PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 25 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated October 6, 1999
Rule 424(b)(3)
$17,027,300
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------------
4% Reset PERQS due October 31, 2001
Mandatorily Exchangeable For
Shares of Common Stock of FDX CORPORATION
Reset Performance Equity-linked Redemption Quarterly-pay SecuritiesSM
("Reset PERQSSM")
The Reset PERQS will pay 4% 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 FDX common stock based on the closing prices of FDX 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 $41.53, which
is the price of FDX common stock at the time we priced the Reset PERQS on
October 6, 1999, the day we offered the Reset PERQS for initial sale to the
public.
o We will pay 4% interest (equivalent to $1.6612 per year) on the $41.53
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning January 31, 2000.
o At maturity you will receive shares of FDX common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is 1
share of FDX common stock per Reset PERQS. However, if the price of FDX
common stock appreciates above the first year cap price for October 31,
2000 or the second year cap price for October 29, 2001, the exchange ratio
will be adjusted downward, and you will receive less than one share of FDX
common stock per Reset PERQS.
o The first year cap price is $64.375, or 155.01% of the price of FDX common
stock at the time we priced the Reset PERQS on October 6, 1999, the day we
offered the Reset PERQS for initial sale to the public. If on October 31,
2000, the price of FDX common stock is higher than the price of FDX common
stock at the time we priced the Reset PERQS on October 6, 1999, we will
raise the cap price to 155% of the closing price of FDX common stock on
October 31, 2000. Otherwise the cap price will remain unchanged in the
second year. The maximum you can receive at maturity is FDX common stock
worth $99.78 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in FDX common
stock.
o FDX Corporation is not involved in this offering of Reset PERQS in any way
and will have no financial obligation with respect to the Reset PERQS.
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 $41.53 PER RESET PERQS
-----------------
Agent's Proceeds to
Price to Public Commissions the Company
--------------- ----------- -----------
Per Reset PERQS................. $41.53 $0.57 $40.96
Total........................... $17,027,300 $233,700 $16,793,600
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
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 FDX Corporation common stock, which we refer to as FDX Stock. The
Reset PERQS also provide fixed quarterly payments at an annual rate of 4% 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 FDX 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
costs $41.53 4% Reset Performance Equity-linked Redemption
Quarterly-pay Securities(sm) due October 31, 2001,
which we refer to as the Reset PERQS(sm). The
principal amount and issue price of each Reset
PERQS is $41.53, which is the price of FDX Stock
at the time we priced the Reset PERQS on October
6, 1999, the day we offered the Reset PERQS for
initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS
return of principal do not guarantee any at return of principal
maturity. Instead the Reset PERQS will pay an
amount of FDX Stock based on the closing price of
FDX 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 FDX Stock.
4% interest on the We will pay interest on the Reset PERQS, at the
principal amount rate of 4% of the per year, principal amount
quarterly on each January 31, April 30, July 31,
and October 31, beginning January 31, 2000. The
interest rate we pay on the Reset PERQS is more
than the current dividend rate on the FDX Stock.
The Reset PERQS will mature on October 31, 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 $64.375, or 155.01% of the
price of FDX Stock at the time we priced the Reset
PERQS on October 6, 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
155% of the closing price of FDX Stock on October
31, 2000 and the First Year Cap Price. The maximum
you can receive at maturity is FDX Stock worth
$99.78 per Reset PERQS.
Payment at Maturity At maturity, for each $41.53 principal amount of
Reset PERQS you hold, we will give to you a number
of shares of FDX Stock equal to the exchange
ratio. The initial exchange ratio is 1 share of
FDX Stock per Reset PERQS and may be adjusted as
follows:
First Year Adjustment
The exchange ratio will be adjusted downward if
the closing price of FDX Stock exceeds the
First Year Cap Price on October 31, 2000.
The adjusted exchange ratio will be calculated
as follows:
First Year Cap Price
New Exchange = Initial Exchange x -------------------------------------------
Ratio Ratio FDX Stock closing price on October 31, 2000
If the closing price of FDX Stock on October
31, 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.
