PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 9 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated May 17, 1999
Rule 424(b)(3)
$29,899,212
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
----------------
7.0% Currency Protected PERQS[SM]
Due May 22, 2000
Mandatorily Exchangeable for the Cash Value of
Shares of Common Stock of Nokia Corporation
The CP PERQS will pay 7.0% interest per year but do not guarantee any return of
principal at maturity. Instead the CP PERQS will pay at maturity an amount of
U.S. dollars based on the closing price of Nokia common stock on the
determination date (which we expect to be May 17, 2000), subject to a cap price.
The CP PERQS permit you to make an investment linked to the price of Nokia
common stock without being affected by future changes in the U.S. dollar/euro
exchange rate.
o The principal amount and issue price of each CP PERQS is $1,525.47,
which represents the value of 20 shares of Nokia common stock in U.S.
dollars using the market price and U.S. dollar/euro exchange rate as
determined on May 17, 1999.
o We will pay 7.0% interest on the $1,525.47 principal amount of each CP
PERQS. Interest will be paid quarterly, on August 22, 1999, November 22,
1999, February 22, 2000 and at maturity.
o At maturity you will receive an amount of U.S. dollars based on the
percentage increase or decrease of Nokia common stock, subject to a
maximum of $2,135.66 (140% of the issue price of each CP PERQS).
o Nokia is not involved in this offering of CP PERQS in any way and will
have no financial obligation with respect to the CP PERQS.
o Investing in CP PERQS is not equivalent to investing in Nokia common
stock.
o The CP PERQS have been approved for listing on the American Stock
Exchange, Inc., subject to official notice of issuance. The AMEX symbol
for the CP PERQS is "NKP".
You should read the more detailed description of the CP PERQS in this pricing
supplement. In particular, you should review and understand the descriptions
in "Summary of Pricing Supplement" and "Description of CP PERQS."
"Performance Equity-linked Redemption Quarterly-pay Securities" and "CP PERQS"
are our service marks.
CP PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-5.
------------------
PRICE $1,525.47 PER CP PERQS AND ACCRUED INTEREST
------------------
Price to Public Agent's Commissions Proceeds to MSDW
--------------- ------------------- ----------------
Per CP PERQS.... $1,525.47 $3.81 $1521.66
Total.......... $29,899,212 $74,676 $29,824,536
MORGAN STANLEY DEAN WITTER
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SUMMARY OF PRICING SUPPLEMENT
The following summary describes the CP PERQS we are offering you in
general terms only. You should read the summary together with the more
detailed information that is contained in the rest of this pricing supplement
and in the accompanying prospectus and prospectus supplement. You should
carefully consider, among other things, the matters set forth in "Risk
Factors."
Overview of the CP PERQS
The CP PERQS are medium-term debt securities of Morgan Stanley Dean
Witter & Co. whose return is linked to the performance of the common stock,
Euro 0.24 par value per share, of Nokia Corporation, which we refer to in this
pricing supplement as Nokia Stock. The CP PERQS permit you to participate in
the price fluctuations of the Nokia Stock, up to a limit of 140% of its
current level, without being affected by future changes in the U.S. dollar/
euro exchange rate.
Each CP PERQS We, Morgan Stanley Dean Witter & Co., are
costs $1,525.47 offering 7.0% Currency Protected Performance
Equity-linked Quarterly-pay Securities[SM] due
May 22, 2000, which we refer to as the CP
PERQS[SM]. The principal amount and issue price
of each CP PERQS is $1,525.47. $1,525.47
represents the value of 20 shares of Nokia
Stock in U.S. dollars using the market price
The Initial Share and U.S. dollar/euro exchange rate as
Control Amount is 20 determined on May 17, 1999.
No guaranteed return Unlike ordinary debt securities, the CP PERQS
of principal do not guarantee any return of principal at
maturity. Instead the CP PERQS will pay an
amount based on the market price of Nokia
Stock, either up or down, at maturity, subject
to a cap price. Investing in CP PERQS is not
equivalent to investing in Nokia Stock.
7.0% Interest on the We will pay interest on the CP PERQS, at the
principal amount rate of 7.0% of the principal amount per year,
quarterly on August 22, 1999, November 22,
1999, February 22, 2000 and at maturity. The
interest rate we pay on the CP PERQS is more
than the current dividend rate on the Nokia
Stock. The CP PERQS will mature on May 22,
2000.
Payment at Maturity
Your appreciation At maturity, for each $1,525.47 principal
potential is capped amount of CP PERQS you hold, we will pay to you
an amount of U.S. dollars equal to the lesser
of:
o the product of $1,525.47 times the Stock
Price Percentage, and
o $2,135.66 (140% of the issue price per CP
PERQS)
, where the Stock Price Percentage is a
fraction equal to:
the final market price of Nokia Stock
---------------------------------------
the initial market price of Nokia Stock
We will determine the final market price of
Nokia Stock on the determination date, which we
expect will be May 17, 2000, subject to certain
market disruption and extraordinary events.
This means that no matter how high the market
price of Nokia Stock goes, you will never
receive more than $2,135.66 (140% of the issue
price per CP PERQS).
Payment at maturity not The formula for payment at maturity depends on
affected by fluctuations in the percentage change in the price of the Nokia
the U.S. dollar/euro Stock on the Helsinki Stock Exchange and not
exchange rate the value of the underlying shares translated
back to U.S. dollars. Therefore, any payment we
make to you at maturity will not be affected by
future changes in the U.S. dollar/euro
exchange rate. This means that, no matter how
much the value of the euro declines or
appreciates against the U.S. dollar, you will
not share in that decline or appreciation.
The Nokia Stock is currently Nokia Stock is currently quoted in euro on the
Euro 71.4507 per share Helsinki Stock Exchange. As of May 17, 1999,
the market price of Nokia Stock was Euro
71.4507. You can review the prices of Nokia
Stock for the last three years in the
"Historical Information" section of this
pricing supplement.
The Calculation Agent We have appointed Morgan Stanley & Co.
