The information in this pricing supplement is not complete and may be changed.
We may not deliver these securities until a final pricing supplement is
delivered. This pricing supplement and the accompanying prospectus and
prospectus supplement do not constitute an offer to sell these securities and
they are not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
Subject to Completion, Pricing Supplement dated February 11, 1999
PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 53 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated , 1999
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
------------
% Reset PERQS due March 15, 2001
Mandatorily Exchangeable For
Shares of Common Stock of MCI WORLDCOM, INC.
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay % interest per year but do not guarantee any
return of principal at maturity. Instead the Reset PERQS will pay at
maturity a number of shares of MCI WorldCom common stock based on the closing
prices of MCI WorldCom common stock after one year and at maturity, in each
case subject to a cap price.
o The principal amount and issue price of each Reset PERQS is $ which is
one-tenth of the closing price of MCI WorldCom common stock on the day we
offer the Reset PERQS for initial sale to the public.
o We will pay % interest (equivalent to $ per year) on the $
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning June 15, 1999.
o At maturity you will receive shares of MCI WorldCom common stock in exchange
for each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-tenth of a share of MCI WorldCom common stock per Reset PERQS.
However, if the price of MCI WorldCom common stock appreciates above the
first year cap price for March 15, 2000 or the second year cap price for
March 13, 2001, the exchange ratio will be adjusted downward, and you
will receive an amount of MCI WorldCom common stock per Reset PERQS that
is less than one-tenth of a share.
o The first year cap price is $ , or % of the closing price of MCI
WorldCom common stock on the day we offer the Reset PERQS for initial
sale to the public. If on March 15, 2000, the price of MCI WorldCom
common stock is higher than the closing price of MCI WorldCom common
stock on the day we offer the Reset PERQS for initial sale to the public,
we will raise the cap price to % of the closing price of MCI WorldCom
common stock on March 15, 2000. Otherwise the cap price will remain
unchanged in the second year. The maximum you can receive at maturity is
MCI WorldCom common stock worth $ per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in MCI WorldCom
common stock.
o MCI WorldCom, Inc. is not involved in this offering of Reset PERQS in any
way and will have no financial obligation with respect to the Reset PERQS.
o We will apply to list the Reset PERQS to trade on the American Stock
Exchange, Inc., but it is not possible to predict whether the Reset PERQS
will meet the AMEX listing requirements.
You should read the more detailed description of the Reset PERQS in this
Pricing Supplement. In particular, you should review and understand the
descriptions in "Summary of Pricing Supplement" and "Description of Reset
PERQS." "Reset Performance Equity-linked Redemption Quarterly-pay Securities"
and "Reset PERQS" are our service marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
------------------
PRICE $ PER RESET PERQS
------------------
Agent's Proceeds to
Price to Public Commissions Company
--------------- ----------- -----------
Per Reset PERQS.... $ $ $
Total.............. $ $ $
If you purchase at least 300,000 Reset PERQS in any single transaction and you
comply with the holding period requirement described under "Supplemental
Information Concerning Plan of Distribution" in this Pricing Supplement, the
price will be $ per Reset PERQS (98.625% of the Issue Price). In that
case, the underwriting discounts and commissions will be $ per Reset
PERQS ( %).
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering
to you in general terms only. You should read the summary together with the
more detailed information that is contained in the rest of this pricing
supplement and in the accompanying prospectus and prospectus supplement. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
<TABLE>
<CAPTION>
The Reset PERQS
<S> <C>
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering % Reset Performance Equity-linked
costs $ Redemption Quarterly-pay Securities[SM] ("Reset PERQS[SM]") due March 15, 2001. The
principal amount and issue price of each Reset PERQS is $ , which is one-tenth of the
closing price of the common stock of MCI WorldCom, Inc. ("MCI WorldCom Stock") on the
day we offer the Reset PERQS for initial sale to the public.
No guaranteed return Unlike ordinary debt securities, the Reset PERQS do not guarantee any return of principal at
of principal maturity. Instead the Reset PERQS will pay an amount of MCI WorldCom Stock based on
the market price of MCI WorldCom Stock, either up or down, after one year and at maturity,
in each case subject to a cap price. Reset PERQS are not equivalent to investing in MCI
WorldCom Stock.
% interest on the We will pay interest on the Reset PERQS, at the rate of % of the principal amount per year,
principal amount quarterly on each March 15, June 15, September 15 and December 15, beginning June 15,
1999. The interest rate we pay on the Reset PERQS is more than the current dividend rate on
the MCI WorldCom Stock. The Reset PERQS will mature on March 15, 2001.
Your appreciation The appreciation potential of each Reset PERQS is limited in each year by the cap price. The
potential is capped cap price in year one is $ , or % of the closing market price of MCI WorldCom Stock
on the day we offer 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 % of the closing
market price of MCI WorldCom Stock on March 15, 2000 and the First Year Cap Price. The
maximum you can receive at maturity is MCI WorldCom stock worth $ per Reset
PERQS.
Payment at Maturity
At maturity, for each $ principal amount of Reset PERQS you hold, we will give to you
a number of shares of MCI WorldCom Stock equal to the exchange ratio. The initial
exchange ratio is one-tenth of a share of MCI WorldCom 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 MCI WorldCom Stock exceeds the First Year Cap Price on March 15, 2000.
The adjusted exchange ratio will be calculated as follows:
New Existing First Year Cap Price
Exchange = Exchange x --------------------------------------------
Ratio Ratio MCI WorldCom closing price on March 15, 2000
If the market price of MCI WorldCom Stock on March 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 MCI WorldCom Stock at maturity exceeds the
Second Year Cap Price. The final exchange ratio will then be calculated as follows:
Final Existing Second Year Cap Price
Exchange = Exchange x --------------------------------------
Ratio Ratio MCI WorldCom closing price at maturity
If the market price of MCI WorldCom 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 MCI WorldCom Stock for the last three years in the "Historical
Information" section of this Pricing Supplement.
