PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 5 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated May 13, 1999
Rule 424(b)(3)
$95,000,025
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
------------------
6% Reset PERQS due May 30, 2001
Mandatorily Exchangeable For
Shares of Common Stock of SUN MICROSYSTEMS, INC.
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay 6% 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 Sun Microsystems common stock based on the closing prices
of Sun Microsystems 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 $6.51875, which
is one-tenth of the closing price of Sun Microsystems common stock on May
13, 1999, the day we offered the Reset PERQS for initial sale to the public.
o We will pay 6% interest (equivalent to $0.391125 per year) on the $6.51875
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning August 30, 1999.
o At maturity you will receive shares of Sun Microsystems common stock in
exchange for each Reset PERQS at an exchange ratio. The initial exchange
ratio is one-tenth of a share of Sun Microsystems common stock per Reset
PERQS. However, if the price of Sun Microsystems common stock appreciates
above the first year cap price for May 30, 2000 or the second year cap price
for May 25, 2001, the exchange ratio will be adjusted downward, and you will
receive an amount of Sun Microsystems common stock per Reset PERQS that is
less than one-tenth of a share.
o The first year cap price is $92.08, or 141.25% of the closing price of Sun
Microsystems common stock on May 13, 1999, the day we offered the Reset
PERQS for initial sale to the public. If on May 30, 2000, the price of Sun
Microsystems common stock is higher than the closing price of Sun
Microsystems common stock on May 13, 1999, we will raise the cap price to
141.25% of the closing price of Sun Microsystems common stock on May 30,
2000. Otherwise the cap price will remain unchanged in the second year. The
maximum you can receive at maturity is Sun Microsystems common stock worth
$13.01 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Sun Microsystems
common stock.
o Sun Microsystems, 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 The Reset PERQS have been approved for listing on the American Stock
Exchange, Inc, subject to official notice of issuance. The AMEX listing
symbol for the Reset PERQS is "RPS".
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 $6.51875 PER RESET PERQS
-----------------------
Agent's Proceeds to
Price to Public Commissions the Company
--------------- ----------- -----------
Per Reset PERQS.. $6.51875 $0.09 $6.42875
Total............ $95,000,025.31 $1,311,601.50 $93,688,423.81
If you purchase at least 500,000 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 $6.4291171875 per Reset PERQS (98.625% of the Issue Price). In
that case, the underwriting discounts and commissions will be reduced so that
the Proceeds to the Company per Reset PERQS will not be affected by the
reduction.
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering
to you in general terms only. You should read the summary together with the
more detailed information that is contained in the rest of this pricing
supplement and in the accompanying prospectus and prospectus supplement. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
The Reset PERQS offered are medium-term debt securities of
Morgan Stanley Dean Witter & Co. The return on the Reset PERQS is linked to
the performance of Sun Microsystems, Inc. common stock, which we refer to as
Sun Microsystems Stock. The Reset PERQS also provide fixed quarterly payments
at an annual rate of 6% based on the principal amount of each Reset PERQS.
Unlike ordinary debt securities, Reset PERQS do not guarantee the return of
principal at maturity. Instead the Reset PERQS pay a number of shares of Sun
Microsystems Stock at maturity based on the performance of this stock, either
up or down, subject to a maximum value in each year. We may not redeem the
Reset PERQS prior to maturity.
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 6%
costs $6.51875 Reset Performance Equity-linked Redemption
Quarterly-pay Securities[SM] due May 30, 2001, which we
refer to as the Reset PERQS[SM]. The principal amount
and issue price of each Reset PERQS is $6.51875 , which
is one-tenth of the closing price of Sun Microsystems
Stock on May 13, 1999, the day we offered the Reset
PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS do not
return of principal guarantee any return of principal at maturity. Instead
the Reset PERQS will pay an amount of Sun Microsystems
Stock based on the market price of Sun Microsystems
Stock, either up or down, after one year and at
maturity, in each case subject to a cap price.
Investing in Reset PERQS is not equivalent to investing
in Sun Microsystems Stock.
6% interest on the We will pay interest on the Reset PERQS, at the rate
principal amount of 6% of the principal amount per year, quarterly on
each February 28, May 30, August 30, and November 30,
beginning August 30, 1999. The interest rate we pay on
the Reset PERQS is more than the current dividend rate
on the Sun Microsystems Stock. The Reset PERQS will
mature on May 30, 2001.