PS-3
<PAGE>
Second Year Adjustment
The exchange ratio may be adjusted downward
again at maturity, but only if the closing
price of FDX Stock at maturity exceeds the
Second Year Cap Price. The final exchange ratio
will then be calculated as follows:
Second Year Cap Price
Final Exchange = Existing Exchange x -----------------------------------
Ratio Ratio FDX Stock closing price at maturity
If the closing price of FDX 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 FDX 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 FDX 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 FDX Stock that
you will receive at maturity.
No affiliation with FDX Corporation is not an affiliate of ours and is
FDX Corporation not involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co.
and not of FDX Corporation.
More information on The Reset PERQS are senior notes issued as part of
the Reset PERQS our Series C medium-term note program. You can
find a general description of our Series C
medium-term note program in the accompanying
prospectus supplement dated 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 our principal executive offices at
1585 Broadway, New York, New York, 10036
(telephone number (212) 761-4000).
PS-4
<PAGE>
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS.
<TABLE>
Initial Initial
Initial Price of FDX Exchange First Year First Year 10/31/00
Reset PERQS Stock Price Ratio Cap Price Closing Price Exchange Ratio
- ---------------- ----------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 30.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 30.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 30.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 55.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 55.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 55.0000 $ 1.00000
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 80.0000 $ 0.80469
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 80.0000 $ 0.80469
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 80.0000 $ 0.80469
$ 41.53000 $ 41.53000 $1.00000 $ 64.375 $ 64.3750 $ 1.00000
^
155.01% of
the FDX
Stock Price at
the time of
Pricing
<CAPTION>
Reset PERQS Reset PERQS
Payout at Maturity Payout at Maturity
Second Year FDX Stock Exchange Ratio Based on plus
Cap Price Maturity Price(1) at Maturity FDX Stock Price 4% Coupon
----------- ----------------- -------------- ------------------ -----------------
<C> <C> <C> <C> <C>
$ 64.3750 $ 20.0000 $ 1.00000 $ 20.00 $ 23.41
$ 64.3750 $ 60.0000 $ 1.00000 $ 60.00 $ 63.41
$ 64.3750 $ 75.0000 $ 0.85833 $ 64.37 $ 67.78
$ 85.2500 $ 45.0000 $ 1.00000 $ 45.00 $ 48.41
$ 85.2500 $ 80.0000 $ 1.00000 $ 80.00 $ 83.41
$ 85.2500 $ 95.0000 $ 0.89737 $ 85.25 $ 88.66
$ 124.0000 $ 65.0000 $ 0.80469 $ 52.30 $ 55.71
$ 124.0000 $ 100.0000 $ 0.80469 $ 80.47 $ 83.88
$ 124.0000 $ 150.0000 $ 0.66521 $ 99.78 $ 103.19
$ 99.7813 $ 99.7813 $ 1.00000 $ 99.78 $ 103.19
^ ^
Greater of (x) Maturity Price
155% of First times Adjusted
Year Closing Exchange Ratio
Price and (y)
First Year Cap
Price
- ------------
(1) The FDX Stock Maturity Price does not include any divident payments
that may have been paid to holders of FDX Stock.
</TABLE>
PS-5
<PAGE>
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 FDX
Stock, there is no guaranteed return of principal. To the extent that the
closing price of FDX 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 October 31, 2000, investors will
lose money on their investment. Investing in Reset PERQS is not equivalent to
investing directly in FDX 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 will
principal not pay you a fixed amount at maturity. Our
payment to you at maturity will be a number of
shares of FDX Stock based on the closing price of
FDX Stock on October 31, 2000 and at maturity. If
the closing price of FDX Stock at maturity is
either less than the price of FDX 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
October 31, 2000, we will pay you an amount of FDX
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 is
Potential Is Limited limited because of the cap prices. Even though the
$41.53 issue price of one Reset PERQS is equal to
the price of one share of FDX Stock at the time we
priced the Reset PERQS multiplied by the initial
exchange ratio, you may receive less than one
share of FDX Stock per Reset PERQS at maturity if
the initial exchange ratio has been adjusted
downwards. If the price of FDX Stock appreciates
above both the cap price for October 31, 2000 and
the cap price for October 29, 2001, the initial
exchange ratio of one share of FDX Stock per Reset
PERQS will be reduced twice.