Incorporated ("MS & Co.") to act as calculation
agent for The Chase Manhattan Bank, the trustee
for the CP PERQS. As calculation agent, MS &
Co. will determine the market price of the
Nokia Stock and the amount of cash that you
receive at maturity. As calculation agent, MS &
Co. will also adjust any payment to you at
maturity for certain corporate events that
could affect the price of the Nokia Stock and
that we describe in the section called
"Description of CP PERQS--Antidilution
Adjustments" in this pricing supplement.
No affiliation with Nokia Corporation is not an affiliate of ours
Nokia Corporation and is not involved with this offering in any
way. The obligations represented by the CP
PERQS are obligations of Morgan Stanley Dean
Witter & Co. and not of Nokia Corporation.
More information on The CP PERQS are senior notes issued as part
the CP PERQS 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 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 the terms of the
CP PERQS including the specific mechanics and
timing of the payment determinations, you
should read the "Description of CP PERQS"
section in this pricing supplement. You should
also read about some of the risks involved in
investing in CP PERQS in the section called
"Risk Factors." The tax and accounting
treatment of investments in equity-linked notes
such as the CP PERQS may differ from that of
investments in ordinary debt securities or
common stock. We urge you to consult with your
investment, legal, tax, accounting and other
advisers with regards to any proposed or actual
investment in the CP PERQS.
How to reach us Please contact our principal executive offices
at 1585 Broadway, New York, New York 10036,
telephone number (212) 761-4000.
RISK FACTORS
The CP PERQS are not secured debt and are riskier than ordinary
debt securities. Because the return to investors is linked to the performance
of Nokia Stock, there is no guaranteed return of principal. To the extent that
the final market price of Nokia Stock decreases form the date we offer the CP
PERQS for initial sale to the public, investors will lose money on their
investment. CP PERQS are not equivalent to investing directly in Nokia Stock.
Among other differences, investors in CP PERQS will not receive any dividends
paid on Nokia Stock. This section describes the most significant risks
relating to the CP PERQS. You should carefully consider whether the CP PERQS
are suited to your particular circumstances before you decide to purchase them.
CP PERQS are not The CP PERQS combine features of equity and
Ordinary Senior Notes -- debt. The terms of the CP PERQS differ from
No Guaranteed Return those of ordinary debt securities in that we
of Principal will not pay you a fixed amount at maturity.
Our payment to you at maturity is based on the
price of the Nokia Stock on the determination
date. If, on the determination date, the final
market price of Nokia Stock is less than the
market price on the first trading day after we
offer the CP PERQS for initial sale to the
public, we will pay you less than the principal
amount of the CP PERQS.
Your Appreciation The appreciation potential of the CP PERQS is
Potential is Limited limited because of the cap price. Even if the
final market price in euro on the determination
date is more than 140% of the initial market
price, you will receive only $2,135.66 (140% of
the issue price of each CP PERQS) for each of
your CP PERQS at maturity.
Secondary Trading There may be little or no secondary market for
May be Limited the CP PERQS. Although the CP PERQS have been
approved for listing on the American Stock
Exchange, Inc., it is not possible to predict
whether the CP PERQS will trade in the
secondary market. Even if there is a secondary
market, it may not provide significant
liquidity. MS & Co. currently intends to act as
a market maker for CP PERQS but is not required
to do so.
Market Price of the Several factors, many of which are beyond our
CP PERQS Influenced control, will influence the value of the CP
by Many Unpredictable PERQS. We expect that generally the market
Factors price of Nokia Stock on any day will affect the
value of the CP PERQS more than any other
single factor. Other factors that may influence
the value of the CP PERQS include:
o the volatility (frequency and magnitude of
changes in price) of the Nokia Stock
o the dividend rate on Nokia Stock
o economic, financial, regulatory and
political events that affect stock markets
generally and which may affect the market
price of Nokia Stock
o interest and yield rates in the market
o the value of the euro relative to other
currencies, including the U.S. dollar
o the time remaining to the maturity of the CP
PERQS
o our creditworthiness
These factors (and the currency exchange rate
fluctuations explained below) will influence
the price you receive if you sell your CP PERQS
prior to maturity. For example, you may have to
sell your CP PERQS at a substantial discount
from the principal amount if the market price
of the Nokia Stock is at or below the initial
market price.
You cannot predict the future performance of
Nokia Stock based on its historical
performance. The price of Nokia Stock may
decrease so that you will receive at maturity
less than the principal amount of the CP PERQS.
We cannot guarantee that the price of Nokia
Stock will increase so that you will receive at
maturity an amount in excess of the principal
amount of the CP PERQS or that the price of
Nokia Stock will not increase above 140% of the
initial market price. You will no longer share
in the performance of the Nokia Stock at market
prices above 140% of the initial market price.
Currency Fluctuations By purchasing CP PERQS rather than the
May Impact the Value underlying Nokia Stock, you have a hedge
of Your CP PERQS against a decline in the value of the euro
Relative to Nokia Stock against the U.S. dollar. However, you will not
benefit from any appreciation of the euro
against the U.S. dollar during the term of the
CP PERQS.
Any appreciation in the value of the euro
against the U.S. dollar during the term of
the CP PERQS will not affect the amount
you are paid at maturity. However,
appreciation in the euro may decrease the
value of your CP PERQS in relation to the
Nokia Stock, because you will not benefit
from any such appreciation.
In addition, fluctuations in the value of the
euro relative to other currencies may influence
investors to buy or sell euro denominated
assets and thus affect the value of the Nokia
Stock.
No Affiliation with We are not affiliated with Nokia Corporation.
Nokia Corporation Although we do not have any non-public
information about Nokia as of the date of this
pricing supplement, we or our affiliates may
presently or from time to time engage in
business with Nokia, including extending loans
to, or making equity investments in, Nokia or
providing advisory services to Nokia, including
merger and acquisition advisory services.
Moreover, we have no ability to control or
predict any actions of Nokia, including any
corporate actions of the type that would
require the calculation agent to adjust the
payment to you at maturity. Nokia is not
involved in the offering of the CP PERQS in any
way and has no obligation to consider your
interest as a holder of CP PERQS in taking any
corporate actions that might affect the value
of your CP PERQS. None of the money you pay for
the CP PERQS will go to Nokia.
