PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 21 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated August 3, 1999
Rule 424(b)(3)
$18,000,839
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------
7% Reset PERQS due August 15, 2001
Mandatorily Exchangeable For
Shares of Common Stock of QUALCOMM INCORPORATED
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay 7% interest per year but do not guarantee any return
of principal at maturity. Instead the Reset PERQS will pay at maturity a
number of shares of QUALCOMM common stock based on the closing prices of
QUALCOMM common stock after one year and at maturity, in each case subject to
a cap price.
o The principal amount and issue price of each Reset PERQS is $1,436.39, which
is ten times the price of QUALCOMM common stock at the time we priced the
Reset PERQS on August 3, 1999, the day we offered the Reset PERQS for initial
sale to the public.
o We will pay 7% interest (equivalent to $100.5473 per year) on the $1,436.39
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning November 15, 1999.
o At maturity you will receive shares of QUALCOMM common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is 10
shares of QUALCOMM common stock per Reset PERQS. However, if the price of
QUALCOMM common stock appreciates above the first year cap price for August
15, 2000 or the second year cap price for August 13, 2001, the exchange ratio
will be adjusted downward, and you will receive an amount of QUALCOMM common
stock per Reset PERQS that is less than 10 shares.
o The first year cap price is $210.79, or 146.75% of the price of QUALCOMM
common stock at the time we priced the Reset PERQS on August 3, 1999, the day
we offered the Reset PERQS for initial sale to the public. If on August 15,
2000, the price of QUALCOMM common stock is higher than the closing price of
QUALCOMM common stock at the time we priced the Reset PERQS on August 3,
1999, we will raise the cap price to 146.75% of the closing price of QUALCOMM
common stock on August 15, 2000. Otherwise the cap price will remain
unchanged in the second year. The maximum you can receive at maturity is
QUALCOMM common stock worth $3,093.34 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in QUALCOMM common
stock.
o QUALCOMM Incorporated is not involved in this offering of Reset PERQS in any
way and will have no financial obligation with respect to the Reset PERQS.
o The Reset PERQS have been approved for listing on the American Stock
Exchange, Inc., subject to official notice of issuance. The AMEX listing
symbol for the Reset PERQS is "MQP."
You should read the more detailed description of the Reset PERQS in this
Pricing Supplement. In particular, you should review and understand the
descriptions in"Summary of Pricing Supplement" and "Description of Reset
PERQS." "Reset Performance Equity-linked Redemption Quarterly-pay Securities"
and "Reset PERQS" are our service marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
------------------
PRICE $1,436.39 PER RESET PERQS
------------------
Agent's Proceeds to
Price to Public Commissions the Company
--------------- ----------- -----------
Per Reset PERQS... $1,436.39 $19.75 $1,416.64
Total............. $18,000,839.48 $247,507.00 $17,753,332.48
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering to you in
general terms only. You should read the summary together with the more detailed
information that is contained in the rest of this pricing supplement and in the
accompanying prospectus and prospectus supplement. You should carefully
consider, among other things, the matters set forth in "Risk Factors."
The Reset PERQS offered are medium-term debt securities of Morgan Stanley
Dean Witter & Co. The return on the Reset PERQS is linked to the performance of
QUALCOMM Incorporated common stock, which we refer to as QCOM Stock. The Reset
PERQS also provide fixed quarterly payments at an annual rate of 7% based on the
principal amount of each Reset PERQS. Unlike ordinary debt securities, Reset
PERQS do not guarantee the return of principal at maturity. Instead the Reset
PERQS pay a number of shares of QCOM Stock at maturity based on the performance
of this stock, either up or down, subject to a maximum value in each year. We
may not redeem the Reset PERQS prior to maturity.
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 7%
costs $1,436.39 Reset Performance Equity-linked Redemption Quarterly-pay
Securities[SM] due August 15, 2001, which we refer to as
the Reset PERQS[SM]. The principal amount and issue
price of each Reset PERQS is $1,436.39, which is ten
times the price of QCOM Stock at the time we priced the
Reset PERQS on August 3, 1999, the day we offered the
Reset PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS do not
return of principal guarantee any return of principal at maturity. Instead
the Reset PERQS will pay an amount of QCOM Stock based
on the market price of QCOM Stock, either up or down,
after one year and at maturity, in each case subject to
a cap price. Investing in Reset PERQS is not equivalent
to investing in QCOM Stock.
7% interest on the We will pay interest on the Reset PERQS, at the rate of
principal amount 7% of the principal amount per year, quarterly on each
February 15, May 15, August 15, and November 15,
beginning November 15, 1999. The interest rate we pay on
the Reset PERQS is more than the current dividend rate
on the QCOM Stock. The Reset PERQS will mature on August
15, 2001.
Your appreciation The appreciation potential of each Reset PERQS is
potential is capped limited in each year by the cap price. The
cap price in year one is $210.79, or 146.75% of the
price of QCOM Stock at the time we priced the Reset
PERQS on August 3, 1999, the day we offered the Reset
PERQS for initial sale to the public ("First Year Cap
Price"). The cap price in year two ("Second Year Cap
Price") will be the higher of 146.75% of the closing
market price of QCOM Stock on August 15, 2000 and the
First Year Cap Price. The maximum you can receive at
maturity is QCOM Stock worth $3,093.34 per Reset PERQS.
Payment at Maturity At maturity, for each $1,436.39 principal amount of
Reset PERQS you hold, we will give to you a number of
shares of QCOM Stock equal to the exchange ratio. The
initial exchange ratio is 10 shares of QCOM Stock per
Reset PERQS and may be adjusted as follows:
First Year Adjustment
The exchange ratio will be adjusted downward if the
market price of QCOM Stock exceeds the First Year Cap
Price on August 15, 2000.
The adjusted exchange ratio will be calculated as
follows:
New Exchange Initial Exchange First Year Cap Price
= x -------------------------------------------
Ratio Ratio QCOM Stock closing price on August 15, 2000
If the market price of QCOM Stock on August 15, 2000
is the same as or less than the First Year Cap Price,
we will not adjust the exchange ratio at the end of
the first year.
Second Year Adjustment
The exchange ratio may be adjusted downward again at
maturity, but only if the market price of QCOM Stock
at maturity exceeds the Second Year Cap Price. The
final exchange ratio will then be calculated as
follows:
Final Exchange Existing Exchange Second Year Cap Price
= x ------------------------------------
Ratio Ratio QCOM Stock closing price at maturity
If the market price of QCOM Stock at maturity is the
same as or less than the Second Year Cap Price, we
will not adjust the Exchange Ratio at maturity.