During the life of the Reset PERQS, Morgan Stanley & Co. Incorporated ("MS & Co."),
acting as calculation agent, will also make adjustments to the effective exchange ratio to
reflect the occurrence of certain corporate events that could affect the market price of MCI
WorldCom 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 MCI WorldCom Stock that you will
receive at maturity.
No Affiliation with MCI WorldCom, Inc.
MCI WorldCom, Inc. is not an affiliate of ours and is not involved with this offering in any
way. The obligations represented by the Reset PERQS are obligations of Morgan Stanley
Dean Witter & Co. and not of MCI WorldCom, Inc.
More Information on the Reset PERQS
The Reset PERQS are senior notes issued as part of our Series C medium-term note program.
You can find a general description of our Series C medium-term note program in the
accompanying Prospectus Supplement dated March 26, 1998. We describe the basic features
of this type of note in the sections called "Description of Reset PERQS--Fixed Rate
Notes" and "--Exchangeable Notes."
For a detailed description of terms of the Reset PERQS including the specific mechanics
and timing of the exchange ratio adjustments, you should read the "Description of Reset
PERQS" section in this Pricing Supplement. You should also read about some of the
risks involved in investing in Reset PERQS in the section called "Risk Factors."
How to reach us
You may contact your local Morgan Stanley Dean Witter branch office or our principal
executive offices at 1585 Broadway, New York, New York, telephone number
(212) 761-4000.
</TABLE>
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on a hypothetical Initial MCI WorldCom Price of $77.00
per share of MCI WorldCom Stock and a first year cap of 129% and a second year
cap of 129%, the following table illustrates, for a range of First Year
Closing Prices and Maturity Prices, the adjustments we would make to the
Exchange Ratio, Second Year Cap Prices, the Payments at Maturity based on MCI
WorldCom Stock for each $7.70 principal amount of Reset PERQS and the total
return including interest payments, based on a hypothetical interest rate of
6% per annum and a maturity of two years, for each $7.70 principal amount of
Reset PERQS.
<TABLE>
<CAPTION> Reset Reset
PERQS PERQS
Payment Payment
at at
MCI Maturity Maturity
Initial Initial First First 3/1/00 WorldCom Adjusted Based on plus
Price of MCI Initial Year Year Adjusted Second Stock Exchange MCI 6% Coupon
Reset WorldCom Exchange Cap Closing Exchange Year Maturity Ratio at WorldCom ("Total
PERQS Price Ratio Price Price Ratio Cap Price Price(1) Maturity Stock Payment")
--------- -------- -------- ------- --------- --------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$7.70 $77.00 0.10000 $99.33 $50.00 0.10000 $99.33 $35.00 0.10000 $3.50 $4.42
$7.70 $77.00 0.10000 $99.33 $50.00 0.10000 $99.33 $90.00 0.10000 $9.00 $9.92
$7.70 $77.00 0.10000 $99.33 $50.00 0.10000 $99.33 $125.00 0.07946 $9.93 $10.85
$7.70 $77.00 0.10000 $99.33 $95.00 0.10000 $122.55 $75.00 0.10000 $7.50 $8.42
$7.70 $77.00 0.10000 $99.33 $95.00 0.10000 $122.55 $120.00 0.10000 $12.00 $12.92
$7.70 $77.00 0.10000 $99.33 $95.00 0.10000 $122.55 $150.00 0.08170 $12.26 $13.18
$7.70 $77.00 0.10000 $99.33 $125.00 0.07946 $161.25 $75.00 0.07946 $5.96 $6.88
$7.70 $77.00 0.10000 $99.33 $125.00 0.07946 $161.25 $150.00 0.07946 $11.92 $12.84
$7.70 $77.00 0.10000 $99.33 $125.00 0.07946 $161.25 $175.00 0.07322 $12.81 $13.73
$7.70 $77.00 0.10000 $99.33 $99.33 0.10000 $128.14 $128.14 0.10000 $12.81 $13.73
Maturity
129% of Greater of (x) Price
Initial MCI 129% of First times
WorldCom Year Closing Adjusted
Price Price and (y) Exchange
First Year Cap Ratio
Price
</TABLE>
- -------------------------
* The MCI WorldCom Stock Maturity Price does not include any dividend payments
that may have been paid to holders of MCI WorldCom Stock.
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 MCI WorldCom Stock, there is no guaranteed return of principal.
To the extent that the final market price of MCI WorldCom 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 March 15, 2000, investors will lose money on their investment. Reset
PERQS are not equivalent to investing directly in MCI WorldCom Stock. This
section describes the most significant risks relating to the Reset PERQS. You
should carefully consider whether the Reset PERQS are suited to your
particular circumstances before you decide to purchase them.
<TABLE>
<S> <C>
Reset PERQS Are Not The Reset PERQS combine features of equity and debt. The terms of the Reset
Ordinary Senior Notes -- PERQS differ from those of ordinary debt securities in that we will not pay you
No guaranteed return of a fixed amount at maturity. Our payment to you at maturity will be a number of
principal shares of MCI WorldCom Stock based on the market price of MCI WorldCom
Stock on March 15, 2000 and at maturity. If the final market price of MCI
WorldCom 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 March 15, 2000, we will pay you
an amount of MCI WorldCom 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 limited because of the cap
Potential Is Limited prices. Even though the $ issue price of one Reset PERQS is equal to
today's market price of one share of MCI WorldCom stock multiplied by the
initial exchange ratio, you may receive a lessor fractional amount of MCI
WorldCom Stock per Reset PERQS at maturity if the initial exchange ratio of
one-tenth of a share has been adjusted downwards. If the price of MCI
WorldCom Stock appreciates above both the cap price for March 15, 2000 and
the cap price for March 13, 2001, the initial exchange ratio of one-tenth of a
share of MCI WorldCom Stock per Reset PERQS will be reduced twice.