You Have No As a holder of CP 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 Nokia Stock.
Antidilution Adjustments MS & Co., as calculation agent, will adjust the
Can Adversely Affect the amount payable at maturity for certain events
Value of the CP PERQS affecting the Nokia Stock, such as stock splits
and stock dividends, and certain other
corporate actions involving Nokia, such as
mergers. In addition, the calculation agent
may, but is not required to, make adjustments
for corporate events that can affect the Nokia
Stock other than those specified. The
determination by the calculation agent to
adjust, or not adjust, the amount payable at
maturity may materially and adversely affect
the market price of the CP PERQS. In addition,
we may, at our sole discretion, cause the
calculation agent to alter the specified
antidilution adjustments, if we determine that
such existing adjustments do not properly take
into account the consequences of the events
enumerated in such antidilution adjustments.
Any alterations to the specified antidilution
adjustments set forth above may be materially
adverse to the holders of the CP PERQS.
Potential Risks of Investing An investment in CP PERQS involves
in a Security Linked to a considerations that may not be associated with
Foreign Security a security linked to stocks of U.S. issuers.
These considerations relate to foreign market
factors generally and may include, for example,
different accounting requirements and
regulations, different and in some cases more
adverse economic environments and greater
governmental involvement in the economy.
Potential Conflicts of As calculation agent, MS & Co. will calculate
Interest between You and the payment to you at maturity of the CP PERQS.
the Calculation Agent MS & Co. and other affiliates may carry out
hedging activities related to CP PERQS,
including trading in Nokia Stock as well as in
other instruments related to Nokia Stock. MS &
Co. and some of our other subsidiaries also
trade Nokia Stock and other financial
instruments related to Nokia Stock on a regular
basis as part of their general broker dealer
businesses. Any of these activities could
influence MS & Co.'s determination of
adjustments made to CP PERQS and, accordingly,
could affect your payout on the CP PERQS.
Tax Treatment You should also consider the tax consequences
of investing in the CP PERQS. There is no
direct legal authority as to the proper tax
treatment of the CP PERQS, and therefore
significant aspects of the tax treatment of the
CP PERQS are uncertain. We do not plan to
request a ruling from the Internal Revenue
Service ("IRS") regarding the tax treatment of
the CP PERQS, and the IRS or a court may not
agree with the tax treatment described in this
pricing supplement. Please read carefully the
section "Description of CP PERQS--United States
Federal Income Taxation" in this pricing
supplement.
DESCRIPTION OF CP PERQS
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying prospectus supplement. The term "CP PERQS" refers to each
$1,525.47 principal amount of our 7.0% Currency Protected PERQS(sm) due May
22, 2000 Mandatorily Exchangeable for the Cash Value of Common Stock of Nokia
Corporation. In this pricing supplement, "MSDW," "we," "us" and "our" refer
to Morgan Stanley Dean Witter & Co.
Principal Amount.............. $29,899,212
Maturity Date................. May 22, 2000
Interest Rate................. 7.0% per annum.
Interest Payment Dates........ August 22, 1999, November 22, 1999, February
22, 2000 and at maturity
Specified Currency............ U.S. dollars
Issue Price................... $1,525.47 per CP PERQS, which equals the
product of (a) the Initial Stock Price times
the Initial Share Control Amount, multiplied
by (b) the Initial FX Rate.
Original Issue Date
(Settlement Date)............. May 21, 1999
Pricing Date.................. For the purpose of determining the Initial
Stock Price and the Initial FX Rate, the
Pricing Date will be the trading day in the
Republic of Finland next succeeding the day
on which the offering of the CP PERQS is
completed in the United States.
CUSIP......................... 617446810
Denominations................. $1,525.47 and integral multiples thereof
Amount Payable at Maturity.... At maturity (including as a result of
acceleration under the terms of the
indenture), upon delivery of each CP PERQS to
the Trustee, we will, with respect to the
principal amount of each CP PERQS, deliver an
amount in U.S. dollars equal to the lesser of
(x) the product of the Issue Price and the
Stock Price Percentage or (y) $2,135.66, or
140% of the Issue Price (the "Cap Price").
We will, or will cause the Calculation Agent
to, deliver U.S. dollars to the Trustee for
delivery to the holders.
Nokia Stock................... The common stock, par value Euro 0.24 per
share, of Nokia Corporation, a Finnish
corporation ("Nokia").
Stock Price Percentage........ The Stock Price Percentage is a fraction, the
numerator of which will be the Final Stock
Price and the denominator of which will be
the Initial Stock Price.
Initial Stock Price........... Euro 71.4507, the Market Price of one share
of Nokia Stock on the Pricing Date, as
determined by the Calculation Agent.
Final Stock Price............. The product of the Market Price of one share
of Nokia Stock and the Share Ratio, each as
determined on the Determination Date by the
Calculation Agent.
Initial Share Control Amount.. 20
Initial FX Rate............... U.S.$1.0675 per Euro 1.00, the U.S.
dollar/euro exchange rate as of the Pricing
Date, as determined by the Calculation Agent.
Share Ratio................... The Share Ratio will initially be set at 1.0,
but will be subject to adjustment upon the
occurrence of certain events through and
including the Determination Date. See
"--Antidilution Adjustments" below.
Determination Date............ May 17, 2000, or if such day is not a Trading
Day or if there is a Market Disruption Event
on such day, the Determination Date will be
the immediately succeeding Trading Day during
which no Market Disruption Event shall have
occurred; provided that the Determination
Date will be no later than the second
scheduled Trading Day preceding the Maturity
Date, notwithstanding the occurrence of a
Market Disruption Event on such second
scheduled Trading Day.