On the next page, we have provided a table titled
"Hypothetical Payments on the Reset PERQS." The table
demonstrates the effect of these adjustments to the
exchange ratio under a variety of hypothetical price
scenarios. You should examine the table for examples of
how the payout on the Reset PERQS could be affected
under these or other potential price scenarios. This
table does not show every situation that may occur.
You can review the prices of QCOM Stock for the last
three years in the "Historical Information" section of
this pricing supplement.
During the life of the Reset PERQS, Morgan Stanley & Co.
Incorporated or its successors, which we refer to as MS
& Co., acting as calculation agent, will also make
adjustments to the effective exchange ratio to reflect
the occurrence of certain corporate events that could
affect the market price of QCOM Stock. You should read
about these adjustments in the sections called
"Description of Reset PERQS-- Exchange at Maturity,"
"--Exchange Factor" and "--Antidilution Adjustments."
The Calculation Agent We have appointed MS & Co. to act as calculation agent
for The Chase Manhattan Bank, the trustee for our senior
notes. As calculation agent, MS & Co. will determine the
exchange ratio and the cap prices and calculate the
amount of QCOM Stock that you will receive at maturity.
No affiliation with QUALCOMM Incorporated is not an affiliate of ours and is
QUALCOMM not involved with this offering in any way. The
Incorporated obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and not
of QUALCOMM Incorporated.
More information on The Reset PERQS are senior notes issued as part of our
the Reset PERQS Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying prospectus supplement dated
May 6, 1999. 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 terms of the Reset PERQS
including the specific mechanics and timing of the
exchange ratio adjustments, you should read the
"Description of Reset PERQS" section in this pricing
supplement. You should also read about some of the risks
involved in investing in Reset PERQS in the section
called "Risk Factors."
How to reach us You may contact your local Morgan Stanley Dean Witter
branch office or our principal executive offices at 1585
Broadway, New York, New York, 10036 (telephone number
(212) 761-4000).
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on the price of QCOM Stock at the time we priced the
Reset PERQS, the initial price per Reset PERQS of $1,436.39, a first year cap
of $210.79, and a second year cap of 146.75%, the following table illustrates,
for a range of First Year Closing Prices and Maturity Prices, the adjustments
we would make to the Exchange Ratio, Second Year Cap Prices and the Payments
at Maturity based on QCOM Stock for each $1,436.39 principal amount of Reset
PERQS and the total return including interest payments, based on the interest
rate of 7% per annum for each $1,436.39 principal amount of Reset PERQS.
<TABLE>
Initial Initial
Initial Price of QCOM Exchange First Year First Year 8/15/00
Reset PERQS Stock Price Ratio Cap Price Closing Price Exchange Ratio
- ---------------- ----------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$1,436.39 $143.6390 10 $210.7900 $125.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $125.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $125.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $200.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $200.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $200.0000 10.00000
$1,436.39 $143.6390 10 $210.7900 $250.0000 8.43160
$1,436.39 $143.6390 10 $210.7900 $250.0000 8.43160
$1,436.39 $143.6390 10 $210.7900 $250.0000 8.43160
$1,436.39 $143.6390 10 $210.7900 $210.7900 10.00000
146.75% of
the QCOM
Stock Price at
the time of
Pricing
Reset PERQS
Reset PERQS Payment at Maturity
Payment at plus
Second Year QCOM Stock Exchange Ratio Maturity Based on 7% Coupon
Cap Price Maturity Price(1) at Maturity QCOM Stock Price ("Total Payment")
----------- ----------------- -------------- ----------------- -------------------
<C> <C> <C> <C> <C>
$210.7900 $100.0000 10.00000 $1,000.00 $1,203.61
$210.7900 $175.0000 10.00000 $1,750.00 $1,953.61
$210.7900 $225.0000 9.36844 $2,107.90 $2,311.51
$293.5000 $150.0000 10.00000 $1,500.00 $1,703.61
$293.5000 $250.0000 10.00000 $2,500.00 $2,703.61
$293.5000 $325.0000 9.03077 $2,935.00 $3,138.61
$366.8750 $150.0000 8.43160 $1,264.74 $1,468.35
$366.8750 $300.0000 8.43160 $2,529.48 $2,733.09
$366.8750 $400.0000 7.73336 $3,093.34 $3,296.95
$309.3343 $309.3343 10.00000 $3,093.34 $3,296.95
Greater of (x) Maturity Price
146.75% of First times Adjusted
Year Closing Exchange Ratio
Price and (y)
First Year Cap
Price
- ------------
(1) The QCOM Stock Maturity Price does not include any dividend payments that
may have been paid to holders of QCOM Stock.
</TABLE>
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than ordinary debt
securities. Because the return to investors is linked to the performance of QCOM
Stock, there is no guaranteed return of principal. To the extent that the final
market price of QCOM Stock at maturity is either less than today's market price
or not sufficiently above today's market price to compensate for a downward
adjustment of the exchange ratio, if any, at August 15, 2000, investors will
lose money on their investment. Investing in Reset PERQS is not equivalent to
investing directly in QCOM Stock. This section describes the most significant
risks relating to the Reset PERQS. You should carefully consider whether the
Reset PERQS are suited to your particular circumstances before you decide to
purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity and
Ordinary Senior Notes -- debt. The terms of the Reset PERQS differ from
No guaranteed return of those of ordinary debt securities in that we
principal will not pay you a fixed amount at maturity.
Our payment to you at maturity will be a
number of shares of QCOM Stock based on the
market price of QCOM Stock on August 15, 2000
and at maturity. If the final market price of
QCOM Stock at maturity is either less than the
price of QCOM Stock at the time we priced the
Reset PERQS or not sufficiently above that
price to compensate for a downward adjustment
of the exchange ratio, if any, at August 15,
2000, we will pay you an amount of QCOM Stock
with a value less than the principal amount of
the Reset PERQS. See "Hypothetical Payments on
the Reset PERQS" above.
Your Appreciation The appreciation potential
of the Reset PERQS Potential Is Limited is
limited because of the cap prices. Even
though the $1,436.39 issue price of one Reset
PERQS is equal to price of one share of QCOM
Stock at the time we priced the Reset PERQS
multiplied by the initial exchange ratio, you
may receive a lesser amount of QCOM Stock per
Reset PERQS at maturity if the initial
exchange ratio of 10 shares has been adjusted
downwards. If the price of QCOM Stock
appreciates above both the cap price for
August 15, 2000 and the cap price for August
13, 2001, the initial exchange ratio of 10
shares of QCOM Stock per Reset PERQS will be
reduced twice.