Your appreciation The appreciation potential of each Reset PERQS is
potential is capped limited in each year by the cap price. The cap price in
year one is $92.08, or 141.25% of the closing market
price of Sun Microsystems Stock on May 13, 1999, the
day we offered the Reset PERQS for initial sale to the
public ("First Year Cap Price"). The cap price in year
two ("Second Year Cap Price") will be the higher of
141.25% of the closing market price of Sun Microsystems
Stock on May 30, 2000 and the First Year Cap Price. The
maximum you can receive at maturity is Sun Microsystems
Stock worth $13.01 per Reset PERQS.
Payment at Maturity At maturity, for each $6.51875 principal amount of
Reset PERQS you hold, we will give to you a number of
shares of Sun Microsystems Stock equal to the exchange
ratio. The initial exchange ratio is one-tenth of a
share of Sun Microsystems 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 Sun Microsystems Stock exceeds the
First Year Cap Price on May 30, 2000.
The adjusted exchange ratio will be calculated as
follows:
First Year Cap Price
New Exchange = Initial Exchange x ------------------------------
Ratio Ratio Sun Microsystems Stock closing
price on May 30, 2000
If the market price of Sun Microsystems Stock on May
30, 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 Sun
Microsystems Stock at maturity exceeds the Second
Year Cap Price. The final exchange ratio will then be
calculated as follows:
Second Year Cap Price
Final Exchange = Existing Exchange x ---------------------------
Ratio Ratio Sun Microsystems Stock
closing price at maturity
If the market price of Sun Microsystems 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 Sun Microsystems Stock for
the last three years in the "Historical Information"
section of this pricing supplement.
During the life of the Reset PERQS, Morgan Stanley &
Co. Incorporated or its successors, which we refer to
as MS & Co., acting as calculation agent, will also
make adjustments to the effective exchange ratio to
reflect the occurrence of certain corporate events that
could affect the market price of Sun Microsystems
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 Sun Microsystems Stock that you
will receive at maturity.
No affiliation with Sun Microsystems, Inc. is not an affiliate of ours and
Sun Microsystems, Inc. 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 Sun Microsystems, Inc.
More information on The Reset PERQS are senior notes issued as part of our
the Reset PERQS Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying Prospectus Supplement dated
May 6, 1999. We describe the basic features of this
type of note in the sections called "Description of
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.
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on the Initial Sun Microsystems Price of $65.1875 per
share of Sun Microsystems Stock, the initial price per Reset PERQS of
$6.51875, and a first year cap of 141.25% and a second year cap of 141.25%,
the following table illustrates, for a range of First Year Closing Prices and
Maturity Prices, the adjustments we would make to the Exchange Ratio, Second
Year Cap Prices and the Payments at Maturity based on Sun Microsystems Stock
for each $6.51875 principal amount of Reset PERQS and the total return
including interest payments, based on the interest rate of 6% per annum, for
each $6.51875 principal amount of Reset PERQS.
<TABLE>
<CAPTION>
Initial Sun Initial
Initial Price of Microsystems Exchange First Year First Year Closing 5/30/00 Exchange
Reset PERQS Price Ratio Cap Price Price Ratio
- ---------------- ------------ -------- ---------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$6.51875 $65.1875 0.10000 $92.08 $50.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $50.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $50.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $90.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $90.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $90.00 0.10000
$6.51875 $65.1875 0.10000 $92.08 $125.00 0.07366
$6.51875 $65.1875 0.10000 $92.08 $125.00 0.07366
$6.51875 $65.1875 0.10000 $92.08 $125.00 0.07366
$6.51875 $65.1875 0.10000 $92.08 $92.08 0.10000
141.25% of
Initial Sun
Microsystems
Price
<CAPTION>
Reset PERQS Reset PERQS
Payment at Payment at Maturity
Sun Microsystems Maturity Based on plus
5/30/00 Exchange Second Year Stock Maturity Exchange Ratio Sun Microsystems 6% Coupon ("Total
Ratio Cap Price Price(1) at Maturity Stock Price Payment")
- ----------------- ----------- ---------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
0.10000 $92.08 $35.00 0.10000 $3.50 $4.30
0.10000 $92.08 $90.00 0.10000 $9.00 $9.80
0.10000 $92.08 $130.00 0.07083 $9.21 $10.01
0.10000 $127.13 $75.00 0.10000 $7.50 $8.30
0.10000 $127.13 $130.00 0.09779 $12.71 $13.51
0.10000 $127.13 $150.00 0.08475 $12.71 $13.51
0.07366 $176.56 $75.00 0.07366 $5.52 $6.32
0.07366 $176.56 $175.00 0.07366 $12.89 $13.69
0.07366 $176.56 $185.00 0.07030 $13.01 $13.81
0.10000 $130.06 $130.06 0.10000 $13.01 $13.81
Greater of (x) Maturity Price
141.25% of First times Adjusted
Year Closing Exchange Ratio
Price and (y)
First Year Cap
Price
- -------------------
(1) The Sun Microsystems Stock Maturity Price does not include any dividend
payments that may have been paid to holders of Sun Microsystems Stock.