Market Price.................. The Market Price for any security for any
date means the official closing price of such
security as reported by the principal
exchange on which such security is traded on
such date. If the official closing price is
not available for any reason (including,
without limitation, the occurrence of a
Market Disruption Event), the Market Price
for such security for any date shall be the
mean, as determined by the Calculation Agent,
of the bid prices for such security obtained
from as many dealers in such security (which
may include MS & Co. or any of our other
subsidiaries or affiliates), but not
exceeding three, as will make such bid prices
available to the Calculation Agent after 3:00
p.m. (local time in such principal market) on
such date.
Trading Day................... A day on which trading is generally conducted
on the Helsinki Stock Exchange, and, in the
over-the-counter market for equity securities
in the United States and the Republic of
Finland, as determined by the Calculation
Agent.
Business Day.................. Any day other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which
banking institutions are authorized or
required by law or regulation to close in The
City of New York or in Helsinki.
Optional Redemption........... We will not redeem the CP PERQS prior to the
Maturity Date.
Book Entry Note or
Certificated Note............. Book Entry
Senior Note or Subordinated
Note.......................... Senior
Trustee....................... The Chase Manhattan Bank
Agent for this Underwritten
Offering of CP PERQS.......... Morgan Stanley & Co. Incorporated
Calculation Agent............. Morgan Stanley & Co. Incorporated and its
successors ("MS & Co.")
Because the Calculation Agent is our
affiliate, potential conflicts of interest
may exist between the Calculation Agent and
you as holder of the CP PERQS with respect to
its determinations of the Share Ratio, the
antidilution adjustments or the Market Price
of Nokia Stock or of whether a Market
Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties as
Calculation Agent in good faith using its
reasonable judgment.
All percentages resulting from any
calculation on the CP PERQS will be rounded
to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of
a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655)), and all dollar
amounts used in or resulting from such
calculation will be rounded to the nearest
cent with one-half cent being rounded upwards.
Antidilution Adjustments...... The Share Ratio (and, in the case of
paragraph 5 below, the determination of the
cash payment at maturity) will be adjusted as
follows:
1. If Nokia Stock is subject to a stock
split or reverse stock split, then once such
split has become effective, the Share Ratio
will be adjusted to equal the product of the
prior Share Ratio and the number of shares
issued in such stock split or reverse stock
split with respect to one share of Nokia Stock.
2. If Nokia Stock is subject to (i) a stock
dividend (issuance of additional shares of
Nokia Stock) that is given ratably to all
holders of shares of Nokia Stock or (ii) to a
distribution of Nokia Stock as a result of the
triggering of any provision of the corporate
charter of Nokia, then once the dividend has
become effective and Nokia Stock is trading
ex-dividend, the Share Ratio will be adjusted
so that the new Share Ratio shall equal the
prior Share Ratio plus the product of (i) the
number of shares issued with respect to one
share of Nokia Stock and (ii) the prior Share
Ratio.
3. There will be no adjustments to the Share
Ratio to reflect cash dividends or other
distributions paid with respect to Nokia 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 Nokia
Stock will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately preceding
non- Extraordinary Dividend for Nokia Stock by
an amount equal to at least 10% of the Market
Price of Nokia 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 Nokia Stock,
the Share Ratio with respect to Nokia Stock
will be adjusted on the ex-dividend date with
respect to such Extraordinary Dividend so that
the new Share Ratio will equal the product of
(i) the then current Share Ratio and (ii) a
fraction, the numerator of which is the Market
Price on the Trading Day preceding the
ex-dividend date, and the denominator of which
is the amount by which the Market Price on the
Trading Day preceding the ex-dividend date
exceeds the Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with respect to
an Extraordinary Dividend for Nokia 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 Nokia 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 Nokia Stock described in
clauses (i) and (v) of paragraph 5 below that
also constitutes an Extraordinary Dividend
shall cause an adjustment to the Share Ratio
pursuant only to clause (i) or clause (v) of
paragraph 5.
4. If Nokia issues rights or warrants to all
holders of Nokia Stock to subscribe for or
purchase Nokia Stock at an exercise price per
share less than the Market Price of the Nokia
Stock on both (i) the date the exercise price
of such rights or warrants is determined and
(ii) the expiration date of such rights or
warrants, and if the expiration date of such
rights or warrants precedes the maturity of the
CP PERQS, then the Share Ratio will be adjusted
to equal the product of the prior Share Ratio
and a fraction, the numerator of which shall be
the number of shares of Nokia Stock outstanding
immediately prior to the issuance of such
rights or warrants plus the number of
additional shares of Nokia Stock offered for
subscription or purchase pursuant to such
rights or warrants and the denominator of which
shall be the number of shares of Nokia Stock
outstanding immediately prior to the issuance
of such rights or warrants plus the number of
additional shares of Nokia Stock which the
aggregate offering price of the total number of
shares of Nokia 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 Nokia Stock, including, without
limitation, as a result of the issuance of any
tracking stock by Nokia, (ii) Nokia, or any
surviving entity or subsequent surviving entity
of Nokia (a "Nokia Successor") has been subject
to a merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of Nokia or
any Nokia Successor with another corporation
occurs (other than pursuant to clause (ii)
above), (iv) Nokia is liquidated or
nationalized, (v) Nokia issues to all of its
shareholders equity securities of an issuer
other than Nokia (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
Nokia Stock (any such event in clauses (i)
through (vi) a "Reorganization Event"), the
method of determining the amount payable at
maturity for each CP PERQS will be adjusted to
provide that each holder of CP PERQS will
receive at maturity, in respect of the
principal amount of each CP PERQS, U.S. dollars
in an amount equal to (a) if the Transaction
Value (as defined below) is greater than the
Cap Price, the Cap Price or (b) if the
Transaction Value is less than or equal to the
Cap Price, the Transaction Value; provided
that, if the Exchange Property (as defined
below) received in any such Reorganization
Event consists only of cash or if all of the
consideration received in such Reorganization
Event is denominated in (or, if such
consideration consists of property other than
cash or securities, would reasonably be valued
in a currency other than U.S. dollars or euro),
the maturity date of the CP PERQS will be
deemed to be accelerated to the date on which
such cash is distributed to holders of Nokia
Stock. "Exchange Property" means the
securities, cash or any other assets
distributed to holders of Nokia Stock in any