The exchange ratio and the closing price of FDX
Stock at maturity will be determined on October
29, 2001, which is two trading days prior to
maturity of the Reset PERQS. If the price of FDX
Stock is lower on the actual maturity date than it
was on October 29, 2001, the value of any FDX
Stock you receive will be less. Under no
circumstances will you receive an amount of FDX
Stock for each Reset PERQS worth more than $99.78
as of such second scheduled trading day prior to
maturity.
Secondary Trading There may be little or no secondary market for the
May Be Limited Reset PERQS. 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 FDX 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 FDX Stock
PS-6
<PAGE>
o the dividend rate on FDX Stock
o economic, financial and political events that
affect stock markets generally and which may
affect the market price of the FDX 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 FDX
Stock is at, below, or not sufficiently above the
initial market price.
You cannot predict the future performance of FDX
Stock based on its historical performance. The
price of FDX Stock may decrease so that you will
receive at maturity shares of FDX Stock worth less
than the principal amount of the Reset PERQS. We
cannot guarantee that the price of FDX 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 FDX Corporation
FDX Corporation ("FDX"). Although we do not have any non-public
information about FDX as of the date of this
pricing supplement, we or our subsidiaries may
presently or from time to time engage in business
with FDX, including extending loans to, or making
equity investments in, FDX or providing advisory
services to FDX, including merger and acquisition
advisory services. Moreover, we have no ability to
control or predict the actions of FDX, including
any corporate actions of the type that would
require the calculation agent to adjust the
payment to you at maturity. FDX 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 FDX.
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 FDX Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the
Adjustments amount payable at maturity for certain events
affecting the FDX Stock, such as stock splits and
stock dividends, and certain other corporate
actions involving FDX, such as mergers. However,
the calculation agent is not required to make an
adjustment for every corporate event that can
affect the FDX Stock. For example, the calculation
agent is not required to make any adjustments if
FDX or anyone else makes a partial tender or
partial exchange offer for the FDX Stock. If an
event occurs that does not require the calculation
agent to adjust the amount of FDX Stock 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 FDX 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.
PS-7
<PAGE>
Potential Conflicts of As calculation agent, MS & Co. will calculate the
Interest between You and payment to you at maturity of the Reset PERQS. MS
the Calculation Agent & Co. and other affiliates may also carry out
hedging activities related to Reset PERQS or to
other instruments, including trading in FDX Stock
as well as in other instruments related to FDX
Stock. MS & Co. and some of our other subsidiaries
also trade FDX Stock and other financial
instruments related to FDX 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 ("IRS") or a court may not agree
with the tax treatment described in this pricing
supplement. Please read carefully the section
"Description of Reset PERQS--United States Federal
Income Taxation" in this pricing supplement.
PS-8
<PAGE>
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 $41.53
principal amount of our 4% Reset PERQS due October 31, 2001, Mandatorily
Exchangeable For Shares of Common Stock of FDX Corporation. In this pricing
supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan Stanley Dean
Witter & Co.
Principal Amount........................ $17,027,300
Maturity Date........................... October 31, 2001
Interest Rate........................... 4% per annum (equivalent to $1.6612
per annum per Reset PERQS)
Interest Payment Dates.................. Each January 31, April 30, July 31,
and October 31, beginning
January 31, 2000.