The exchange ratio and the final market price
of QCOM Stock at maturity will be determined
on August 13, 2001, which is two trading days
prior to maturity of the Reset PERQS. If the
price of QCOM Stock is lower on the actual
maturity date than it was on August 13, 2001,
the value of any QCOM Stock you receive will
be less. Under no circumstances will you
receive an amount of QCOM Stock for each
Reset PERQS worth more than $3,093.34 as of
such second scheduled trading day prior to
maturity.
Secondary Trading There may be little or no secondary market for
May Be Limited the Reset PERQS. Although the Reset PERQS have
been approved for listing on the American
Stock Exchange, Inc., it is not possible to
predict whether the Reset 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 Reset
PERQS but is not required to do so.
Market Price of the Reset Several factors, many of which are beyond our
PERQS Influenced by Many control, will influence the value of the Reset
Unpredictable Factors PERQS. We expect that generally the market
price of the QCOM Stock on any day will affect
the value of the Reset PERQS more than any
other single factor. Because adjustments to
the exchange ratio for the Reset PERQS are
tied to the closing stock prices on two
specific days, however, the Reset PERQS may
trade differently from the underlying stock.
Other factors that may influence the value of
the Reset PERQS include:
o the volatility (frequency and magnitude of
changes in price) of the QCOM Stock
o the dividend rate on QCOM Stock
o economic, financial and political events
that affect stock markets generally and
which may affect the market price of the
QCOM Stock
o interest and yield rates in the market
o the time remaining to the maturity of the
Reset PERQS
o our creditworthiness
These factors will influence the price you
will receive if you sell your Reset PERQS
prior to maturity. For example, you may have
to sell your Reset PERQS at a substantial
discount from the principal amount if the
market price of the QCOM Stock is at, below,
or not sufficiently above the initial market
price.
You cannot predict the future performance of
QCOM Stock based on its historical
performance. The price of QCOM Stock may
decrease so that you will receive at maturity
shares of QCOM Stock worth less than the
principal amount of the Reset PERQS. We cannot
guarantee that the price of QCOM Stock will
increase so that you will receive at maturity
an amount in excess of the principal amount of
the Reset PERQS.
No Affiliation with We are not affiliated with QUALCOMM
QUALCOMM Incorporated ("QUALCOMM"). Although we do not
Incorporated have any non-public information about QUALCOMM
as of the date of this pricing supplement, we
or our affiliates may presently or from time
to time engage in business with QUALCOMM,
including extending loans to, or making equity
investments in, QUALCOMM or providing advisory
services to QUALCOMM, including merger and
acquisition advisory services. Moreover, we
have no ability to control or predict the
actions of QUALCOMM, including any corporate
actions of the type that would require the
calculation agent to adjust the payment to you
at maturity. QUALCOMM is not involved in the
offering of the Reset PERQS in any way and has
no obligation to consider your interest as an
owner of Reset PERQS in taking any corporate
actions that might affect the value of your
Reset PERQS. None of the money you pay for the
Reset PERQS will go to QUALCOMM.
You Have No As an owner of Reset PERQS, you will not have
Shareholder Rights voting rights or rights to receive dividends
or other distributions or any other rights
with respect to the QCOM Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust
Adjustments the amount payable at maturity for certain
events affecting the QCOM Stock, such as stock
splits and stock dividends, and certain other
corporate actions involving QUALCOMM, such as
mergers. However, the calculation agent is not
required to make an adjustment for every
corporate event that can affect the QCOM
Stock. For example, the calculation agent is
not required to make any adjustments if
QUALCOMM or anyone else makes a partial tender
or partial exchange offer for the QCOM Stock.
If an event occurs that does not require the
calculation agent to adjust the amount payable
at maturity, the market price of the Reset
PERQS may be materially and adversely
affected. In addition, the calculation agent
may, but is not required to, make adjustments
for corporate events that can affect the QCOM
Stock other than those contemplated in this
pricing supplement. Such adjustments will be
made to reflect the consequences of events but
not with the aim of changing relative
investment risk. The determination by the
calculation agent to adjust, or not to adjust,
the exchange ratio may materially and
adversely affect the market price of the Reset
PERQS.
Potential Conflicts of Interest As calculation agent, MS & Co. will calculate
between You and the the payment to you at maturity of the Reset
Calculation Agent PERQS. MS & Co. and other affiliates may also
carry out hedging activities related to Reset
PERQS or to other instruments, including
trading in QCOM Stock as well as in other
instruments related to QCOM Stock. MS & Co.
and some of our other subsidiaries also trade
QCOM Stock and other financial instruments
related to QCOM Stock on a regular basis as
part of their general broker dealer and other
businesses. Any of these activities could
influence MS & Co.'s determination of
adjustments made to Reset PERQS and,
accordingly, could affect your payout on the
Reset PERQS.
Tax Treatment You should also consider the tax consequences
of investing in the Reset PERQS. There is no
direct legal authority as to the proper tax
treatment of the Reset PERQS, and therefore
significant aspects of the tax treatment of
the Reset PERQS are uncertain. We do not plan
to request a ruling from the Internal Revenue
Service regarding the tax treatment of the
Reset PERQS, and the Internal Revenue Service
or a court may not agree with the tax
treatment described in this pricing
supplement. Please read carefully the section
"Description of Reset PERQS--United States
Federal Income Taxation" in this pricing
supplement.
DESCRIPTION OF RESET PERQS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "Reset PERQS" refers to each
$1,436.39 principal amount of our 7% Reset PERQS due August 15, 2001,
Mandatorily Exchangeable For Shares of Common Stock of QUALCOMM Incorporated. In
this pricing supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan
Stanley Dean Witter & Co.
Principal Amount.............. $18,000,839.48
Maturity Date................. August 15, 2001
Interest Rate................. 7% per annum (equivalent to $100.5473 per
annum per Reset PERQS)
Interest Payment Dates........ Each February 15, May 15, August 15, and
November 15, beginning November 15, 1999.
Specified Currency............ U.S. Dollars
Issue Price................... $1,436.39 per Reset PERQS
Initial QCOM Stock Price...... $143.6390, the price of QCOM Stock at the
time we priced the Reset PERQS on August 3,
1999
Original Issue Date
(Settlement Date)........... August 6, 1999
CUSIP......................... 61744Y884
Denominations................. $1,436.39 and integral multiples thereof
First Year Cap Price.......... $210.79 (146.75% of the Initial QCOM Stock
Price)
First Year Determination Date. August 15, 2000 (or if such date is not a
Trading Day on which no Market Disruption
Event occurs, the immediately succeeding
Trading Day on which no Market Disruption
Event occurs).