</TABLE>
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than
ordinary debt securities. Because the return to investors is linked to the
performance of Sun Microsystems Stock, there is no guaranteed return of
principal. To the extent that the final market price of Sun Microsystems 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 May 30, 2000, investors will lose money on their investment.
Investing in Reset PERQS is not equivalent to investing directly in Sun
Microsystems Stock. This section describes the most significant risks relating
to the Reset PERQS. You should carefully consider whether the Reset PERQS are
suited to your particular circumstances before you decide to purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity
Ordinary Senior Notes -- and debt. The terms of the Reset PERQS differ
No guaranteed return of from those of ordinary debt securities in that
principal we will not pay you a fixed amount at maturity.
Our payment to you at maturity will be a number
of shares of Sun Microsystems Stock based on the
market price of Sun Microsystems Stock on May
30, 2000 and at maturity. If the final market
price of Sun Microsystems 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 May 30, 2000, we will
pay you an amount of Sun Microsystems Stock with
a value less than the principal amount of the
Reset PERQS. See "Hypothetical Payments on the
Reset PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS
Potential Is Limited is limited because of the cap prices. Even
though the $6.51875 issue price of one Reset
PERQS is equal to today's market price of one
share of Sun Microsystems Stock multiplied by
the initial exchange ratio, you may receive a
lessor fractional amount of Sun Microsystems
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 Sun
Microsystems Stock appreciates above both the
cap price for May 30, 2000 and the cap price for
May 25, 2001, the initial exchange ratio of
one-tenth of a share of Sun Microsystems Stock
per Reset PERQS will be reduced twice.
The exchange ratio and the final market price of
Sun Microsystems Stock at maturity will be
determined on May 25, 2001, which is two trading
days prior to maturity of the Reset PERQS. If
the price of Sun Microsystems Stock is lower on
the actual maturity date than it was on May 25,
2001, the value of any Sun Microsystems Stock
you receive will be less. Under no circumstances
will you receive an amount of Sun Microsystems
Stock for each Reset PERQS worth more than
$13.01 as of such second scheduled trading day
prior to maturity.
Secondary Trading There may be little or no secondary market for
May Be Limited the Reset PERQS. Although the Reset PERQS have
been approved for listing on the American Stock
Exchange, Inc., it is not possible to predict
whether the Reset PERQS will trade in the
secondary market. Even if there is a secondary
market, it may not provide significant
liquidity. 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
PERQS Influenced by Many control, will influence the value of the Reset
Unpredictable Factors PERQS. We expect that generally the market price
of the Sun Microsystems 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 Sun Microsystems
Stock
o the dividend rate on Sun Microsystems Stock
o economic, financial and political events that
affect stock markets generally and which may
affect the market price of the Sun
Microsystems 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 Sun
Microsystems Stock is at, below, or not
sufficiently above the initial market price.
You cannot predict the future performance of Sun
Microsystems Stock based on its historical
performance. The price of Sun Microsystems Stock
may decrease so that you will receive at
maturity shares of Sun Microsystems Stock worth
less than the principal amount of the Reset
PERQS. We cannot guarantee that the price of Sun
Microsystems 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 Sun We are not affiliated with Sun Microsystems,
Microsystems, Inc. Inc. ("Sun Microsystems"). Although we do not
have any non-public information about Sun
Microsystems as of the date of this Pricing
Supplement, we or our affiliates may presently
or from time to time engage in business with Sun
Microsystems, including extending loans to, or
making equity investments in, Sun Microsystems
or providing advisory services to Sun
Microsystems, including merger and acquisition
advisory services. Moreover, we have no ability
to control or predict the actions of Sun
Microsystems, including any corporate actions of
the type that would require the calculation
agent to adjust the payment to you at maturity.