Specified Currency...................... U.S. Dollars
Issue Price............................. $41.53 per Reset PERQS
Initial FDX Stock Price................. $41.53, the price of FDX Stock at the
time we priced the Reset PERQS on
October 6, 1999
Original Issue Date (Settlement Date)... October 11, 1999
CUSIP................................... 61744Y850
Denominations........................... $41.53 and integral multiples thereof
First Year Cap Price.................... $64.375 (155.01% of the Initial FDX
Stock Price)
First Year Determination Date........... October 31, 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 FDX 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) 155% 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
FDX 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 $41.53 principal
amount of such Reset PERQS as payment
for a number of shares of FDX Stock at
the Exchange Ratio. The initial
Exchange Ratio, initially set at 1, is
subject to adjustment on the First
Year Determination Date and at
maturity in order to cap the value of
the FDX Stock to be received
PS-9
<PAGE>
upon delivery of the Reset PERQS at
$99.78 per Reset PERQS (240.26% of the
Issue Price). Solely for purposes of
adjustment upon the occurrence of
certain corporate events, the number
of shares of FDX 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) 155% 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 FDX Stock to be
delivered with respect to each $41.53
principal amount of each Reset PERQS
and (ii) deliver such shares of FDX
Stock (and cash in respect of interest
and any fractional shares of FDX
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
PS-10
<PAGE>
indenture), we will deliver the
aggregate number of shares of FDX
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 FDX Stock in
an amount equal to the corresponding
fractional Market Price of such
fraction of a share of FDX 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
FDX Stock through and including the
second scheduled Trading Day
immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price............................ If FDX 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 FDX 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
FDX 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 FDX
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 FDX 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 American
Stock Exchange, Inc., 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 FDX 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
$41.53 principal amount of each Reset
PS-11
<PAGE>
PERQS as payment for a number of
shares of FDX Stock at the then
current Exchange Ratio, as adjusted by
the then current Exchange Factor. See
also "Antidilution Adjustments" below.
Optional Redemption..................... We will not redeem the Reset PERQS
prior to the Maturity Date.
Book Entry Note or Certificated Note.... Book Entry
Senior Note or Subordinated Note........ Senior
Trustee................................. The Chase Manhattan Bank
Agent 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 FDX 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 FDX Stock.
2. If FDX Stock is subject (i) to
a stock dividend (issuance of
additional shares of FDX Stock) that
is given ratably to all holders of
shares of FDX Stock or (ii) to a
distribution of FDX Stock as a result
of the triggering of any provision of
the corporate charter of FDX, then
once the dividend has become effective
and FDX 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 FDX 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 FDX 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 FDX Stock
will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend
for FDX Stock by an amount equal to at
PS-12
<PAGE>
least 10% of the Market Price of FDX
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 FDX Stock, the Exchange
Factor with respect to FDX 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 FDX 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 FDX 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 FDX 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 FDX issues rights or
warrants to all holders of FDX Stock
to subscribe for or purchase FDX Stock
at an exercise price per share less
than the Market Price of the FDX 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 FDX
Stock outstanding immediately prior to
the issuance of such rights or
warrants plus the number of additional
shares of FDX Stock offered for
subscription or purchase pursuant to
such rights or warrants and the
denominator of which shall be the
number of shares of FDX Stock
outstanding immediately prior to the
issuance of such rights or warrants
plus the number of additional shares
of FDX Stock which the aggregate
offering price of the total number of
shares of FDX 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 FDX
Stock, including, without limitation,
as a result of the issuance of any
PS-13
<PAGE>
tracking stock by FDX, (ii) FDX or any
surviving entity or subsequent
surviving entity of FDX (a "FDX
Successor") has been subject to a
merger, combination or consolidation
and is not the surviving entity, (iii)
any statutory exchange of securities
of FDX or any FDX Successor with
another corporation occurs (other than
pursuant to clause (ii) above), (iv)
FDX is liquidated, (v) FDX issues to
all of its shareholders equity
securities of an issuer other than FDX
(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 FDX 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 $41.53 principal amount of each
Reset PERQS, securities, cash or any
other assets distributed to holders of
FDX Stock in any such Reorganization
Event, including, in the case of the
issuance of tracking stock, the
reclassified share of FDX Stock and,
in the case of a Spin-off Event, the
share of FDX 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 FDX Stock
and holders will receive in lieu of
any FDX 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 FDX 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 FDX 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
PS-14
<PAGE>
multiplied by the quantity of such
security received for each share of
FDX 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 required 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 FDX
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 FDX Stock, including,
without limitation, a partial tender
or partial exchange offer for the FDX
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 FDX Stock having a market
value of $99.78 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.