First Year Closing Price...... First Year Closing Price means the product of
(i) the Market Price of one share of QCOM
Stock and (ii) the Exchange Factor, each
determined as of the First Year Determination
Date.
Second Year Cap Price......... Second Year Cap Price means the greater of
(x) 146.75% of the First Year Closing Price
and (y) the First Year Cap Price. See
"Exchange at Maturity" below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one share of QCOM Stock and
(ii) the Exchange Factor, each determined as
of the second scheduled Trading Day
immediately prior to maturity.
Exchange at Maturity.......... At maturity (including as a result of
acceleration under the terms of the senior
indenture), upon delivery of each Reset PERQS
to the Trustee, we will apply each $1,436.39
principal amount of such Reset PERQS as
payment for a number of shares of QCOM Stock
at the Exchange Ratio. The initial Exchange
Ratio, initially set at 10, is subject to
adjustment on the First Year Determination
Date and at maturity in order to cap the
value of the QCOM Stock to be received upon
delivery of the Reset PERQS at $3,093.34 per
Reset PERQS (215.355% of the Issue Price).
Solely for purposes of adjustment upon the
occurrence of certain corporate events, the
number of shares of QCOM Stock to be
delivered at maturity will also be adjusted
by an Exchange Factor, initially set at 1.0.
See "Exchange Factor" and "Antidilution
Adjustments" below.
If the First Year Closing Price is less than
or equal to the First Year Cap Price, no
adjustment to the Exchange Ratio will be made
at such time. If the First Year Closing
Price exceeds the First Year Cap Price, the
Exchange Ratio will be adjusted so that the
new Exchange Ratio will equal the product of
(i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
First Year Cap Price and the denominator of
which will be the First Year Closing Price.
In addition, on the First Year Determination
Date, the Calculation Agent will establish
the "Second Year Cap Price" that will be
equal to the greater of (x) 146.75% of the
First Year Closing Price and (y) the First
Year Cap Price. Notice of the Second Year
Cap Price and of any such adjustment to the
Exchange Ratio shall promptly be sent by
first-class mail to The Depository Trust
Company, New York, New York (the
"Depositary"). If the Maturity Price is less
than or equal to the Second Year Cap Price,
no further adjustment to the Exchange Ratio
will be made. If the Maturity Price exceeds
the Second Year Cap Price, the then existing
Exchange Ratio will be adjusted so that the
final Exchange Ratio will equal the product
of (i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
Second Year Cap Price and the denominator of
which will be the Maturity Price. Please
review each example in the table called
"Hypothetical Payments on the Reset PERQS" on
PS-5.
All calculations with respect to the Exchange
Ratios for the Reset PERQS will be rounded to
the nearest one hundred-thousandth, with five
one-millionths rounded upwards (e.g., .876545
would be rounded to .87655); all calculations
with respect to the Second Year Cap Price
will be rounded to the nearest
ten-thousandth, with five
one-hundred-thousandths rounded upwards
(e.g., $12.34567 would be rounded to
$12.3457); and all dollar amounts related to
payments at maturity resulting from such
calculations will be rounded to the nearest
cent with one-half cent being rounded upwards.
We shall, or shall cause the Calculation
Agent to, (i) provide written notice to the
Trustee and to the Depositary, on or prior to
10:30 a.m. on the Trading Day immediately
prior to maturity of the Reset PERQS, of the
amount of QCOM Stock to be delivered with
respect to each $1,436.39 principal amount of
each Reset PERQS and (ii) deliver such shares
of QCOM Stock (and cash in respect of interest
and any fractional shares of QCOM Stock) to
the Trustee for delivery to the holders at
the Maturity Date. The Calculation Agent
shall determine the Exchange Ratio applicable
at the maturity of the Reset PERQS and
calculate the Exchange Factor.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration under the terms of the Senior
indenture), we will deliver the aggregate
number of shares of QCOM Stock due with
respect to all of such Reset PERQS, as
described above, but we will pay cash in lieu
of delivering any fractional share of QCOM
Stock in an amount equal to the corresponding
fractional Market Price of such fraction of a
share of QCOM Stock as determined by the
Calculation Agent as of the second scheduled
Trading Day prior to maturity of the Reset
PERQS.
Exchange Factor............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
affecting the QCOM Stock through and
including the second scheduled Trading Day
immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price.................. If QCOM Stock (or any other security for
which a Market Price must be determined) is
listed on a national securities exchange, is a
security of the Nasdaq National Market or is
included in the OTC Bulletin Board Service
("OTC Bulletin Board") operated by the National
Association of Securities Dealers, Inc. (the
"NASD"), the Market Price for one share of QCOM
Stock (or one unit of any such other security)
on any Trading Day means (i) the last reported
sale price, regular way, on such day on the
principal United States securities exchange
registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on which
QCOM Stock (or any such other security) is
listed or admitted to trading or (ii) if not
listed or admitted to trading on any such
securities exchange or if such last reported
sale price is not obtainable (even if QCOM
Stock (or any such other security) is listed or
admitted to trading on such securities
exchange), the last reported sale price on the
over-the- counter market as reported on the
Nasdaq National Market or OTC Bulletin Board on
such day. If the last reported sale price is
not available pursuant to clause (i) or (ii) of
the preceding sentence because of a Market
Disruption Event or otherwise, the Market Price
for any Trading Day shall be the mean, as
determined by the Calculation Agent, of the bid
prices for QCOM Stock (or any such other
security) obtained from as many dealers in such
stock (which may include MS & Co. or any of our
other subsidiaries or affiliates), but not
exceeding three, as will make such bid prices
available to the Calculation Agent. A "security
of the Nasdaq National Market" shall include a
security included in any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock Exchange
("NYSE"), the AMEX, the Nasdaq National
Market, the Chicago Mercantile Exchange, and
the Chicago Board of Options Exchange and in
the over-the-counter market for equity
securities in the United States.
Acceleration Event............ If on any date the product of the Market
Price per share of QCOM Stock and the
Exchange Factor is less than $4.00, the
maturity date of the Reset PERQS will be
deemed to be accelerated to such date, and we
will apply each $1,436.39 principal amount of
each Reset PERQS as payment for a number of
shares of QCOM Stock at the then current
Exchange Ratio, as adjusted by the then
current Exchange Factor. See also
"Antidilution Adjustments" below.