Sun Microsystems 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 Sun Microsystems.
You Have No As a holder of Reset PERQS, you will not have
Shareholder Rights voting rights or rights to receive dividends or
other distributions or any other rights with
respect to the Sun Microsystems Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the
Adjustments amount payable at maturity for certain events
affecting the Sun Microsystems Stock, such as
stock splits and stock dividends, and certain
other corporate actions involving Sun
Microsystems, such as mergers. However, the
calculation agent is not required to make an
adjustment for every corporate event that can
affect the Sun Microsystems Stock. For example,
the calculation agent is not required to make
any adjustments if Sun Microsystems or anyone
else makes a partial tender or partial exchange
offer for the Sun Microsystems 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 As calculation agent, MS & Co. will calculate
Interest between You the payment to you at maturity of the Reset
and the Calculation PERQS. MS & Co. and other affiliates may also
Agent carry out hedging activities related to Reset
PERQS, including trading in Sun Microsystems
Stock as well as in other instruments related to
Sun Microsystems Stock. MS & Co. and some of our
other subsidiaries also trade Sun Microsystems
Stock and other financial instruments related to
Sun Microsystems Stock on a regular basis as
part of their general broker dealer and other
businesses. Any of these activities could
influence MS & Co.'s determination of
adjustments made to Reset PERQS and,
accordingly, could affect your payout on the
Reset PERQS.
Tax Treatment You should also consider the tax consequences of
investing in the Reset PERQS. There is no direct
legal authority as to the proper tax treatment
of the Reset PERQS, and therefore significant
aspects of the tax treatment of the Reset PERQS
are uncertain. We do not plan to request a
ruling from the Internal Revenue Service ("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.
DESCRIPTION OF RESET PERQS
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying prospectus supplement. The term "Reset PERQS" refers to each
$6.51875 principal amount of our 6% Reset PERQS due May 30, 2001, Mandatorily
Exchangeable For Shares of Common Stock of Sun Microsystems, Inc. In this
pricing supplement, "MSDW," "we," "us," and "our" refer to Morgan Stanley Dean
Witter & Co.
Principal Amount.............. $95,000,025.3125
Maturity Date................. May 30, 2001
Interest Rate................. 6% per annum (equivalent to $0.391125 per
annum per Reset PERQS)
Interest Payment Dates........ Each February 28, May 30, August 30, and
November 30, beginning August 30, 1999.
Specified Currency............ U.S. Dollars
Issue Price................... $6.51875 per Reset PERQS
Initial Sun Microsystems
Price......................... $65.1875
Original Issue Date
(Settlement Date)............. May 18, 1999
CUSIP......................... 617446240
Denominations................. $6.51875 and integral multiples thereof
First Year Cap Price.......... $92.08 (141.25% of the Initial Sun Microsystems
Price)
First Year Determination Date. May 30, 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 Sun
Microsystems 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) 141.25% 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 Sun Microsystems
Stock and (ii) the Exchange Factor, each
determined as of the second scheduled Trading
Day immediately prior to maturity.
Exchange at Maturity.......... At maturity (including as a result of
acceleration under the terms of the senior
indenture), upon delivery of each Reset PERQS
to the Trustee, we will apply each $6.51875
principal amount of such Reset PERQS as
payment for a number of shares of Sun
Microsystems 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 Sun Microsystems
Stock to be received upon delivery of the
Reset PERQS at $13.01 per Reset PERQS
(199.58% of the Issue Price). Solely for
purposes of adjustment upon the occurrence of
certain corporate events, the number of
shares of Sun Microsystems Stock to be
delivered at maturity will also be adjusted
by an Exchange Factor, initially set at 1.0.
See "Exchange Factor" and "Antidilution
Adjustments" below.
If the First Year Closing Price is less than
or equal to the First Year Cap Price, no
adjustment to the Exchange Ratio will be made
at such time. If the First Year Closing
Price exceeds the First Year Cap Price, the
Exchange Ratio will be adjusted so that the
new Exchange Ratio will equal the product of
(i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
First Year Cap Price and the denominator of
which will be the First Year Closing Price.