The exchange ratio and the final market price of MCI WorldCom Stock at
maturity will be determined on March 13, 2001, which is two trading days prior
to maturity of the Reset PERQS. If the price of MCI WorldCom Stock is lower
on the actual maturity date than it was on March 13, 2001, the value of any MCI
WorldCom Stock you receive will be less. Under no circumstances will you
receive an amount of MCI WorldCom Stock for each Reset PERQS worth more
than $ as of such second scheduled trading day prior to maturity.
Secondary Trading There may be little or no secondary market for the Reset PERQS. Although we
May Be Limited will apply to list the Reset PERQS on the American Stock Exchange, Inc., we
may not meet the requirements for listing. Even if there is a secondary market,
it may not provide significant liquidity. Morgan Stanley & Co. currently
intends to act as a market maker for Reset PERQS but is not required to do so.
Market Price of the Reset Several factors, many of which are beyond our control, will influence the value
PERQS Influenced by Many of the Reset PERQS. We expect that generally the market price of the MCI
Unpredictable Factors WorldCom 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 MCI
WorldCom Stock
o the dividend rate on MCI WorldCom Stock
o economic, financial and political events that affect stock markets
generally and which may affect the market price of the MCI
WorldCom 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 MCI WorldCom Stock is at, below, or not sufficiently above the initial
market price.
You cannot predict the future performance of MCI WorldCom Stock based on
its historical performance. The price of MCI WorldCom Stock may decrease so
that you will receive at maturity shares of MCI WorldCom Stock worth less
than the principal amount of the Reset PERQS. We cannot guarantee that the
price of MCI WorldCom 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 MCI We are not affiliated with MCI WorldCom, Inc. ("MCI WorldCom"). We do
WorldCom, Inc. not have any non-public information about MCI WorldCom as of the date of
this Pricing Supplement, although we or our affiliates may presently or from
time to time engage in business with MCI WorldCom, including extending
loans to, or making equity investments in, MCI WorldCom or providing
advisory services to MCI WorldCom, including merger and acquisition advisory
services. Moreover, we have no ability to control or predict the actions of MCI
WorldCom, including any corporate actions of the type that would require the
calculation agent to adjust the payment to you at maturity. MCI WorldCom is
not involved in the offering of the Reset PERQS in any way and has no
obligation to consider your interest as a holder of Reset PERQS in taking any
corporate actions that might affect the value of your Reset PERQS. None of the
money you pay for the Reset PERQS will go to MCI WorldCom.
You Have No Shareholder As a holder of Reset PERQS, you will not have voting rights or rights to receive
Rights dividends or other distributions or any other rights with respect to the MCI
WorldCom Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the amount payable at maturity for
Adjustments certain events affecting the MCI WorldCom Stock, such as stock splits and
stock dividends, and certain other corporate actions involving MCI WorldCom,
such as mergers. However, the calculation agent is not required to make an
adjustment for every corporate event that can affect the MCI WorldCom Stock.
For example, the calculation agent is not required to make any adjustments if
MCI WorldCom or anyone else makes a partial tender or partial exchange offer
for the MCI WorldCom Stock. If an event occurs that does not require the
calculation agent to adjust the amount payable at maturity, the market price of
the Reset PERQS may be materially and adversely affected.
Potential Conflicts of Interest As calculation agent, MS & Co. will calculate the payment to you at maturity of
between You and the the Reset PERQS. MS & Co. and other affiliates may also carry out hedging
Calculation Agent activities related to Reset PERQS, including trading in MCI WorldCom Stock as
well as in other instruments related to MCI WorldCom Stock. MS & Co. and
some of our other subsidiaries also trade MCI WorldCom Stock and other
financial instruments related to MCI WorldCom Stock on a regular basis as part
of their general broker dealer businesses. Any of these activities could influence
MS & Co.'s determination of adjustments made to Reset PERQS and,
accordingly, could affect your payout on the Reset PERQS.
Tax Treatment You should also consider the tax consequences of investing in the Reset
PERQS. There is no direct legal authority as to the proper tax treatment of the
Reset PERQS, and therefore significant aspects of the tax treatment of the Reset
PERQS are uncertain. We do not plan to request a ruling from the Internal
Revenue Service ("IRS") regarding the tax treatment of the Reset PERQS, and
the IRS or a court may not agree with the tax treatment described in this Pricing
Supplement. Please read carefully the section "Description of Reset
PERQS--United States Federal Income Taxation" in this Pricing Supplement.
</TABLE>
DESCRIPTION OF RESET PERQS
Capitalized terms not defined herein have the meanings given to
such terms in the accompanying Prospectus Supplement. In this Pricing
Supplement, the "Company," "we," "us," and "our" refer to Morgan Stanley Dean
Witter & Co.
Principal Amount.............. $25,000,000
Maturity Date................. March 15, 2001
Interest Rate................. % per annum (equivalent to $ per
annum per Reset PERQS)
Interest Payment Dates........ Each March 15, June 15, September 15 and
December 15, beginning June 15, 1999.
Specified Currency............ U.S. Dollars
Issue Price................... $ per Reset PERQS
Initial MCI WorldCom Price.... $
Original Issue Date
(Settlement Date)........... , 1999
CUSIP......................... 617446257
Denominations................. $ and integral multiples thereof
First Year Cap Price.......... $ ( % of the Initial MCI WorldCom Price)
First Year Determination Date.. March 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 MCI
WorldCom Stock and (ii) the Exchange Factor,
each determined as of the First Year
Determination Date.
Second Year Cap Price......... Second Year Cap Price means the greater of
(x) % of the First Year Closing Price and
(y) the First Year Cap Price. See "Exchange
at Maturity" below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one share of MCI WorldCom
Stock and (ii) the Exchange Factor, each
determined as of the second scheduled Trading
Day immediately prior to maturity.