Optional Redemption........... We may not redeem the Reset PERQS prior to the
Maturity Date.
Book Entry Note or
Certificated Note........... Book Entry
Senior Note or
Subordinated Note........... Senior
Trustee....................... The Chase Manhattan Bank
Agent for the underwritten
offering of Reset PERQS..... MS & Co.
Calculation Agent............. MS & Co.
Because the Calculation Agent is our
affiliate, potential conflicts of interest
may exist between the Calculation Agent and
you as an owner of the Reset PERQS, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in making adjustments to the Exchange Factor
or other antidilution adjustments or
determining any Market Price or whether a
Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties as
Calculation Agent in good faith using its
reasonable judgment.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If QCOM Stock is subject to a stock split
or reverse stock split, then once such split
has become effective, the Exchange Factor will
be adjusted to equal the product of the prior
Exchange Factor and the number of shares issued
in such stock split or reverse stock split with
respect to one share of QCOM Stock.
2. If QCOM Stock is subject (i) to a stock
dividend (issuance of additional shares of QCOM
Stock) that is given ratably to all holders of
shares of QCOM Stock or (ii) to a distribution
of QCOM Stock as a result of the triggering of
any provision of the corporate charter of
QUALCOMM, then once the dividend has become
effective and QCOM Stock is trading
ex-dividend, the Exchange Factor will be
adjusted so that the new Exchange Factor shall
equal the prior Exchange Factor plus the
product of (i) the number of shares issued with
respect to one share of QCOM Stock and (ii) the
prior Exchange Factor.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends or
other distributions paid with respect to QCOM
Stock other than distributions described in
clauses (i) and (v) of paragraph 5 below and
Extraordinary Dividends as described below. A
cash dividend or other distribution with
respect to QCOM Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or
other distribution exceeds the immediately
preceding non-Extraordinary Dividend for QCOM
Stock by an amount equal to at least 10% of the
Market Price of QCOM 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 QCOM Stock, the
Exchange Factor with respect to QCOM Stock will
be adjusted on the ex-dividend date with
respect to such Extraordinary Dividend so that
the new Exchange Factor will equal the product
of (i) the then current Exchange Factor and
(ii) a fraction, the numerator of which is the
Market Price on the Trading Day preceding the
ex-dividend date, and the denominator of which
is the amount by which the Market Price on the
Trading Day preceding the ex-dividend date
exceeds the Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with respect to
an Extraordinary Dividend for QCOM 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 QCOM 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 QCOM Stock described in
clause (i) or clause (v) of paragraph 5 below
that also constitutes an Extraordinary Dividend
shall cause an adjustment to the Exchange
Factor pursuant only to clause (i) or clause
(v) of paragraph 5, as applicable.
4. If QUALCOMM issues rights or warrants to
all holders of QCOM Stock to subscribe for or
purchase QCOM Stock at an exercise price per
share less than the Market Price of the QCOM
Stock on both (i) the date the exercise price
of such rights or warrants is determined and
(ii) the expiration date of such rights or
warrants, and if the expiration date of such
rights or warrants precedes the maturity of the
Reset PERQS, then the Exchange Factor will be
adjusted to equal the product of the prior
Exchange Factor and a fraction, the numerator
of which shall be the number of shares of QCOM
Stock outstanding immediately prior to the
issuance of such rights or warrants plus the
number of additional shares of QCOM Stock
offered for subscription or purchase pursuant
to such rights or warrants and the denominator
of which shall be the number of shares of QCOM
Stock outstanding immediately prior to the
issuance of such rights or warrants plus the
number of additional shares of QCOM Stock which
the aggregate offering price of the total
number of shares of QCOM 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 QCOM Stock, including, without
limitation, as a result of the issuance of any
tracking stock by QUALCOMM, (ii) QUALCOMM or
any surviving entity or subsequent surviving
entity of QUALCOMM (a "QUALCOMM Successor") has
been subject to a merger, combination or
consolidation and is not the surviving entity,
(iii) any statutory exchange of securities of
QUALCOMM or any QUALCOMM Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) QUALCOMM is
liquidated, (v) QUALCOMM issues to all of its
shareholders equity securities of an issuer
other than QUALCOMM (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 QCOM Stock (any such
event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the amount payable upon exchange at
maturity for each Reset PERQS will be adjusted
to provide that each holder of Reset PERQS will
receive at maturity, in respect of each
$1,436.39 principal amount of each Reset PERQS,
securities, cash or any other assets
distributed to holders of QCOM Stock in any
such Reorganization Event, including, in the
case of the issuance of tracking stock, the
reclassified share of QCOM Stock and, in the
case of a Spin-off Event, the share of QCOM
Stock with respect to which the spun-off
security was issued (collectively, the
"Exchange Property") in an amount with a value
equal to the product of the final Exchange
Ratio and the Transaction Value. In addition,
following a Reorganization Event, the method of
determining the Maturity Price will be adjusted
so that the Maturity Price will mean the
Transaction Value as of the second scheduled
Trading Day immediately prior to maturity, and
if the Reorganization Event occurs prior to the
First Year Determination Date, the First Year
Closing Price will mean the Transaction Value
determined as of the First Year Determination
Date. Notwithstanding the above, if the
Exchange Property received in any such
Reorganization Event consists only of cash, the
maturity date of the Reset PERQS will be deemed
to be accelerated to the date on which such
cash is distributed to holders of QCOM Stock
and holders will receive in lieu of any QCOM
Stock and as liquidated damages in full
satisfaction of MSDW's obligations under the
Reset PERQS the product of (i) the Transaction
Value as of such date and (ii) the then current
Exchange Ratio adjusted as if such date were
the next to occur of either the First Year
Determination Date or the second scheduled
Trading Day prior to maturity. If Exchange
Property consists of more than one type of
property, holders of Reset PERQS will receive
at maturity a pro rata share of each such type
of Exchange Property. If Exchange Property
includes a cash component, holders will not
receive any interest accrued on such cash
component. "Transaction Value" at any date
means (i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of QCOM Stock, as adjusted
by the Exchange Factor at the time of such
Reorganization Event, (ii) for any property
other than cash or securities received in any
such Reorganization Event, the market value, as
determined by the Calculation Agent, as of the
date of receipt, of such Exchange Property
received for each share of QCOM Stock, as
adjusted by the Exchange Factor at the time of
such Reorganization Event and (iii) for any
security received in any such Reorganization
Event, an amount equal to the Market Price, as
of the date on which the Transaction Value is
determined, per share of such security
multiplied by the quantity of such security
received for each share of QCOM Stock, as
adjusted by the Exchange Factor at the time of
such Reorganization Event. In the event
Exchange Property consists of securities, those
securities will, in turn, be subject to the
antidilution adjustments set forth in
paragraphs 1 through 5.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or
going-private transaction involving Exchange
Property of a particular type, Exchange
Property shall be deemed to include the amount
of cash or other property paid by the offeror
in the tender or exchange offer with respect to
such Exchange Property (in an amount determined
on the basis of the rate of exchange in such
tender or exchange offer or going-private
transaction). In the event of a tender or
exchange offer or a going- private transaction
with respect to Exchange Property in which an
offeree may elect to receive cash or other
property, Exchange Property shall be deemed to
include the kind and amount of cash and other
property received by offerees who elect to
receive cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one hundred-thousandth with five
one-millionths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above.