such Reorganization Event, including, in the
case of the issuance of tracking stock, the
reclassified share of Nokia Stock and, in the
case of a Spin-off Event, the share of Nokia
Stock with respect to which the spun-off
security was issued. "Transaction Value" means
(i) for any cash received in any such
Reorganization Event, the amount of cash
received per share of Nokia Stock multiplied by
the product of the Initial Share Control Amount
and the then current Share Ratio and, if such
cash consists of euro, multiplied by the
Initial FX Rate, (ii) for any property other
than cash or securities received in any such
Reorganization Event, the market value (as
determined by the Calculation Agent) of such
Exchange Property received for each share of
Nokia Stock at the date of the receipt of such
Exchange Property multiplied by the product of
the Initial Share Control Amount and the then
current Share Ratio and, if the value of such
property has been valued in euro, multiplied by
the Initial FX Rate and (iii) for any security
received in any such Reorganization Event, an
amount equal to the Market Price per share of
such security on the Determination Date
multiplied by the quantity of such security
received for each share of Nokia Stock
multiplied by the product of the Initial Share
Control Amount and the Share Ratio for Nokia
Stock at the time of such Reorganization Event
and, if the security is denominated in euro,
multiplied by the Initial FX Rate.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or
going-private transaction involving Exchange
Property of a particular type, Exchange
Property shall be deemed to include the amount
of cash or other property paid by the offeror
in the tender or exchange offer with respect to
such Exchange Property (in an amount determined
on the basis of the rate of exchange in such
tender or exchange offer or going-private
transaction). In the event of a tender or
exchange offer or going- private transaction
with respect to Exchange Property in which an
offeree may elect to receive cash or other
property, Exchange Property shall be deemed to
include the kind and amount of cash and other
property received by offerees who elect to
receive cash.
6. If more than one of the events set out
above occurs, the adjustments to the Share
Ratio for the second and subsequent events
shall be to the Share Ratio as adjusted for
preceding events.
7. Except as described below, no adjustments
to the Share Ratio or to the amount payable at
maturity of the CP PERQS will be required other
than those specified above. However, we may, at
our sole discretion, cause the Calculation
Agent to make additional adjustments to the
Share Ratio or to adjust the determination of
the cash payment at maturity upon the
occurrence of corporate or other similar events
that affect or could potentially affect market
prices of, or shareholders' rights in, the
Nokia Stock, but only to reflect such changes,
and not with the aim of changing relative
investment risks. In addition, we may, at our
sole discretion, cause the Calculation Agent,
to alter the specific adjustments set forth
above in paragraphs 1 through 6 upon the
occurrence of one or more of the events
enumerated in paragraphs 1 through 6, if we
determine that such adjustments do not properly
reflect the consequences of the events
enumerated in such paragraphs or would not
preserve the relative investment risks. There
may be corporate or other similar events that
could affect the Market Price of the Nokia
Stock for which the Calculation Agent will not
adjust the Share Ratio.
Any alterations to the specific adjustments
set forth above may be materially adverse to
the holders of the CP PERQS.
No adjustments to the Share Ratio will be
required unless such Share Ratio adjustment
would require a change of at least 0.1% in
the Share Ratio then in effect. The Share
Ratio resulting from any of the adjustments
specified above will be rounded to the nearest
one thousandth with five ten-thousandths
being rounded upward.
Notwithstanding the foregoing, the amount
payable by us at maturity with respect to
each CP PERQS will not under any
circumstances exceed $2,135.66.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Share
Ratio or method of calculating the Share
Ratio and of any related determinations and
calculations with respect to any
distributions of stock, other securities or
other property or assets (including cash) in
connection with any corporate event described
above (including the identification of
potential events described in paragraph 7),
and its determinations and calculations with
respect thereto shall be conclusive. If any
of the Exchange Property described in
paragraph 5 above is denominated in a
currency other than U.S. dollars or euro, the
Calculation Agent, in determining the
Transaction Value, will determine the value
of such Exchange Property in U.S. Dollars.
In determining the value of such Exchange
Property, the Calculation Agent will assume
that all currency exchange costs would be
borne by you.
The Calculation Agent will provide
information as to any adjustments to the
Share Ratio or method of calculating the Share
Ratio or the cash payment at maturity upon
written request by any holder of the CP PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Nokia Stock:
(i) a suspension, absence or material
limitation of trading of Nokia Stock on the
primary market for Nokia 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 Nokia Stock as a result of
which the reported trading prices for Nokia
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 Nokia Stock, if available, during
the one-half hour period preceding the close
of trading in the applicable market, in each
case as determined by the Calculation Agent
in its sole discretion; and
(ii) a determination by the Calculation Agent
in its sole discretion that the event
described in clause (i) above materially
interfered with the ability of MSDW or any of
its affiliates to unwind all or a material
portion of the hedge with respect to the CP
PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to any applicable rule or
regulation enacted or promulgated by the
Helsinki Stock Exchange (or any other
self-regulatory organization in the Republic
of Finland with jurisdiction over the
Helsinki Stock Exchange) on trading during
significant market fluctuations shall
constitute a suspension, absence or material
limitation of trading, (4) a suspension of
trading in an options contract on Nokia 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 Nokia Stock and (5) a suspension,
absence or material limitation of trading on
the primary securities market on which
options contracts related to Nokia Stock are
traded will not include any time when such
securities market is itself closed for
trading under ordinary circumstances.
Alternative Determination Date
in case of an Event of
Default....................... In case an Event of Default with respect to
any CP PERQS shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the CP PERQS
will be determined by the Calculation Agent
as though the Determination Date were the
date of acceleration plus any accrued but
unpaid interest to but not including the date
of acceleration.
Nokia Stock; Public
Information................... Nokia is a mobile phone manufacturer and
a leading supplier of digital mobile and
fixed networks which also supplies multimedia
equipment, satellite and cable receivers,
computer monitors as well as other
telecommunications related products. American
Depositary Shares representing Nokia Stock
are registered under the Exchange Act of
1934, as amended (the "Exchange Act").