Exchange at Maturity.......... At maturity (including as a result of
acceleration under the terms of the indenture
or otherwise), upon delivery of each Reset
PERQS to the Trustee, we will apply each
$ principal amount of such Reset PERQS as
payment for a number of shares of MCI
WorldCom Stock at the Exchange Ratio. The
initial Exchange Ratio, initially set at 0.1,
is subject to adjustment on the First Year
Determination Date and at maturity in order
to cap the value of the MCI WorldCom Stock to
be received upon delivery of the Reset PERQS
at $ per principal amount of each Reset
PERQS ( % of the Issue Price). Solely for
purposes of adjustment upon the occurrence of
certain corporate events, the number of
shares of MCI WorldCom Stock to be delivered
at maturity will also be adjusted by an
Exchange Factor, initially set at 1.0. See
"Exchange Factor" and "Antidilution
Adjustments" below.
If the First Year Closing Price is less than
or equal to % of the Initial MCI WorldCom
Price (the "First Year Cap Price"), no
adjustment to the Exchange Ratio will be made
at such time. If the First Year Closing
Price exceeds the First Year Cap Price, the
Exchange Ratio will be adjusted so that the
new Exchange Ratio will equal the product of
(i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
First Year Cap Price and the denominator of
which will be the First Year Closing Price.
In addition, on the First Year Determination
Date, the Calculation Agent will establish
the "Second Year Cap Price" that will be equal
to the greater of (x) % of the First Year
Closing Price and (y) the First Year Cap
Price. Notice of the Second Year Cap Price
and of any such adjustment to the Exchange
Ratio shall promptly be sent by first-class
mail to The Depository Trust Company, New
York, New York (the "Depositary"). If the
Maturity Price is less than or equal to the
Second Year Cap Price, no further adjustment
to the Exchange Ratio will be made. If the
Maturity Price exceeds the Second Year Cap
Price, the existing Exchange Ratio will be
adjusted so that the final Exchange Ratio
will equal the product of (i) the existing
Exchange Ratio and (ii) a fraction the
numerator of which will be the Second Year
Cap Price and the denominator of which will
be the Maturity Price. Please review each
example in the table called "Hypothetical
Payments on the Reset PERQS" on PS-5.
All calculations with respect to the Exchange
Ratios for the Reset PERQS will be rounded to
the nearest one hundred-thousandth, with five
one-millionths rounded upwards (e.g. .876545
would be rounded to .87655); all calculations
with respect to the Second Year Cap Price
will be rounded to the nearest
ten-thousandth, with five one-hundred-
thousandths rounded upwards (e.g. $12.34567
would be rounded to $12.3457); and all
dollar amounts related to payments at
maturity resulting from such calculations
will be rounded to the nearest cent with
one-half cent being rounded upwards.
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 MCI WorldCom Stock to be delivered
with respect to each $ principal amount
of each Reset PERQS and (ii) deliver such
shares of MCI WorldCom Stock (and cash in
respect of interest and any fractional shares
of MCI WorldCom Stock) to the Trustee for
delivery to the holders. The Calculation
Agent shall determine the Exchange Ratio
applicable at the maturity of the Reset PERQS
and calculate the Exchange Factor. References
to payment "per Reset PERQS" refer to each
$ principal amount of any Reset PERQS.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration or otherwise), we will deliver
the aggregate number of shares of MCI
WorldCom 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 MCI WorldCom Stock in an
amount equal to the corresponding fractional
Market Price of such fraction of a share of
MCI WorldCom Stock as determined by the
Calculation Agent as of the second scheduled
Trading Day prior to maturity of the Reset
PERQS.
Exchange Factor............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
through and including the second scheduled
Trading Day immediately prior to maturity.
See "Antidilution Adjustments" below.
Market Price.................. If MCI WorldCom Stock (or any other security
for which a Market Price must be determined)
is listed on a national securities exchange,
is a security of The Nasdaq National Market
("NASDAQ NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of
Securities Dealers, Inc. (the "NASD"), the
Market Price for one share of MCI WorldCom
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 MCI WorldCom
Stock (or any such other security) is listed
or admitted to trading or (ii) if not listed
or admitted to trading on any such securities
exchange or if such last reported sale price
is not obtainable, the last reported sale
price on the over-the-counter market as
reported on the NASDAQ NMS or OTC Bulletin
Board on such day. If the last reported sale
price is not available pursuant to clause (i)
or (ii) of the preceding sentence, the Market
Price for any Trading Day shall be the mean,
as determined by the Calculation Agent, of
the bid prices for MCI WorldCom Stock (or any
such other security) obtained from as many
dealers in such stock (which may include MS &
Co. or any of our other subsidiaries or
affiliates), but not exceeding three, as will
make such bid prices available to the
Calculation Agent. A "security of the NASDAQ
NMS" shall include a security included in any
successor to such system and the term "OTC
Bulletin Board Service" shall include any
successor service thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock Exchange
("NYSE"), the AMEX, the NASDAQ NMS, the
Chicago Mercantile Exchange, and the Chicago
Board of Options Exchange and in the over-the-
counter market for equity securities in the
United States.
Acceleration Event............ If on any date the product of the Market
Price per share of MCI WorldCom 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 $ principal amount of
each Reset PERQS as payment for a number of
shares of MCI WorldCom Stock at the then
current Exchange Ratio, as adjusted by the
then current Exchange Factor. See also
"Antidilution Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to
the Maturity Date.
Book Entry Note or
Certificated Note........... Book Entry
Senior Note or Subordinated
Note........................ Senior
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
Calculation Agent............. Morgan Stanley & Co. Incorporated and its
successors ("MS & Co.").