However, we may, at our sole discretion,
cause the Calculation Agent to make
additional changes to the Exchange Ratio upon
the occurrence of corporate or other similar
events that affect or could potentially
affect market prices of, or shareholders'
rights in, the QCOM Stock (or other Exchange
Property) but only to reflect such changes,
and not with the aim of changing relative
investment risk. The adjustments specified
above do not cover all events that could
affect the Market Price of the QCOM Stock,
including, without limitation, a partial
tender or partial exchange offer for the QCOM
Stock.
Notwithstanding the foregoing, the amount
payable by us at maturity with respect to
each Reset PERQS, determined as of the second
scheduled Trading Day prior to maturity, will
not under any circumstances exceed an amount
of QCOM Stock having a market value of
$3,093.34 as of such second scheduled Trading
Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or method of calculating the Exchange
Ratio and of any related determinations and
calculations with respect to any
distributions of stock, other securities or
other property or assets (including cash) in
connection with any corporate event described
in paragraph 5 above, and its determinations
and calculations with respect thereto shall
be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio upon written request by any
holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to QCOM Stock:
(i) a suspension, absence or material
limitation of trading of QCOM Stock on the
primary market for QCOM Stock for more
than two hours of trading or during the
one-half hour period preceding the close
of trading in such market; or a breakdown
or failure in the price and trade
reporting systems of the primary market
for QCOM Stock as a result of which the
reported trading prices for QCOM Stock
during the last one-half hour preceding
the closing of trading in such market are
materially inaccurate; or the suspension,
absence or material limitation on the
primary market for trading in options
contracts related to QCOM 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 any
event described in clause (i) above
materially interfered with the ability of
MSDW or any of its affiliates to unwind or
adjust all or a material portion of the
hedge with respect to the Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to NYSE Rule 80A (or any
applicable rule or regulation enacted or
promulgated by the NYSE, any other
self-regulatory organization or the
Securities and Exchange Commission of similar
scope as determined by the Calculation Agent)
on trading during significant market
fluctuations shall constitute a suspension,
absence or material limitation of trading,
(4) a suspension of trading in an options
contract on QCOM 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 QCOM Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to QCOM Stock
are traded will not include any time when
such securities market is itself closed for
trading under ordinary circumstances.
QCOM Stock; Public Information QUALCOMM is a provider of digital wireless
communications products, technologies and
services. QCOM Stock is registered under the
Exchange Act. Companies with securities
registered under the Exchange Act are
required to file periodically certain
financial and other information specified by
the Securities and Exchange Commission (the
"Commission"). Information provided to or
filed with the Commission can be inspected
and copied at the public reference facilities
maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C.
20549 or at its Regional Offices located at
Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and at Seven
World Trade Center, 13th Floor, New York, New
York 10048, and copies of such material can
be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
In addition, information provided to or filed
with the Commission electronically can be
accessed through a website maintained by the
Commission. The address of the Commission's
website is http://www.sec.gov. Information
provided to or filed with the Commission by
QUALCOMM pursuant to the Exchange Act can be
located by reference to Commission file
number 0-19528. In addition, information
regarding QUALCOMM 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 information.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not
relate to QCOM Stock or other securities of
QUALCOMM. We have derived all disclosures
contained in this pricing supplement
regarding QUALCOMM 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 QUALCOMM in
connection with the offering of the Reset
PERQS. Neither we nor the Agent makes any
representation that such publicly available
documents are or any other publicly available
information regarding QUALCOMM is 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 QCOM Stock (and therefore
the Initial QCOM Stock Price, the First Year
Cap Price and the maximum appreciation
amount) have been publicly disclosed.
Subsequent disclosure of any such events or
the disclosure of or failure to disclose
material future events concerning QUALCOMM
could affect the value received at maturity
with respect to the Reset PERQS and therefore
the trading prices of the Reset PERQS.
Neither we nor any of our affiliates makes
any representation to you as to the
performance of QCOM Stock.
We, or our affiliates, may presently or from
time to time engage in business with
QUALCOMM, including extending loans to, or
making equity investments in, QUALCOMM or
providing advisory services to QUALCOMM,
including merger and acquisition advisory
services. In the course of such business,
we, or our affiliates, may acquire non-public
information with respect to QUALCOMM and, in
addition, one or more of our affiliates may
publish research reports with respect to
QUALCOMM. The statement in the preceding
sentence is not intended to affect the right
of holders of the Reset PERQS under the
securities laws. As a prospective purchaser
of a Reset PERQS, you should undertake an
independent investigation of QUALCOMM as in
your judgment is appropriate to make an
informed decision with respect to an
investment in QCOM Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1996, 1997, 1998 and
1999 through August 3, 1999. The Market
Price on August 3, 1999 was $140. 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 QCOM Stock
as an indication of future performance. The
price of QCOM Stock may decrease so that you
will receive at maturity shares of QCOM Stock
worth less than the principal amount of the
Reset PERQS. We cannot give you any
assurance that the price of QCOM Stock will
increase so that at maturity you will receive
an amount in excess of the principal amount
of the Reset PERQS. Because your return is
linked to the Market Price of QCOM Stock on
August 15, 2000 and August 13, 2001, there is
no guaranteed return of principal. To the
extent that the Maturity Price of QCOM Stock
is less than the Initial QCOM Stock Price or
not sufficiently above the Initial QCOM Stock
Price to compensate for a downward adjustment
of the Exchange Ratio, if any, at August 15,
2000 and the shortfall is not offset by the
coupon paid on the Reset PERQS, you will lose
money on your investment.