PS-15
<PAGE>
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 FDX Stock:
(i) a suspension, absence or
material limitation of trading of
FDX Stock on the primary market for
FDX 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 FDX Stock as a
result of which the reported
trading prices for FDX 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 FDX 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 FDX 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 FDX Stock and (5)
a suspension, absence or material
limitation of trading on the primary
securities market on which options
contracts related to FDX Stock are
traded will not include any time when
such securities market is itself
closed for trading under ordinary
circumstances.
FDX Stock; Public Information........... FDX Corporation is global
transportation and logistics company
that offers its customers global
shipping, logistics and supply chain
solutions. FDX Stock is registered
under the Exchange Act.
PS-16
<PAGE>
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 FDX pursuant to the
Exchange Act can be located by
reference to Commission file number
333-39483. In addition, information
regarding FDX 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 FDX Stock or other
securities of FDX. We have derived all
disclosures contained in this pricing
supplement regarding FDX 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 FDX 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 FDX 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 FDX Stock
(and therefore the Initial FDX Stock
Price, the First Year Cap Price, the
Second 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 FDX
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 FDX Stock.
We and/or our subsidiaries may
presently or from time to time engage
in business with FDX, including
extending loans to, or making equity
investments in, FDX or providing
advisory services to FDX, including
merger and acquisition advisory
services. In the
PS-17
<PAGE>
course of such business, we and/or our
subsidiaries may acquire non-public
information with respect to FDX and,
in addition, one or more of our
affiliates may publish research
reports with respect to FDX. 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 FDX as in your judgment is
appropriate to make an informed
decision with respect to an investment
in FDX Stock.
Historical Information.................. The following table sets forth the
high and low Market Price during 1996,
1997, 1998 and 1999 through October 6,
1999. The Market Price of FDX Stock on
October 6, 1999 was $415/8. 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 FDX Stock as an
indication of future performance. The
price of FDX Stock may decrease so
that you will receive at maturity
shares of FDX Stock worth less than
the principal amount of the Reset
PERQS. We cannot give you any
assurance that the price of FDX 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 FDX Stock on
October 31, 2000 and October 29, 2001,
there is no guaranteed return of
principal. To the extent that the
Maturity Price of FDX Stock is less
than the Initial FDX Stock Price or
not sufficiently above the Initial FDX
Stock Price to compensate for a
downward adjustment of the Exchange
Ratio, if any, at October 31, 2000 and
the shortfall is not offset by the
coupon paid on the Reset PERQS, you
will lose money on your investment.
FDX Stock High Low
--------- ---- ---
(CUSIP 31304N107)
1996
First Quarter............... 19 13/32 17 11/32
Second Quarter.............. 20 1/2 17 29/32
Third Quarter............... 20 25/32 18 1/8
Fourth Quarter.............. 22 7/16 19 15/32
1997
First Quarter............... 28 9/16 21 1/4
Second Quarter.............. 29 3/4 25 3/16
Third Quarter............... 41 3/8 28 7/32
Fourth Quarter.............. 40 28 1/16
1998
First Quarter............... 36 11/16 30 15/32
Second Quarter.............. 37 1/8 29 25/32
Third Quarter............... 33 3/4 22 9/16
Fourth Quarter.............. 45 11/32 22 3/16
PS-18
<PAGE>
FDX Stock High Low
--------- ---- ---
(CUSIP 31304N107)
1999
First Quarter............... 48 31/32 38 1/8
Second Quarter.............. 61 3/4 48 1/16
Third Quarter............... 54 15/16 34 15/16
Fourth Quarter
(through October 6, 1999). 41 5/8 38 1/8
Historical prices have been adjusted
for two 2 for 1 stock splits of FDX
stock, which became effective in the
fourth quarter of 1996 and the second
quarter of 1999, respectively.