Because the Calculation Agent is our
affiliate, potential conflicts of interest
may exist between the Calculation Agent and
you as a holder of the Reset PERQS, including
with respect to certain determinations and
judgments that the Calculation Agent must
make in making adjustments to the Exchange
Factor or other antidilution adjustments or
determining any Market Price or whether a
Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties as
Calculation Agent in good faith using its
reasonable judgment.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If MCI WorldCom 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 MCI
WorldCom Stock.
2. If MCI WorldCom Stock is subject (i)
to a stock dividend (issuance of additional
shares of MCI WorldCom Stock) that is given
ratably to all holders of shares of MCI
WorldCom Stock or (ii) to a distribution of
MCI WorldCom Stock as a result of the
triggering of any provision of the corporate
charter of MCI WorldCom, then once the
dividend has become effective and MCI
WorldCom 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 MCI WorldCom 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 MCI
WorldCom Stock other than distributions
described in clause (v) of paragraph 5
below and Extraordinary Dividends as
described below. A cash dividend or other
distribution with respect to MCI WorldCom
Stock will be deemed to be an
"Extraordinary Dividend" if such dividend
or other distribution exceeds the
immediately preceding non-Extraordinary
Dividend for MCI WorldCom Stock by an
amount equal to at least 10% of the Market
Price of MCI WorldCom 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 MCI WorldCom Stock, the Exchange Factor
with respect to MCI WorldCom 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
MCI WorldCom 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 MCI WorldCom
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
MCI WorldCom Stock described in clause (v)
of paragraph 5 below that also constitutes
an Extraordinary Dividend shall cause an
adjustment to the Exchange Factor pursuant
only to clause (v) of paragraph 5.
4. If MCI WorldCom issues rights or
warrants to all holders of MCI WorldCom Stock
to subscribe for or purchase MCI WorldCom
Stock at an exercise price per share less
than the Market Price of the MCI WorldCom
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 MCI
WorldCom Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional
shares of MCI WorldCom Stock offered for
subscription or purchase pursuant to such
rights or warrants and the denominator of
which shall be the number of shares of MCI
WorldCom Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional
shares of MCI WorldCom Stock which the
aggregate offering price of the total
number of shares of MCI WorldCom Stock so
offered for subscription or purchase
pursuant to such rights or warrants would
purchase at the Market Price on the
expiration date of such rights or warrants,
which shall be determined by multiplying
such total number of shares offered by the
exercise price of such rights or warrants
and dividing the product so obtained by
such Market Price.
5. If (i) there occurs any
reclassification of MCI WorldCom Stock, (ii)
MCI WorldCom or any surviving entity or
subsequent surviving entity of MCI WorldCom
(a "MCI WorldCom Successor") has been subject
to a merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of MCI
WorldCom or any MCI WorldCom Successor with
another corporation occurs (other than
pursuant to clause (ii) above), (iv) MCI
WorldCom is liquidated, (v) MCI WorldCom
issues to all of its shareholders equity
securities of an issuer other than MCI
WorldCom (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 MCI WorldCom Stock (any
such event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the amount payable upon exchange
at maturity for each Reset PERQS will be
adjusted to provide that each holder of Reset
PERQS will receive at maturity, in respect of
each $ principal amount of each Reset
PERQS, securities, cash or any other assets
distributed in any such Reorganization Event,
including, in the case of a Spin-off Event,
the share of MCI WorldCom Stock with respect
to which the spun-off security was issued
(collectively, the "Exchange Property") in an
amount with a value equal to (a) if the
Exchange Ratio has not been adjusted prior to
maturity, the Transaction Value or (b) if the
Exchange Ratio has been adjusted, an amount
equal to the product of the final Exchange
Ratio and the Transaction Value. In addition,
following a Reorganization Event, the method
of determining the Maturity Price will be
adjusted so that the Maturity Price will mean
the Transaction Value as of the second
scheduled Trading Day immediately prior to
maturity, and if the Reorganization Event
occurs prior to the First Year Determination
Date, the First Year Closing Price will mean
the Transaction Value determined as of the
First Year Determination Date.
Notwithstanding the above, if the Exchange
Property received in any such Reorganization
Event consists only of cash, the maturity
date of the Reset PERQS will be deemed to be
accelerated to the date on which such cash is
distributed to holders of MCI WorldCom Stock
and holders will receive in lieu of any MCI
WorldCom Stock and as liquidated damages in
full satisfaction of the Company's
obligations under the Reset PERQS the product
of (i) the Transaction Value as of such date
and (ii) the then current Exchange Ratio
adjusted as if such date were the next to
occur of either the First Year Determination
Date or the second scheduled Trading Day
prior to maturity. If Exchange Property
consists of more than one type of property,
holders of Reset PERQS will receive at
maturity a pro rata share of each such type of
Exchange Property. If Exchange Property
includes a cash component, holders will not
receive any interest accrued on such cash
component. "Transaction Value" at any date
means (i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of MCI WorldCom Stock, as
adjusted by the Exchange Factor, (ii) for any
property other than cash or securities
received in any such Reorganization Event,
the market value, as determined by the
Calculation Agent, as of the date of receipt,
of such Exchange Property received for each
share of MCI WorldCom Stock, as adjusted by
the Exchange Factor and (iii) for any security
received in any such Reorganization Event, an
amount equal to the Market Price, as of the
date on which the Transaction Value is
determined, per share of such security
multiplied by the quantity of such security
received for each share of MCI WorldCom
Stock, as adjusted by the Exchange Factor.
