Corporation. In this pricing supplement, "MSDW," "we," "us" and "our" refer
to Morgan Stanley Dean Witter & Co.
Principal Amount.............. $53,647,687.50
Maturity Date................. May 8, 2000
Interest Rate................. 7.5% per annum
Interest Payment Dates........ August 8, 1999, November 8, 1999, February 8,
2000 and at maturity
Specified Currency............ U.S. dollars
Issue Price................... $1,933.25 per CP PERQS, 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)........... May 6, 1999
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 Japan
next succeeding the day on which the offering
of the CP PERQS is completed in the United
States.
CUSIP......................... 617446216
Denominations................. $1,933.25 and integral multiples thereof
Amount Payable at Maturity.... At maturity (including as a result of
acceleration under the terms of the
indenture), upon delivery of each CP PERQS to
the Trustee, we will, with respect to the
principal amount of each CP PERQS, deliver
an amount in U.S. dollars equal to the lesser
of (x) the product of the Issue Price and the
Stock Price Percentage or (y) $2,513.23 , or
130% of the Issue Price (the "Cap Price").
We will, or will cause the Calculation Agent
to, deliver U.S. dollars to the Trustee for
delivery to the holders.
Sony Stock.................... The common stock, par value Yen50 per share,
of Sony Corporation, a Japanese corporation
("Sony").
Stock Price Percentage........ The Stock Price Percentage 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........... Yen11,556, the Market Price of one share of
Sony Stock on the Pricing Date, as determined
by the Calculation Agent.
Final Stock Price............. The product of the Market Price of one share
of Sony Stock and the Share Ratio, each as
determined on the Determination Date by the
Calculation Agent.
Initial Share Control Amount.. 20
Initial FX Rate............... 119.55 Japanese yen per U.S. $1.00, the
Japanese yen/U.S. dollar exchange rate as of
the Pricing Date, as determined by the
Calculation Agent.
Share Ratio................... The Share Ratio will initially be set at 1.0,
but will be subject to adjustment upon the
occurrence of certain events through and
including the Determination Date. See
"--Antidilution Adjustments" below.
Determination Date............ April 27, 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 (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 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.
Optional Redemption........... We will not redeem the CP 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 for this Underwritten
Offering of CP PERQS.......... 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 holder of the CP PERQS with respect to
its determinations of the Share Ratio, the
antidilution adjustments or the Market Price
of Sony Stock or of 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.
All percentages resulting from any
calculation on the CP PERQS 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.
Antidilution Adjustments...... The Share Ratio (and, in the case of
paragraph 5 below, the determination of the
cash payment at maturity) will be adjusted as
follows:
1. If Sony 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 Sony Stock.
2. If Sony Stock is subject to (i) a
stock dividend (issuance of additional
shares of Sony Stock) that is given
ratably to all holders of shares of Sony
Stock or (ii) to a distribution of Sony
Stock as a result of the triggering of any
provision of the corporate charter of
Sony, then once the dividend has become
effective and Sony 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 Sony 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
Sony 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 Sony Stock
will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend for
Sony Stock by an amount equal to at least
10% of the Market Price of Sony 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 Sony Stock, the
Share Ratio with respect to Sony 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
Sony 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 Sony 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 Sony 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 Sony issues rights or warrants
to all holders of Sony Stock to subscribe
for or purchase Sony Stock at an exercise
price per share less than the Market Price
of the Sony 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 CP PERQS,
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 Sony
Stock outstanding immediately prior to the
issuance of such rights or warrants plus
the number of additional shares of Sony
Stock offered for subscription or purchase
pursuant to such rights or warrants and
the denominator of which shall be the
number of shares of Sony Stock outstanding
immediately prior to the issuance of such
rights or warrants plus the number of
additional shares of Sony Stock which the
aggregate offering price of the total
number of shares of Sony 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 Sony Stock,
including, without limitation, as a result
of the issuance of any tracking stock by
Sony, (ii) Sony, or any surviving entity
or subsequent surviving entity of Sony (a
"Sony Successor") has been subject to a
merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of Sony
or any Sony Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) Sony is
liquidated or nationalized, (v) Sony
issues to all of its shareholders equity
securities of an issuer other than Sony
(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 Sony Stock (any such
event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the amount payable at maturity
for each CP PERQS will be adjusted to
provide that each holder of CP PERQS will
receive at maturity, in respect of the
principal amount of each CP PERQS, U.S.