QCOM Stock High Low
---------- ---- ----
(CUSIP 747525103)
1996
First Quarter................ 23 29/32 17 35/64
Second Quarter............... 26 5/8 14 63/64
Third Quarter................ 25 39/64 18 37/64
Fourth Quarter............... 22 1/2 17 47/64
1997
First Quarter................ 30 7/8 19 1/4
Second Quarter............... 29 13/32 20 23/32
Third Quarter................ 31 9/64 21 27/64
Fourth Quarter............... 34 23/32 22 13/32
1998
First Quarter................ 27 29/32 22 1/2
Second Quarter............... 29 7/32 22 55/64
Third Quarter................ 32 53/64 20 13/16
Fourth Quarter............... 29 5/32 19 9/16
1999
First Quarter................ 62 3/16 27 23/32
Second Quarter............... 143 1/2 62 5/16
Third Quarter
(through August 3, 1999)... 162 15/16 139 7/16
Historical prices have been adjusted for a
spinoff effected by QUALCOMM in the third
quarter of 1998 and a 2 for 1 stock split of
QCOM Stock, which became effective in the
second quarter of 1999.
QUALCOMM has not paid cash dividends on QCOM
Stock to date. We make no representation as
to the amount of dividends, if any, that
QUALCOMM will pay in the future. In any
event, as a holder of the Reset PERQS, you
will not be entitled to receive dividends,
if any, that may be payable on QCOM Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our affiliates in connection
with hedging our obligations under the Reset
PERQS. See also "Use of Proceeds" in the
accompanying prospectus.
On the date of this pricing supplement, we,
through our subsidiaries or others, hedged
our anticipated exposure in connection with
the Reset PERQS by taking positions in QCOM
Stock and other instruments. Purchase
activity could have potentially increased the
price of QCOM Stock, and therefore
effectively have increased the level to which
QCOM Stock must rise before you would receive
at maturity an amount of QCOM Stock worth as
much as or more than the principal amount of
the Reset PERQS. Through our subsidiaries,
we are likely to modify our hedge position
throughout the life of the Reset PERQS,
including on the First Year Determination
Date, by purchasing and selling the QCOM
Stock, options on QCOM Stock listed on major
securities markets or positions in any other
available securities or instruments that we
may wish to use in connection with our
hedging activity. Although we have no reason
to believe that our hedging activity had or
will have a material impact on the price of
QCOM 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
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset PERQS
or the QCOM Stock. Specifically, the Agent
may overallot in connection with the
offering, creating a short position in the
Reset PERQS for its own account. In
addition, to cover allotments or to stabilize
the price of the Reset PERQS, the Agent may
bid for, and purchase, the Reset PERQS or the
QCOM Stock in the open market. See "Use of
Proceeds and Hedging" above.
The Agent proposes initially to offer the
Reset PERQS directly to the public at the
public offering price set forth on the cover
page hereof plus accrued interest, if any,
from the Original Issue Date.
ERISA Matters for Pension
Plans and Insurance
Companies..................... We and certain of our affiliates, including
MS & Co. and Dean Witter Reynolds Inc.
("DWR"), may each be considered a "party in
interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "disqualified person"
within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code") with
respect to many employee benefit plans.
Prohibited transactions within the meaning of
ERISA or the Code may arise, for example, if
the Reset PERQS are acquired by or with the
assets of a pension or other employee benefit
plan with respect to which MS & Co., DWR or
any of their affiliates is a service
provider, unless the Reset PERQS are acquired
pursuant to an exemption from the prohibited
transaction rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption
("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and
conditions of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed
by a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to the
provisions of Section 401 of the Code;
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed
by an in-house asset manager and (ii)
satisfies the requirements and conditions of
PTCE 96-23 issued by the DOL.
Under ERISA the assets of a pension or other
employee benefit plan may include assets held
in the general account of an insurance
company which has issued an insurance policy
to such plan or assets of an entity in which
the plan has invested. In addition to
considering the consequences of owning the
Reset PERQS, employee benefit plans subject
to ERISA (or insurance companies deemed to be
investing ERISA plan assets) purchasing Reset
PERQS should consider the possible
implications of owning the QCOM Stock. Thus,
any insurance company, pension or employee
benefit plan or entity holding assets of such
a plan proposing to invest in the Reset PERQS
should consult with its legal counsel prior
to such investment.
United States Federal
Income Taxation............... The following summary is based on the
advice of Davis Polk & Wardwell, our special
tax counsel ("Tax Counsel"), and is a general
discussion of the principal potential U.S.
federal income tax consequences to U.S.
Holders (as defined below) who are initial
holders of the Reset PERQS purchasing the
Reset PERQS at the Issue Price, and who will
hold the Reset PERQS as capital assets within
the meaning of Section 1221 of the Code.
This summary is based on the Code,
administrative pronouncements, judicial
decisions and currently effective and
proposed Treasury Regulations, changes to any
of which subsequent to the date of this
Pricing Supplement may affect the tax
consequences described herein. This summary
does not address all aspects of the U.S.
federal income taxation that may be relevant
to a particular holder in light of its
individual circumstances or to certain types
of holders subject to special treatment under
the U.S. federal income tax laws (e.g.,
certain financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset PERQS
as a part of a hedging transaction, straddle,
conversion or other integrated transaction).
As the law applicable to the U.S. federal
income taxation of instruments such as the
Reset PERQS is technical and complex, the
discussion below necessarily represents only
a general summary. Moreover, the effect of
any applicable state, local or foreign tax
laws is not discussed.
As used herein, the term "U.S. Holder" means
an owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the
laws of the United States or any political
subdivision thereof or (iii) an estate or
trust the income of which is subject to
United States federal income taxation
regardless of its source.
General
Pursuant to the terms of the Reset PERQS, we
and every holder of a Reset PERQS agree (in
the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Reset PERQS for
all tax purposes as an investment unit
consisting of the following components (the
"Components"): (i) a contract (the "Forward
Contract") that requires the holder of the
Reset PERQS to purchase, and us to sell, for
an amount equal to $1,436.39 (the "Forward
Price"), the QCOM Stock at maturity, and (ii)
a deposit with us of a fixed amount of cash,
equal to the Issue Price, to secure the
holder's obligation to purchase the QCOM
Stock (the "Deposit"). For this purpose, we
have determined that the Deposit bears an
annual yield of 6.51%, payable quarterly. A
corresponding portion of the payments on the
Reset PERQS, therefore, represents interest
on the Deposit. This determination is based
on our judgment as to, among other things,
our normal borrowing cost and the value of the
Forward Contract. Under this
characterization, the remainder of the
quarterly payments on the Reset PERQS
represents payments attributable to the
holders' entry into the Forward Contract (the
"Contract Fees"). Furthermore, based on our
determination of the relative fair market
values of the Components at the time of
issuance of the Reset PERQS, we will allocate
100% of the Issue Price of the Reset PERQS
to the Deposit and none to the Forward
Contract. Our allocation of the Issue Price
among the Components will be binding on a
holder of the Reset PERQS, unless such holder
timely and explicitly discloses to the IRS
that its allocation is different from ours.