For purposes of paragraph 5 above, in the
case of a consummated tender or exchange
offer or going-private transaction involving
Exchange Property of a particular type,
Exchange Property shall be deemed to include
the amount of cash or other property paid by
the offeror in the tender or exchange offer
with respect to such Exchange Property (in an
amount determined on the basis of the rate of
exchange in such tender or exchange offer or
going-private transaction). In the event of
a tender or exchange offer or a going-
private transaction with respectto Exchange
Property in which an offeree may elect to
receive cash or other property, Exchange
Property shall be deemed to include the
kind and amount of cash and other property
received by offerees who elect to receive
cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one hundred-thousandth with five
one-millionths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the MCI WorldCom Stock, including, without
limitation, a partial tender or exchange
offer for the MCI WorldCom 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 MCI WorldCom Stock having a market price
of $ as of such second scheduled
Trading Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or method of calculating the Exchange
Ratio and of any related determinations and
calculations with respect to any distributions
of stock, other securities or other
property or assets (including cash) in
connection with any corporate event
described in paragraph 5 above, and its
determinations and calculations with
respect thereto shall be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio upon written request by any
holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to MCI WorldCom Stock:
(i) a suspension, absence or material
limitation of trading of MCI WorldCom
Stock on the primary market for MCI
WorldCom 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 MCI WorldCom Stock as a
result of which the reported trading
prices for MCI WorldCom Stock during the
last one-half hour preceding the closing
of trading in such market are materially
inaccurate; or the suspension or material
limitation on the primary market for
trading in options contracts related to
MCI WorldCom Stock, if available, during
the one-half hour period preceding the
close of trading in the applicable market,
in each case as determined by the
Calculation Agent in its sole discretion;
and
(ii) a determination by the Calculation
Agent in its sole discretion that the
event described in clause (i) above
materially interfered with the ability of
the Company or any of its affiliates to
unwind all or a material portion of the
hedge with respect to the Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to New York Stock
Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the
NYSE, any other self-regulatory organization
or the Securities and Exchange Commission of
similar scope as determined by the
Calculation Agent) on trading during
significant market fluctuations shall
constitute a suspension, absence or material
limitation of trading, (4) a suspension of
trading in an options contract on MCI
WorldCom 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 MCI WorldCom Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to MCI
WorldCom Stock are traded will not include
any time when such securities market is
itself closed for trading under ordinary
circumstances.
MCI WorldCom Stock; Public
Information................. MCI WorldCom is one of the largest
telecommunications companies in the United
States, serving local, long distance and
Internet customers domestically and
internationally. MCI WorldCom 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
MCI WorldCom pursuant to the Exchange Act of
1934 can be located by reference to Commission
file number 0-11258. In addition, information
regarding MCI WorldCom may be obtained from
other sources including, but not limited
to, press releases, newspaper articles and
other publicly disseminated documents. The
Company makes no representation or warranty
as to the accuracy or completeness of such
reports.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not
relate to MCI WorldCom Stock or other
securities of MCI WorldCom. We have derived
all disclosures contained in this pricing
supplement regarding MCI WorldCom 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 MCI WorldCom in
connection with the offering of the Reset
PERQS. Neither we nor the Agent makes any
representation that such publicly available
documents or any other publicly available
information regarding MCI WorldCom are
accurate or complete. Furthermore, we cannot
give any assurance that all events occurring
prior to the date hereof (including events
that would affect the accuracy or completeness
of the publicly available documents described
in the preceding paragraph) that would affect
the trading price of MCI WorldCom Stock (and
therefore the Initial MCI WorldCom 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
MCI WorldCom 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 MCI WorldCom stock.
We, or our affiliates, may presently or from
time to time engage in business with MCI
WorldCom, including extending loans to, or
making equity investments in, MCI WorldCom or
providing advisory services to MCI WorldCom,
including merger and acquisition advisory
services. In the course of such business,
we, or our affiliates, may acquire non-public
information with respect to MCI WorldCom and,
in addition, one or more of our affiliates may
publish research reports with respect to MCI
WorldCom. 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 MCI WorldCom as
in your judgment is appropriate to make an
informed decision with respect to an
investment in MCI WorldCom Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1996, 1997, 1998 and
1999 through February 10, 1999. The Market
Price on February 10, 1999 was $76(1)/(4).
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 MCI
WorldCom Stock as an indication of future
performance. The price of MCI WorldCom Stock
may decrease so that you will receive at
maturity shares of MCI WorldCom Stock worth
less than the principal amount of the Reset
PERQS. We cannot give you any assurance that
the price of MCI WorldCom 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 MCI WorldCom
Stock on March 15, 2000 and March 13, 2001,
there is no guaranteed return of principal.
To the extent that the Maturity Price of MCI
WorldCom Stock is less than the Initial MCI
WorldCom Price or not sufficiently above the
Initial MCI WorldCom Price to compensate for a
downward adjustment of the Exchange Ratio, if
any, at March 15, 2000 and the shortfall is
not offset by the coupon paid on the Reset
PERQS, you will lose money on your investment.
MCI WorldCom High Low
------------ ---- ---
(CUSIP 55268B106)
1996
First Quarter....... 23 16 1/2
Second Quarter...... 27 11/16 21 3/4
Third Quarter....... 28 18 5/8
Fourth Quarter...... 26 1/16 21 5/8
1997
First Quarter....... 27 1/2 22
Second Quarter...... 32 21 7/8
Third Quarter....... 37 29 15/16
Fourth Quarter...... 38 1/16 28 15/16
1998
First Quarter....... 44 7/16 28 13/16
Second Quarter...... 48 7/16 42 1/4
Third Quarter....... 56 7/8 40 15/16
Fourth Quarter...... 74 1/4 43 1/8
1999
First Quarter
(through February
10, 1999)........ 80 3/4 69 7/8
Historical prices have been adjusted for a 2
for 1 stock split of MCI WorldCom stock,
which became effective in the third quarter of
1996.
MCI WorldCom has not paid cash dividends on
the MCI WorldCom Stock to date. We make no
representation as to the amount of dividends,
if any, that MCI WorldCom 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 MCI WorldCom Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our affiliates in connection
with hedging our obligations under the Reset
PERQS. See also "Use of Proceeds" in the
accompanying Prospectus.