dollars in an amount equal to (a) if the
Transaction Value (as defined below) is
greater than the Cap Price, the Cap Price
or (b) if the Transaction Value is less
than or equal to the Cap Price, the
Transaction Value; provided that, if the
Exchange Property (as defined below)
received in any such Reorganization Event
consists only of cash or if all of the
consideration received in such
Reorganization Event is denominated in
(or, if such consideration consists of
property other than cash or securities,
would reasonably be valued in a currency
other than U.S. dollars or yen), the
maturity date of the CP PERQS will be
deemed to be accelerated to the date on
which such cash is distributed to holders
of Sony 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 Sony 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 Sony Stock
multiplied by the product of the Initial
Share Control Amount and the then current
Share Ratio and, if such cash consists of
yen, 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 Sony 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 and, if the value of such
property has been valued in yen, 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 Sony
Stock multiplied by the product of the
Initial Share Control Amount and, if the
security is denominated in yen, the then
current Share Ratio divided by the Initial
FX Rate.
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 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.
6. If more than one of the events set
out above occurs, the adjustments to the
Share Ratio for the second and subsequent
events shall be to the Share Ratio as
adjusted for preceding events.
7. Except as described below, no
adjustments to the Share Ratio or to the
amount payable at maturity of the CP PERQS
will be required other than those
specified above. However, we may, at our
sole discretion, cause the Calculation
Agent to make additional adjustments to
the Share Ratio or to adjust the
determination of the cash payment at
maturity upon the occurrence of corporate
or other similar events that affect or
could potentially affect market prices of,
or shareholders' rights in, the Sony
Stock, but only to reflect such changes,
and not with the aim of changing relative
investment risks. In addition, we may, at
our sole discretion, cause the Calculation
Agent, to alter the specific adjustments
set forth above in paragraphs 1 through 6
upon the occurrence of one or more of the
events enumerated in paragraphs 1 through
6, if we determine that such adjustments
do not properly reflect the consequences
of the events enumerated in such
paragraphs or would not preserve the
relative investment risks. There may be
corporate or other similar events that
could affect the Market Price of the Sony
Stock for which the Calculation Agent will
not adjust the Share Ratio.
Any alterations to the specific adjustments
set forth above may be materially adverse to
the holders of the CP PERQS.
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.
Notwithstanding the foregoing, the amount
payable by us at maturity with respect to
each CP PERQS will not under any
circumstances exceed $2,513.23 .
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Share
Ratio or method of calculating 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
above (including the identification of
potential events described in paragraph 7),
and its determinations and calculations with
respect thereto shall be conclusive. If any
of the Exchange Property described in
paragraph 5 above is denominated in a
currency other than U.S. dollars or Japanese
yen, the Calculation Agent, in determining
the Transaction Value, will determine the
value of such Exchange Property in U.S.
Dollars. In determining the value of such
Exchange Property, the Calculation Agent will
assume that all currency exchange costs would
be borne by you.
The Calculation Agent will provide
information as to any adjustments to the
Share Ratio or method of calculating the Share
Ratio or the cash payment at maturity upon
written request by any holder of the CP PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Sony Stock:
(i) a suspension, absence or material
limitation of trading of Sony Stock on the
primary market for Sony Stock for more than
two hours of trading or during the one-half
hour period preceding the close of trading in
such market (afternoon session, as
applicable); or a breakdown or failure in the
price and trade reporting systems of the
primary market for Sony Stock as a result of
which the reported trading prices for Sony
Stock during the last one-half hour preceding
the closing of trading in such market
(afternoon session, as applicable) are
materially inaccurate; or the suspension or
material limitation on the primary market for
trading in options contracts related to Sony
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 MSDW or any of
its affiliates to unwind all or a material
portion of the hedge with respect to the CP
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 any applicable rule
or regulation enacted or promulgated by the
Tokyo Stock Exchange (or any other
self-regulatory organization in Japan with
jurisdiction over the Tokyo Stock Exchange)
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 Sony 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 Sony Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to Sony 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 CP PERQS shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the CP PERQS
will be determined by the Calculation Agent
as though the Determination Date were the
date of acceleration plus any accrued but
unpaid interest to but not including the date
of acceleration.
Sony Stock; Public
Information................... Sony is engaged in the development,
design, manufacture, and sale of various
kinds of electronic equipment, instruments,
and devices for consumer and industrial
markets. Shares representing Sony 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
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
Sony pursuant to the Exchange Act can be
located by reference to Commission file
number 1-6439. In addition, information
regarding Sony may be obtained from other
sources including, but not limited to, press
releases, newspaper articles and other
publicly disseminated documents. We make no
representation or warranty as to the accuracy
or completeness of such reports.
This pricing supplement relates only to the
CP PERQS offered hereby and does not relate
to Sony Stock or other securities of Sony.