Companies with securities registered under
the Exchange Act are required to file
periodically certain financial and other
information specified by the Securities and
Exchange Commission (the "Commission").
Information provided to or filed with the
Commission can be inspected and copied at the
public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its
Regional Office located at Suite 1400,
Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York
10048, and copies of such material can be
obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
In addition, information provided to or filed
with the Commission electronically can be
accessed through a Website maintained by the
Commission. The address of the Commission's
Website is http://www.sec.gov. Information
provided to or filed with the Commission by
Nokia pursuant to the Exchange Act can be
located by reference to Commission file
number 1-13202. In addition, information
regarding Nokia may be obtained from other
sources including, but not limited to, press
releases, newspaper articles and other
publicly disseminated documents. We make no
representation or warranty as to the accuracy
or completeness of such reports.
This pricing supplement relates only to the
CP PERQS offered hereby and does not relate
to Nokia Stock or other securities of Nokia.
We have derived all disclosures contained in
this pricing supplement regarding Nokia 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 Nokia in connection
with the offering of the CP PERQS. Neither
we nor the Agent makes any representation
that such publicly available documents or any
other publicly available information
regarding Nokia 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 Nokia Stock (and therefore
the Initial Stock Price) have been publicly
disclosed. Subsequent disclosure of any such
events or the disclosure of or failure to
disclose material future events concerning
Nokia could affect the value received at
maturity with respect to the CP PERQS and
therefore the trading prices of the CP PERQS.
Neither we nor any of our affiliates make any
representation to any purchaser of CP PERQS
as to the performance of Nokia Stock.
We or our affiliates may presently or from
time to time engage in business with Nokia,
including extending loans to, or making equity
investments in, Nokia or providing advisory
services to Nokia, including merger and
acquisition advisory services. In the course of
such business, we or our affiliates may acquire
non- public information with respect to Nokia
and, in addition, one or more of our affiliates
may publish research reports with respect to
Nokia. The statement in the preceding sentence
is not intended to affect the right of holders
of the CP PERQS under the securities laws. As a
prospective purchaser of a CP PERQS, you should
undertake an independent investigation of Nokia
as in your judgment is appropriate to make an
informed decision with respect to an investment
in Nokia Stock.
Historical Information........ The following table sets forth the high and
low Market Price of Nokia Stock during 1996,
1997, 1998, and during 1999 through May 17,
1999 on the Helsinki Stock Exchange. The
Market Price on May 17, 1999 was Euro
71.4507. The Market Prices, quoted in
Finnish markka on the Helsinki Stock Exchange
prior to January 1, 1999, have been converted
to euro at the official rate. Prior to a
consolidation of Nokia's share capital
effective on the trading market as of April
12, 1999, Nokia's A Shares traded on the
Helsinki Stock Exchange. Effective April 12,
1999, Nokia's share capital comprised only
Nokia Stock. 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 Nokia Stock as an indication of
future performance. The price of Nokia Stock
may decrease so that you will receive at
maturity cash in an amount that is less than
the principal amount of the CP PERQS. We
cannot give you any assurance that the price
of Nokia Stock will increase so that at
maturity you will receive cash in an amount
in excess of the principal amount of the CP
PERQS or that, if such price appreciates, it
will not exceed 140% of the Initial Stock
Price. Because your return is linked to the
performance of Nokia Stock, there is no
guaranteed return of principal. To the
extent that Nokia Stock drops below the issue
price and the shortfall is not offset by the
coupon paid on the CP PERQS, you will lose
money on your investment. The Nokia Stock is
listed under the ISIN and SEDOL numbers of
FI0009000681 and 5655212, respectively.
Dividends Per
Nokia High Low Share(1)
-------------------- ---------- ---------- -------------
1996
First Quarter..... Euro 7.632 Euro 6.139 Euro 0.000
Second Quarter.... 8.620 6.307 0.750
Third Quarter..... 8.573 6.387 0.000
Fourth Quarter.... 11.269 11.100 0.875
1997
First Quarter..... 13.897 11.100 0.875
Second Quarter.... 16.524 11.815 0.000
Third Quarter..... 21.150 18.766 0.000
Fourth Quarter.... 22.457 15.095 0.000
1998
First Quarter..... 15.477 25.396 1.875
Second Quarter.... 33.932 25.733 0.000
Third Quarter..... 41.879 30.047 0.000
Fourth Quarter.... 53.635 25.312 0.000
1999
First Quarter..... 74.550 54.950 2.875
Second Quarter
(through May 17,
1999)........... 78.900 65.800 0.000
---------------
(1) Dividends are reported at ex-dividend date.
Historical prices have been adjusted for two 2
for 1 stock splits of Nokia Stock, which became
effective in the second quarter of 1998 and the
second quarter of 1999, respectively.
We make no representation as to the amount of
dividends, if any, that Nokia will pay in the
future. In any event, as a holder of the CP
PERQS, you will not be entitled to receive
dividends, if any, that may be payable on Nokia
Stock.
Comparative Historical
Returns....................... The following table sets forth, for each of
the years in the left hand column, (i) the
historical annual rate of return (including
dividends) of the Nokia Stock in euro, (ii)
the historical rate of return (including
dividends) of the Nokia Stock stated in U.S.
dollars, using the U.S dollar/euro exchange
rate at the beginning and end of each yearly
period, and (iii) the hypothetical annualized
rate of return of the CP PERQS (including a
coupon of 7.0%) and assuming a cap price
equal to 140% of the Issue Price of the CP
PERQS, calculated as if the Stock Price
Percentage had been determined for each
one-year period.
The historical returns of Nokia Stock in euro
or U.S. dollars should not be taken as an
indication of future performance, and no
assurance can be given that the price of
Nokia Stock will not decrease with the result
that the beneficial owners of the CP PERQS
would receive at maturity cash in an amount
that is less than the principal amount of the
CP PERQS.