The treatment of the Reset PERQS described
above and our allocation are not, however,
binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS for
U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the Reset PERQS. Due to the
absence of authorities that directly address
instruments that are similar to the Reset
PERQS, Tax Counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Reset PERQS. As
a result, significant aspects of the U.S.
federal income tax consequences of an
investment in the Reset PERQS are not
certain, and no assurance can be given that
the IRS or the courts will agree with the
characterization described herein.
Accordingly, you are urged to consult your
tax advisor regarding the U.S. federal income
tax consequences of an investment in the
Reset PERQS (including alternative
characterizations of the Reset PERQS) and
with respect to any tax consequences arising
under the laws of any state, local or foreign
taxing jurisdiction. Unless otherwise
stated, the following discussion is based on
the treatment and the allocation described
above.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price
as set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Quarterly Payments on the Reset PERQS. To
the extent attributable to the interest on
the Deposit, quarterly payments on the Reset
PERQS will generally be taxable to a U.S.
Holder as ordinary income at the time accrued
or received in accordance with the U.S.
Holder's method of accounting for U.S.
federal income tax purposes. Although the
federal income tax treatment of the Contract
Fees is uncertain, we intend to take the
position that the Contract Fees constitute
taxable income to a U.S. Holder 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 our determination set
forth above, the U.S. Holder's tax basis in
the Forward Contract will be zero, and the
U.S. Holder's tax basis in the Deposit will
be 100% of the Issue Price.
Settlement of the Forward Contract. Upon the
maturity of the Forward Contract, a U.S.
Holder would, pursuant to the Forward
Contract, be deemed to have applied the
Forward Price toward the purchase of QCOM
Stock, and a U.S. Holder would not recognize
any gain or loss with respect to any QCOM
Stock received thereon. With respect to any
cash received upon maturity, a U.S. Holder
would recognize gain or loss. The amount of
such gain or loss would be the extent to
which the amount of such cash received
differs from the pro rata portion of the
Forward Price allocable to the cash. Any
such gain or loss would generally be capital
gain or loss, as the case may be. With
respect to any QCOM Stock received upon
maturity, the U.S. Holder would have an
adjusted tax basis in such QCOM Stock equal
to the pro rata portion of the Forward Price
allocable thereto. The allocation of the
Forward Price between cash and QCOM Stock
should be based on the amount of the cash
received and the relative fair market value,
as of maturity, of the QCOM Stock. The U.S.
Holder's holding period of any QCOM Stock
received would start on the day after the
maturity of the Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a
sale or exchange of a Reset PERQS prior to
the maturity of the Reset PERQS, a U.S.
Holder would recognize taxable gain or loss
equal to the difference between the amount
realized on such sale or exchange and such
U.S. Holder's tax basis in the Reset PERQS so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss, as
the case may be. Such U.S. Holder's tax
basis in the Reset PERQS would generally
equal the U.S. Holder's tax basis in the
Deposit. For these purposes, the amount
realized does not include any amount
attributable to accrued interest on the
Deposit, which would be taxed as described
under "--Quarterly Payments on the Reset
PERQS" above. It is uncertain whether the
amount realized includes any amount
attributable to accrued but unpaid Contract
Fees. U.S. Holders should consult their tax
advisers regarding the treatment of accrued
but unpaid Contract Fees upon the sale or
exchange of a Reset PERQS.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court
will uphold, the characterization and tax
treatment described above. In particular,
the IRS could seek to analyze the U.S.
federal income tax consequences of owning a
Reset PERQS under Treasury regulations
governing contingent payment debt instruments
(the "Contingent Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price. In
addition, a U.S. Holder would recognize
income upon the maturity of the Reset PERQS
to the extent that the value of QCOM Stock
and cash (if any) received exceeds the
adjusted issue price. Furthermore, any gain
realized with respect to the Reset PERQS
would generally be treated as ordinary income.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other
alternative federal income tax
characterizations or treatments of the Reset
PERQS are also possible, and if applied could
also affect the timing and the character of
the income or loss with respect to the Reset
PERQS. It is possible, for example, that a
Reset PERQS could be treated as constituting
a prepaid forward contract. Accordingly,
prospective purchasers are urged to consult
their tax advisors regarding the U.S. federal
income tax consequences of an investment in
the Reset PERQS.
Proposed Legislation
On August 2, 1999, a conference committee of
the Senate and the House of Representatives
met to discuss S. 1429 (the "Taxpayer Refund
Act of 1999," passed in the Senate on July
30, 1999) and H.R. 2488 (the "Financial
Freedom Act of 1999," passed in the House of
Representatives on July 22, 1999). Both the
Taxpayer Refund Act of 1999 and the Financial
Freedom Act of 1999 include provisions (the
"Constructive Ownership Legislation") 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 ordinary income. Although
the Constructive Ownership Legislation, if
enacted as currently drafted, would not apply
to the Reset PERQS, the Constructive Ownership
Legislation authorizes the Treasury
Department to promulgate regulations
(possibly with retroactive effect) to expand
the application of the "constructive
ownership" rule. There is no assurance that
the Treasury Department will not promulgate
regulations to apply the rule to the Reset
PERQS. If the Constructive Ownership
Legislation were to apply to the Reset PERQS,
the effect on a U.S. Holder 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 a Reset PERQS as ordinary
income, 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
QCOM Stock itself on the issue date of the
Reset PERQS and disposed of the QCOM Stock
upon disposition of the Reset PERQS. In
addition, the Constructive Ownership
Legislation would impose an interest charge
on the gain that was recharacterized on the
sale or maturity of the Reset PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of a Reset PERQS may be subject
to information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid to the U.S. Holder, unless such
U.S. Holder provides proof of an applicable
exemption or a correct taxpayer identification
number, and otherwise complies with
applicable requirements of the backup
withholding rules. The amounts withheld
under the backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided the
required information is furnished to the IRS.