We have derived all disclosures contained in
this pricing supplement regarding Sony 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 Sony in connection
with the offering of the CP PERQS. Neither
we nor the Agent makes any representation
that such publicly available documents or any
other publicly available information regarding
Sony 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 Sony 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
Sony could affect the value received at
maturity with respect to the CP PERQS and
therefore the trading prices of the CP PERQS.
Neither we nor any of our affiliates make any
representation to any purchaser of CP PERQS
as to the performance of Sony Stock.
We or our affiliates may presently or from
time to time engage in business with Sony,
including extending loans to, or making equity
investments in, Sony or providing advisory
services to Sony, including merger and
acquisition advisory services. In the course
of such business, we or our affiliates may
acquire non-public information with respect
to Sony and, in addition, one or more of our
affiliates may publish research reports with
respect to Sony. The statement in the
preceding sentence is not intended to affect
the right of holders of the CP PERQS under
the securities laws. As a prospective
purchaser of a CP PERQS, you should undertake
an independent investigation of Sony as in
your judgment is appropriate to make an
informed decision with respect to an
investment in Sony Stock.
Historical Information........ The following table sets forth the high and
low Market Price of Sony Stock during 1996,
1997, 1998, and during 1999 through April 27,
1999. The Market Price on April 27, 1999 was
Yen11,556. 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 Sony Stock as an indication of
future performance. The price of Sony Stock
may decrease so that you will receive at
maturity cash in an amount that is less than
the principal amount of the CP PERQS. We
cannot give you any assurance that the price
of Sony Stock will increase so that at
maturity you will receive cash in an amount
in excess of the principal amount of the CP
PERQS or that, if such price appreciates, it
will not exceed 130% of the Initial Stock
Price. Because your return is linked to the
performance of Sony Stock, there is no
guaranteed return of principal. To the
extent that Sony Stock drops below the issue
price and the shortfall is not offset by the
coupon paid on the CP PERQS, you will lose
money on your investment.
Dividends Per
Sony High Low Share(1)
---------------------- --------- --------- -------------
(SEDOL #6821506)
1996
First Quarter...... Yen 6850 Yen 6080 Yen 25
Second Quarter..... 7250 6380 0
Third Quarter...... 7230 6700 25
Fourth Quarter..... 7680 6760 0
1997
First Quarter...... 9080 7320 30
Second Quarter..... 10100 8660 0
Third Quarter...... 12200 9640 25
Fourth Quarter..... 12200 9450 0
1998
First Quarter...... 12400 10500 35
Second Quarter..... 11950 11400 0
Third Quarter...... 13390 8980 25
Fourth Quarter..... 9400 7400 25
1999
First Quarter...... 11850 7390 25
Second Quarter..... 12400 11280 0
(through April 27,
1999)
----------------
(1) Dividends are reported at ex-dividend date.
We make no representation as to the amount
of dividends, if any, that Sony will pay
in the future. In any event, as a holder
of the CP PERQS, you will not be entitled
to receive dividends, if any, that may be
payable on Sony Stock.
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 Sony Stock in Japanese yen,
(ii) the historical rate of return (including
dividends) of the Sony 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
CP PERQS (including a coupon of 7.5%) and
assuming a cap price equal to 130% of the
Issue Price of the CP PERQS, calculated as if
the Stock Price Percentage had been
determined for each one-year period.
The historical returns of Sony Stock in
Japanese yen or U.S. dollars should not be
taken as an indication of future performance,
and no assurance can be given that the price
of Sony Stock will not decrease with the
result that the beneficial owners of the CP
PERQS would receive at maturity cash in an
amount that is less than the principal amount
of the CP PERQS.
Annual Total
Return of Annual Total Hypothtical
Sony Stock in Return of Annualized Return
Japanese Yen Sony Stock in $ of CP PERQS
------------- --------------- -----------------
1996 11.6% 4.8% 19.1%
1997 48.7% 44.4% 37.5%
1998 (30.8)% (20.0)% (23.3)%
1999(1) 45.0% 36.0% 37.5%
------------
(1) through April 26, 1999
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the CP 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 CP
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, hedged our anticipated exposure in
connection with the CP PERQS by taking
positions in Sony Stock. Purchase activity
could potentially have increased the price of
Sony Stock, and therefore effectively have
increased the level to which Sony Stock must
rise before you would receive at maturity
cash in an amount that is equal to or greater
than the principal amount of the CP PERQS.
We, through our subsidiaries, are likely to
modify our hedge position throughout the life
of the CP PERQS, including on the
Determination Date, by purchasing and selling
Sony Stock, options contracts on Sony Stock
listed on major securities markets or
positions in any other instruments that we
may wish to use in connection with such
hedging, including, without limitation,
instruments linked to or denominated in yen.