Annual Total
Return of Annual Total Hypothetical
Nokia Stock in Return of Annualized Return
euro Nokia Stock in $ of CP PERQS
-------------- ---------------- -----------------
1996 52.5% 43.3% 47.0%
1997 46.6 24.4 47.0
1998 215.5 226.0 47.0
1999(1) 27.8 20.0 34.8
-------------
(1) through May 17, 1999
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the CP PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our affiliates in connection
with hedging our obligations under the CP
PERQS. See also "Use of Proceeds" in the
accompanying Prospectus.
On or prior to the date of this pricing
supplement, we, through our subsidiaries or
others, hedged our anticipated exposure in
connection with the CP PERQS by taking
positions in Nokia Stock. Purchase activity
could potentially have increased the price
of Nokia Stock, and therefore effectively
have increased the level to which Nokia Stock
must rise before you would receive at
maturity cash in an amount that is equal to
or greater than the principal amount of the
CP PERQS. We, through our subsidiaries, are
likely to modify our hedge position
throughout the life of the CP PERQS,
including on the Determination Date, by
purchasing and selling Nokia Stock, options
contracts on Nokia Stock listed on major
securities markets or positions in any other
instruments that we may wish to use in
connection with such hedging, including,
without limitation, instruments linked to or
denominated in euro. Although we have no
reason to believe that our hedging activity
had or will have a material impact on the
price of Nokia Stock, we cannot give any
assurance that we did not, or in the future
will not, affect such price as a result of our
hedging activities.
Supplemental Information
Concerning Plan of
Distribution.................. In order to facilitate the offering of the CP
PERQS, the Agent may engage in transactions
that stabilize, maintain or otherwise affect
the price of the CP PERQS or Nokia Stock.
Specifically, the Agent may overallot in
connection with the offering, creating a
short position in the CP PERQS for its own
account. In addition, to cover allotments or
to stabilize the price of the CP PERQS, the
Agent may bid for, and purchase, the CP PERQS
or Nokia Stock in the open market. See "Use
of Proceeds and Hedging" above.
We have agreed to indemnify the Agent against
certain liabilities, including liabilities
under the Securities Act of 1933. See also
"Plan of Distribution" in the accompanying
Prospectus Supplement.
ERISA Matters for Pension Plans
and Insurance Companies....... MSDW and certain affiliates of MSDW,
including MS & Co. and Dean Witter Reynolds
("DWR"), may each be considered a "party in
interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "disqualified person"
within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code") with
respect to many employee benefit plans.
Prohibited transactions within the meaning of
ERISA or the Code may arise, for example, if
the CP PERQS are acquired by or with the
assets of a pension or other employee benefit
plan with respect to which MS & Co., DWR or
any of their affiliates is a service
provider, unless such the CP PERQS are
acquired pursuant to an exemption from the
prohibited transaction rules.
The acquisition of the CP PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption
("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and
conditions of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed by
a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to the
provisions of Section 401 of the Code;
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed by
an in-house asset manager and (ii) satisfies
the requirements and conditions of PTCE 96-23
issued by the DOL.
The assets of a pension or other employee
benefit plan may include assets held in the
general account of an insurance company that
are deemed to be "plan assets" under ERISA.
Any insurance company or pension or employee
benefit plan proposing to invest in the CP
PERQS should consult with its legal counsel.
United States Federal Income
Taxation...................... The following summary is based on the
advice of Davis Polk & Wardwell, special tax
counsel to MSDW ("Tax Counsel"), and is a
general discussion of the principal potential
U.S. federal income tax consequences to U.S.
Holders (as defined below) who are initial
holders of the CP PERQS purchasing the CP
PERQS at the Issue Price, and who will hold
the CP PERQS as capital assets within the
meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the
"Code"). This summary is based on the Code,
administrative pronouncements, judicial
decisions and currently effective and
proposed Treasury Regulations, changes to any
of which subsequent to the date of this
Pricing Supplement may affect the tax
consequences described herein. This summary
does not address all aspects of the U.S.
federal income taxation that may be relevant
to a particular holder in light of its
individual circumstances or to certain types
of holders subject to special treatment under
the U.S. federal income tax laws (e.g.,
certain financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a CP PERQS as
a part of a hedging transaction, straddle,
conversion or other integrated transaction).
As the law applicable to the U.S. federal
income taxation of instruments such as the CP
PERQS is technical and complex, the
discussion below necessarily represents only a
general summary. Moreover, the effect of any
applicable state, local or foreign tax laws
is not discussed.
As used herein, the term "U.S. Holder" means
an owner of a CP PERQS that is, for U.S.
federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a
corporation or other entity created or
organized under the laws of the United States
or any political subdivision thereof or (iii)
an estate or trust the income of which is
subject to United States federal income
taxation regardless of its source.
General
Pursuant to the terms of the CP PERQS, MSDW
and every holder of a CP PERQS agree (in the
absence of an administrative determination or
judicial ruling to the contrary) to
characterize a CP PERQS for all tax purposes
as an investment unit consisting of the
following components (the "Components"): (i)
a contract (the "Forward Contract") that
requires the holder of the CP PERQS to pay an
amount as described below under "Settlement
of the Forward Contract" and entitles the
holder to receive a cash amount at maturity
as described above in "Description of the CP
PERQS -- Amount Payable at Maturity", and
(ii) a deposit with MSDW of a fixed amount of
cash, to secure the holder's obligation under
the Forward Contract. For this purpose, MSDW
has determined that, of the quarterly
payments on the CP PERQS, 5.528% is
attributable to interest on the Deposit.
This determination is based on MSDW's
judgment as to, among other things, MSDW's
normal borrowing cost and the value of the
Forward Contract. Under this
characterization, the remainder of the
quarterly payments on the CP PERQS represents
payments attributable to the holders' entry
into the Forward Contract (the "Contract
Fees"). Furthermore, based on MSDW's
determination of the relative fair market
values of the Components at the time of
issuance of the CP PERQS, MSDW will allocate
100% of the Issue Price of the CP PERQS to
the Deposit and none to the Forward Contract.