On or prior to the date of this Pricing
Supplement, we, through our subsidiaries or
others, may hedge our anticipated exposure in
connection with the Reset PERQS by taking
positions in MCI WorldCom Stock, in options
contracts on MCI WorldCom Stock listed on
major securities markets or positions in any
other instruments that we may wish to use in
connection with such hedging. In the event
that we pursue such a hedging strategy, the
price at which we are able to purchase such
positions may be a factor in determining the
pricing of the Reset PERQS. Purchase activity
could potentially increase the price of MCI
WorldCom Stock, and therefore effectively
increase the level to which MCI WorldCom
Stock must rise before you would receive at
maturity an amount of MCI WorldCom Stock
worth as much as or more than the principal
amount of the Reset PERQS. Although we have
no reason to believe that our hedging
activity will have a material impact on the
price of MCI WorldCom Stock, we cannot give
any assurance that we will not affect such
price as a result of our hedging activities.
Through our subsidiaries, we are likely to
modify our hedge position throughout the life
of the Reset PERQS, including on the First
Year Determination Date, by purchasing and
selling the securities and instruments listed
above and any other available securities and
instruments that we may wish to use in
connection with such hedging.
Supplemental Information
Concerning Plan of
Distribution............... In order to facilitate the offering of the
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset PERQS
or the MCI WorldCom 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
MCI WorldCom 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; provided that
the price will be $ per Reset PERQS and
the underwriting discounts and commissions
will be $ per Reset PERQS for
purchasers of greater than or equal to
300,000 Reset PERQS in any case single
transaction, subject to the holding period
requirements described below.
Delivery of approximately 98.625% of the
Reset PERQS to a purchaser of 300,000 or more
Reset PERQS at the reduced price (the
"Delivered Reset PERQS") will be made on the
date of delivery of the Reset PERQS referred
to on the cover of this Pricing Supplement.
The balance of approximately 1.375% of the
Reset PERQS (the "Escrowed Reset PERQS")
purchased by each such investor will be held
in escrow at MS & Co. for the benefit of the
investor and delivered to such investor if
the investor and any accounts in which the
investor may have deposited any of its
Delivered Reset PERQS have held all of the
Delivered Reset PERQS for 45 calendar days
following the date of the Pricing Supplement
or any shorter period deemed appropriate by
the Agent. If an investor or any account in
which the investor has deposited any of its
Delivered Reset PERQS fails to satisfy the
holding period requirement, as determined by
the Agent, all of the investor's Escrowed
Reset PERQS will be forfeited by the investor
and not delivered to it. The Escrowed Reset
PERQS will instead be delivered to the Agent
for sale to investors. This forfeiture will
have the effect of increasing the purchase
price per Reset PERQS for such investors to
100% of the principal amount of the Reset
PERQS. Should investors who are subject to
the holding period requirement sell their
Reset PERQS once the holding period is no
longer applicable, the market price of the
Reset PERQS may be adversely affected. See
also "Plan of Distribution" in the
accompanying Prospectus Supplement.
ERISA Matters for Pension Plans
and Insurance Companies..... The Company and certain affiliates of the
Company, including MS & Co. and Dean Witter
Reynolds Inc. ("DWR"), may each be considered
a "party in interest" within the meaning of
the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or a
"disqualified person" within the meaning of
the Internal Revenue Code of 1986, as amended
(the "Code") with respect to many employee
benefit plans. Prohibited transactions
within the meaning of ERISA or the Code may
arise, for example, if the Reset PERQS are
acquired by or with the assets of a pension
or other employee benefit plan with respect
to which MS & Co., DWR or any of their
affiliates is a service provider, unless the
Reset PERQS are acquired pursuant to an
exemption from the prohibited transaction
rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption
("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and
conditions of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed
by a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to the
provisions of Section 401 of the Code;
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed
by an in-house asset manager and (ii)
satisfies the requirements and conditions of
PTCE 96-23 issued by the DOL.
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, 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 MCI WorldCom 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, special tax
counsel to the Company ("Tax Counsel"), and
is a general discussion of the principal
potential U.S. federal income tax
consequences to U.S. Holders (as defined
below) who are initial holders of the Reset
PERQS purchasing the Reset PERQS at the Issue
Price, and who will hold the Reset PERQS as
capital assets within the meaning of Section
1221 of the Code. This summary is based on
the Code, administrative pronouncements,
judicial decisions and currently effective
and proposed Treasury Regulations, changes to
any of which subsequent to the date of this
Pricing Supplement may affect the tax
consequences described herein. This summary
does not address all aspects of the U.S.
federal income taxation that may be relevant
to a particular holder in light of its
individual circumstances or to certain types
of holders subject to special treatment under
the U.S. federal income tax laws (e.g.,
certain financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset PERQS
as a part of a hedging transaction, straddle,
conversion or other integrated transaction).
As the law applicable to the U.S. federal
income taxation of instruments such as the
Reset PERQS is technical and complex, the
discussion below necessarily represents only
a general summary. Moreover, the effect of
any applicable state, local or foreign tax
laws is not discussed.
As used herein, the term "U.S. Holder" means
an owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation or other entity created or
organized under the laws of the United States
or any political subdivision thereof or (iii)
an estate or trust the income of which is
subject to United States federal income
taxation regardless of its source.
General
Pursuant to the terms of the Reset PERQS, the
Company and every holder of a Reset PERQS
agree (in the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Reset PERQS for
all tax purposes as an investment unit
consisting of the following components (the
"Components"): (i) a contract (the "Forward
Contract") that requires the holder of the
Reset PERQS to purchase, and the Company to
sell, for an amount equal to $ (the
"Forward Price"), the MCI WorldCom Stock at
maturity (or, alternatively, upon an earlier
redemption of the Reset PERQS), and (ii) a
deposit with the Company of a fixed amount of
cash to secure the holder's obligation to
purchase the MCI WorldCom Stock (the
"Deposit"). For this purpose, the Company
has determined that, of the quarterly
payments on the Reset PERQS, % is
attributable to interest on the Deposit.