FDX has not paid cash dividends on FDX
Stock to date. We make no
representation as to the amount of
dividends, if any, that FDX 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 FDX
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
subsidiaries in connection with
hedging our obligations under the
Reset PERQS. See also "Use of
Proceeds" in the accompanying
prospectus.
On or before 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 FDX Stock and other
instruments. Purchase activity could
have potentially increased the price
of FDX Stock, and therefore
effectively have increased the level
to which FDX Stock must rise before
you would receive at maturity an
amount of FDX 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 FDX Stock,
options on FDX 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
FDX 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 FDX 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 FDX Stock
in the open market. See "Use of
Proceeds and Hedging" above.
PS-19
<PAGE>
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 subsidiaries and
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 FDX Stock.
PS-20
<PAGE>
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 $43.71 (the "Forward
Price"), the FDX 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 FDX Stock
(the "Deposit"). For this purpose, we
have determined that the Deposit bears
an annual yield of 6.50%, payable
quarterly, which yield is based on our
normal borrowing cost. 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
PS-21
<PAGE>
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.
As described above, the Deposit is
treated as bearing a yield of 6.50%
per annum, which is greater than the
stated interest rate on the Reset
PERQS. Accordingly, the Deposit will
be subject to the "original issue
discount" rules. A U.S. Holder will
include "qualified stated interest"
equal to the quarterly payments on the
Reset PERQS in income in accordance
with the U.S. Holder's method of
accounting for federal income tax
purposes. Additionally, each U.S.
Holder, including a taxpayer who
otherwise uses the cash method of
accounting, will be required to
include original issue discount
("OID") on the Deposit in income as it
accrues, in accordance with a constant
yield method based on a compounding of
interest. This method will generally
cause the U.S. Holder to include OID
in each accrual period in an amount
equal to the product of the "adjusted
issue price" of the Deposit (which is
the Issue Price increased by OID
previously accrued on the Deposit) at
the beginning of the accrual period
and the yield of the Deposit, minus
the amount of any qualified stated
interest allocable to the accrual
period. Because the yield on the
Deposit is higher than the stated
interest rate on the Reset PERQS, the
amount of income recognized by the
U.S. Holder will generally be more
than the quarterly payments to the
U.S. Holder, and will increase during
the term of the Reset PERQS.
PS-22
<PAGE>
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 initially will be 100%
of the Issue Price. The U.S. Holder's
tax basis in the Deposit will be
subsequently increased by OID accrued
with respect to the Deposit.
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 FDX
Stock, and a U.S. Holder would not
recognize any gain or loss with
respect to any FDX 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 FDX Stock received upon
maturity, the U.S. Holder would have
an adjusted basis in such FDX Stock
equal to the pro rata portion of the
Forward Price allocable thereto. The
allocation of the Forward Price
between cash and FDX Stock should be
based on the amount of the cash
received and the relative fair market
value, as of maturity, of the FDX
Stock. The U.S. Holder's holding
period of any FDX 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.
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
PS-23
<PAGE>
Price. In addition, a U.S. Holder
would recognize income upon the
maturity of the Reset PERQS to the
extent that the value of FDX 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
In recent years, several legislative
proposals (including H.R. 2488 (the
"Taxpayer Refund and Relief Act of
1999"), which was vetoed by the
President on September 23, 1999) have
included 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 recent drafts of the
Constructive Ownership Legislation, if
enacted, would not apply to the Reset
PERQS, the recent drafts would have
authorized 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 would 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 FDX Stock
itself on the issue date of the Reset
PERQS and disposed of the FDX 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
PS-24
<PAGE>
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.