Although we have no reason to believe that
our hedging activity had or will have a
material impact on the price of Sony Stock,
we cannot give any assurance that we did not,
or in the future will not, affect such price
as a result of our hedging activities.
Supplemental Information
Concerning Plan of Distribution In order to facilitate the offering of the CP
PERQS, the Agent may engage in transactions
that stabilize, maintain or otherwise affect
the price of the CP PERQS or Sony Stock.
Specifically, the Agent may overallot in
connection with the offering, creating a
short position in the CP PERQS for its own
account. In addition, to cover allotments
or to stabilize the price of the CP PERQS,
the Agent may bid for, and purchase, the CP
PERQS or Sony Stock in the open market. See
"Use of Proceeds and Hedging" above.
We have agreed to indemnify the Agent against
certain liabilities, including liabilities
under the Securities Act of 1933. See also
"Plan of Distribution" in the accompanying
Prospectus Supplement.
ERISA Matters for Pension
Plans and Insurance
Companies..................... MSDW and certain affiliates of MSDW,
including MS & Co. and Dean Witter Reynolds
("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 CP 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 such the CP PERQS are
acquired pursuant to an exemption from the
prohibited transaction rules.
The acquisition of the CP 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.
Any insurance company or pension or employee
benefit plan proposing to invest in the CP
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 MSDW ("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 CP PERQS purchasing the CP
PERQS at the Issue Price, and who will hold
the CP PERQS 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 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 CP 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 CP 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 CP 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 CP PERQS, MSDW
and every holder of a CP PERQS agree (in the
absence of an administrative determination or
judicial ruling to the contrary) to
characterize a CP 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 CP PERQS to pay an
amount as described below under "Settlement
of the Forward Contract" and entitles the
holder to receive a cash amount at maturity
as described above in "Description of the CP
PERQS -- Amount Payable at Maturity", and
(ii) a deposit with MSDW of a fixed amount of
cash, to secure the holder's obligation under
the Forward Contract. For this purpose, MSDW
has determined that, of the quarterly
payments on the CP PERQS, 5.4% is
attributable to interest on the Deposit.
This determination is based on MSDW's judgment
as to, among other things, MSDW's normal
borrowing cost and the value of the Forward
Contract. Under this characterization, the
remainder of the quarterly payments on the CP
PERQS represents payments attributable to the
holders' entry into the Forward Contract (the
"Contract Fees"). Furthermore, based on
MSDW's determination of the relative fair
market values of the Components at the time
of issuance of the CP PERQS, MSDW will
allocate 100% of the Issue Price of the CP
PERQS to the Deposit and none to the Forward
Contract. MSDW's allocation of the Issue
Price among the Components will be binding on
a holder of the CP PERQS, unless such holder
timely and explicitly discloses to the
Internal Revenue Service (the "IRS") that its
allocation is different from MSDW's. The
treatment of the CP PERQS described above and
MSDW's allocation are not, however, binding
on the IRS or the courts. No statutory,
judicial or administrative authority directly
addresses the characterization of the CP
PERQS or instruments similar to the CP PERQS
for U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the CP PERQS. Due to the absence
of authorities that directly address
instruments that are similar to the CP PERQS,
tax counsel is unable to render an opinion as
to the proper U.S. federal income tax
characterization of the CP PERQS. As a
result, significant aspects of the U.S.
federal income tax consequences of an
investment in the CP 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 CP PERQS (including
alternative characterizations of the CP
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 CP PERQS
Assuming the characterization of the CP 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 CP PERQS. To the
extent attributable to the interest on the
Deposit, quarterly payments on the CP 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, MSDW 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 MSDW'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 receiving cash would, pursuant to the
Forward Contract, be deemed to have applied
the Deposit 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. Any
such gain or loss would generally be capital
gain or loss, as the case may be.
Sale or Exchange of the CP PERQS. Upon a sale
or exchange of a CP PERQS prior to the
maturity of the CP 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 CP 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 CP 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 CP 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 CP PERQS.
Possible Alternative Tax Treatments of an
Investment in the CP PERQS
Due to the absence of authorities that
directly address the proper characterization
of the CP 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 CP
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 CP 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 CP PERQS would generally be treated as
ordinary income.
Even if the Contingent Payment Regulations do
not apply to the CP PERQS, other alternative
federal income tax characterizations or
treatments of the CP PERQS are also possible,
and if applied could also affect the timing
and the character of the income or loss with
respect to the CP PERQS. It is possible, for
example, that a CP 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 CP
PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of a CP 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.