This determination is based on the Company's
judgment as to, among other things, the
Company's normal borrowing cost and the value
of the Forward Contract. Under this
characterization, the remainder of the
quarterly payments on the Reset PERQS
represents payments attributable to the
holders' entry into the Forward Contract (the
"Contract Fees"). Furthermore, based on the
Company's determination of the relative fair
market values of the Components at the time
of issuance of the Reset PERQS, the Company
will allocate 100% of the Issue Price of the
Reset PERQS to the Deposit and none to the
Forward Contract. The Company's allocation
of the Issue Price among the Components will
be binding on a holder of the Reset PERQS,
unless such holder timely and explicitly
discloses to the Internal Revenue Service (the
"IRS") that its allocation is different from
the Company's. The treatment of the Reset
PERQS described above and the Company's
allocation are not, however, binding on the
IRS or the courts. No statutory, judicial or
administrative authority directly addresses
the characterization of the Reset PERQS or
instruments similar to the Reset PERQS for
U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the Reset PERQS. Due to the
absence of authorities that directly address
instruments that are similar to the Reset
PERQS, tax counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Reset PERQS. As
a result, significant aspects of the U.S.
federal income tax consequences of an
investment in the Reset PERQS are not
certain, and no assurance can be given that
the IRS or the courts will agree with the
characterization described herein.
Accordingly, prospective purchasers are urged
to consult their tax advisors regarding the
U.S. federal income tax consequences of an
investment in the Reset PERQS (including
alternative characterizations of the Reset
PERQS) and with respect to any tax
consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following
discussion is based on the treatment and the
allocation described above.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price
as set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Quarterly Payments on the Reset PERQS. To
the extent attributable to interest on the
Deposit, quarterly payments on the Reset PERQS
will generally be taxable to a U.S. Holder as
ordinary income at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes. Although the federal income
tax treatment of the Contract Fees is
uncertain, the Company intends to take the
position that the Contract Fees constitute
taxable income to the holders at the time
accrued or received in accordance with the
U.S. Holder's method of accounting for U.S.
federal income tax purposes.
Tax Basis. Based on the Company's
determination set forth above, the U.S.
Holder's tax basis in the Forward Contract
will be zero, and the U.S. Holder's tax basis
in the Deposit will be 100% of the Issue
Price.
Settlement of the Forward Contract. Upon the
maturity of the Forward Contract, a U.S.
Holder would, pursuant to the Forward
Contract, be deemed to have applied the
Forward Price toward the purchase of MCI
WorldCom Stock, and a U.S. Holder would not
recognize any gain or loss with respect to
any MCI WorldCom 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 MCI WorldCom Stock
received upon maturity, the U.S. Holder would
have an adjusted tax basis in such MCI
WorldCom Stock equal to the pro rata portion
of the Forward Price allocable thereto. The
allocation of the Forward Price between cash
and MCI WorldCom Stock should be based on the
amount of the cash received and the relative
fair market value, as of the maturity, of the
MCI WorldCom Stock. The U.S. Holder's
holding period of any MCI WorldCom Stock
received would start on the day after the
maturity of the Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a
sale or exchange of a Reset PERQS prior to
the maturity of the Reset PERQS, a U.S.
Holder would recognize taxable gain or loss
equal to the difference between the amount
realized on such sale or exchange and such
U.S. Holder's tax basis in the Reset PERQS so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss, as
the case may be. Such U.S. Holder's tax
basis in the Reset PERQS would generally
equal the U.S. Holder's tax basis in the
Deposit. For these purposes, the amount
realized does not include any amount
attributable to accrued but unpaid interest
payments on the Deposit, which would be taxed
as described under "--Quarterly Payments on
the Reset PERQS" above. It is uncertain
whether the amount realized includes any
amount attributable to accrued but unpaid
Contract Fees. U.S. Holders should consult
their tax advisers regarding the treatment of
accrued but unpaid Contract Fees upon the
sale or exchange of a Reset PERQS.
The Internal Revenue Service Restructuring
and Reform Act of 1998 eliminated the
18-month holding period requirement for
certain individual taxpayers to qualify for
the lowest tax rate for capital gain. The
minimum holding period required to qualify
for the lowest tax rate currently is 12
months.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court
will uphold, the characterization and tax
treatment described above. In particular,
the IRS could seek to analyze the U.S.
federal income tax consequences of owning a
Reset PERQS under Treasury regulations
governing contingent payment debt instruments
(the "Contingent Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price.
Furthermore, any gain realized with respect
to the Reset PERQS would generally be treated
as ordinary income.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other
alternative federal income tax
characterizations or treatments of the Reset
PERQS are also possible, and if applied could
also affect the timing and the character of
the income or loss with respect to the Reset
PERQS. It is possible, for example, that a
Reset PERQS could be treated as constituting
a prepaid forward contract. Other alternative
characterizations are also possible.
Accordingly, prospective purchasers are urged
to consult their tax advisors regarding the
U.S. federal income tax consequences of an
investment in the Reset PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of a Reset PERQS may be subject
to information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid to the U.S. Holder, unless such
U.S. Holder provides proof of an applicable
exemption or a correct taxpayer identification
number, and otherwise complies with
applicable requirements of the backup
withholding rules. The amounts withheld
under the backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided the
required information is furnished to the IRS.
In addition, the effective date of the New
Regulations (as defined in "United States
Federal Taxation -- Backup Withholding" in the
accompanying Prospectus Supplement) has been
changed so that the New Regulations will
apply to payments made after December 31,
1999.