MSDW's allocation of the Issue Price among
the Components will be binding on a holder of
the CP PERQS, unless such holder timely and
explicitly discloses to the Internal Revenue
Service (the "IRS") that its allocation is
different from MSDW's. The treatment of the
CP PERQS described above and MSDW's
allocation are not, however, binding on the
IRS or the courts. No statutory, judicial or
administrative authority directly addresses
the characterization of the CP PERQS or
instruments similar to the CP PERQS for U.S.
federal income tax purposes, and no ruling is
being requested from the IRS with respect to
the CP PERQS. Due to the absence of
authorities that directly address instruments
that are similar to the CP PERQS, tax counsel
is unable to render an opinion as to the
proper U.S. federal income tax
characterization of the CP PERQS. As a
result, significant aspects of the U.S.
federal income tax consequences of an
investment in the CP PERQS are not certain,
and no assurance can be given that the IRS or
the courts will agree with the
characterization described herein.
Accordingly, prospective purchasers are urged
to consult their tax advisors regarding the
U.S. federal income tax consequences of an
investment in the CP PERQS (including
alternative characterizations of the CP
PERQS) and with respect to any tax
consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following
discussion is based on the treatment and the
allocation described above.
Tax Treatment of the CP PERQS
Assuming the characterization of the CP PERQS
and the allocation of the Issue Price as set
forth above, Tax Counsel believes that the
following U.S. federal income tax consequences
should result.
Quarterly Payments on the CP PERQS. To the
extent attributable to the interest on the
Deposit, quarterly payments on the CP PERQS
will generally be taxable to a U.S. Holder as
ordinary income at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes. Although the federal income
tax treatment of the Contract Fees is
uncertain, MSDW intends to take the position
that the Contract Fees constitute taxable
income to the holders at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes.
Tax Basis. Based on MSDW's determination set
forth above, the U.S. Holder's tax basis in
the Forward Contract will be zero, and the
U.S. Holder's tax basis in the Deposit will
be 100% of the Issue Price.
Settlement of the Forward Contract. Upon the
maturity of the Forward Contract, a U.S.
Holder receiving cash would, pursuant to the
Forward Contract, be deemed to have applied
the Deposit toward the exchange for the cash
payment at maturity, and a U.S. Holder would
recognize gain or loss. The amount of such
gain or loss would be the extent to which the
amount of such cash received differs from the
U.S. Holder's tax basis in the Deposit. Any
such gain or loss would generally be capital
gain or loss, as the case may be.
Sale or Exchange of the CP PERQS. Upon a sale
or exchange of a CP PERQS prior to the
maturity of the CP PERQS, a U.S. Holder would
recognize taxable gain or loss equal to the
difference between the amount realized on
such sale or exchange and such U.S. Holder's
tax basis in the CP PERQS so sold or
exchanged. Any such gain or loss would
generally be capital gain or loss, as the
case may be. Such U.S. Holder's tax basis in
the CP PERQS would generally equal the U.S.
Holder's tax basis in the Deposit. For these
purposes, the amount realized does not
include any amount attributable to accrued
but unpaid interest payments on the Deposit,
which would be taxed as described under
"--Quarterly Payments on the CP PERQS" above.
It is uncertain whether the amount realized
includes any amount attributable to accrued
but unpaid Contract Fees. U.S. Holders
should consult their tax advisers regarding
the treatment of accrued but unpaid Contract
Fees upon the sale or exchange of a CP PERQS.
Possible Alternative Tax Treatments of an
Investment in the CP PERQS
Due to the absence of authorities that
directly address the proper characterization
of the CP PERQS, no assurance can be given
that the IRS will accept, or that a court
will uphold, the characterization and tax
treatment described above. In particular,
the IRS could seek to analyze the U.S.
federal income tax consequences of owning a
CP PERQS under Treasury regulations governing
contingent payment debt instruments (the
"Contingent Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the CP PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price.
Furthermore, any gain realized with respect
to the CP PERQS would generally be treated
as ordinary income.
Even if the Contingent Payment Regulations do
not apply to the CP PERQS, other alternative
federal income tax characterizations or
treatments of the CP PERQS are also possible,
and if applied could also affect the timing
and the character of the income or loss with
respect to the CP PERQS. It is possible, for
example, that a CP PERQS could be treated as
constituting a prepaid forward contract.
Other alternative characterizations are also
possible. Accordingly, prospective
purchasers are urged to consult their tax
advisors regarding the U.S. federal income
tax consequences of an investment in the CP
PERQS.
Proposed Legislation
On May 5, 1999, Representative Richard Neal
introduced legislation (the "Neal Bill")
which, if enacted, would treat a taxpayer
owning certain types of derivative positions
in property as having "constructive
ownership" in that property, with the result
that all or a portion of the long term
capital gain recognized by such taxpayer with
respect to the derivative position would be
recharacterized as short term capital gain.
Although the Neal Bill, if enacted as
currently drafted, will not apply to the CP
PERQS, the Neal Bill authorizes the Treasury
Department to promulgate regulations
(possibly with retroactive effect) to expand
the application of the "constructive
ownership" rule. There is no assurance that
the Treasury Department will not promulgate
regulations to apply the rule to the CP
PERQS. If the Neal Bill were to apply to the
CP 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 CP PERQS as short
term capital gain, but only to the extent
such long term capital gain exceeds the long
term capital gain that would have been
recognized by such U.S. Holder if the U.S.
Holder had acquired Nokia Stock itself on the
issue date of the CP PERQS and disposed of
the Nokia Stock upon disposition of the CP
PERQS. In addition, the Neal Bill would
impose an interest charge on the gain that
was recharacterized on the sale or maturity
of the CP PERQS. As proposed, the Neal Bill
would be effective for gains recognized after
the date of enactment.
Backup Withholding and Information Reporting
A U.S. Holder of a CP PERQS may be subject to
information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid to the U.S. Holder, unless such
U.S. Holder provides proof of an applicable
exemption or a correct taxpayer
identification number, and otherwise complies
with applicable requirements of the backup
withholding rules. The amounts withheld
under the backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided the
required information is furnished to the IRS.