In addition, on the First Year Determination
Date, the Calculation Agent will establish
the "Second Year Cap Price" that will be
equal to the greater of (x) 141.25% of the
First Year Closing Price and (y) the First
Year Cap Price. Notice of the Second Year
Cap Price and of any such adjustment to the
Exchange Ratio shall promptly be sent by
first-class mail to The Depository Trust
Company, New York, New York (the
"Depositary"). If the Maturity Price is less
than or equal to the Second Year Cap Price,
no further adjustment to the Exchange Ratio
will be made. If the Maturity Price exceeds
the Second Year Cap Price, the then existing
Exchange Ratio will be adjusted so that the
final Exchange Ratio will equal the product
of (i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
Second Year Cap Price and the denominator of
which will be the Maturity Price. Please
review each example in the table called
"Hypothetical Payments on the Reset PERQS" on
PS-5.
All calculations with respect to the Exchange
Ratios for the Reset PERQS will be rounded to
the nearest one hundred-thousandth, with five
one-millionths rounded upwards (e.g. .876545
would be rounded to .87655); all calculations
with respect to the Second Year Cap Price will
be rounded to the nearest ten-thousandth, with
five one-hundred- thousandths rounded upwards
(e.g. $12.34567 would be rounded to $12.3457);
and all dollar amounts related to payments at
maturity resulting from such calculations will
be rounded to the nearest cent with one-half
cent being rounded upwards.
We shall, or shall cause the Calculation
Agent to, (i) provide written notice to the
Trustee and to the Depositary, on or prior to
10:30 a.m. on the Trading Day immediately
prior to maturity of the Reset PERQS, of the
amount of Sun Microsystems Stock to be
delivered with respect to each $6.51875
principal amount of each Reset PERQS and (ii)
deliver such shares of Sun Microsystems Stock
(and cash in respect of interest and any
fractional shares of Sun Microsystems 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.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration under the terms of the
indenture), we will deliver the aggregate
number of shares of Sun Microsystems 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
Sun Microsystems Stock in an amount equal to
the corresponding fractional Market Price of
such fraction of a share of Sun Microsystems
Stock as determined by the Calculation Agent
as of the second scheduled Trading Day prior
to maturity of the Reset PERQS.
Exchange Factor............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
affecting the Sun Microsystems Stock through
and including the second scheduled Trading
Day immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price.................. If Sun Microsystems 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 Sun Microsystems 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 Sun
Microsystems 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 because of a Market
Disruption Event or otherwise, the Market
Price for any Trading Day shall be the mean,
as determined by the Calculation Agent, of
the bid prices for Sun Microsystems 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 Sun Microsystems 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 $6.51875 principal amount of
each Reset PERQS as payment for a number of
shares of Sun
Microsystems Stock at the then current
Exchange Ratio, as adjusted by the then
current Exchange Factor. See also
"Antidilution Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to the
Maturity Date.
Book Entry Note or
Certificated Note............. Book Entry
Senior Note or Subordinated
Note.......................... Senior
Trustee....................... The Chase Manhattan Bank
Agent for the underwritten
offering of Reset PERQS....... Morgan Stanley & Co. Incorporated
Calculation Agent............. 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 Sun Microsystems 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 Sun
Microsystems Stock.
2. If Sun Microsystems Stock is subject (i)
to a stock dividend (issuance of additional
shares of Sun Microsystems Stock) that is given
ratably to all holders of shares of Sun
Microsystems Stock or (ii) to a distribution of
Sun Microsystems Stock as a result of the
triggering of any provision of the corporate
charter of Sun Microsystems, then once the
dividend has become effective and Sun
Microsystems 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 Sun Microsystems 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 Sun
Microsystems Stock other than distributions
described in clauses (i) and (v) of paragraph 5
below and Extraordinary Dividends as described
below. A cash dividend or other distribution
with respect to Sun Microsystems Stock will be
deemed to be an "Extraordinary Dividend" if
such dividend or other distribution exceeds the
immediately preceding non-Extraordinary
Dividend for Sun Microsystems Stock by an
amount equal to at least 10% of the Market
Price of Sun Microsystems 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 Sun
Microsystems Stock, the Exchange Factor with
respect to Sun Microsystems 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 Sun Microsystems
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 Sun Microsystems
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 Sun Microsystems Stock
described in clauses (i) and (v) of paragraph 5
below that also constitutes an Extraordinary
Dividend shall cause an adjustment to the
Exchange Factor pursuant only to clause (i) or
clause (v) of paragraph 5, as applicable.
4. If Sun Microsystems issues rights or
warrants to all holders of Sun Microsystems
Stock to subscribe for or purchase Sun
Microsystems Stock at an exercise price per
share less than the Market Price of the Sun
Microsystems 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 Sun Microsystems Stock outstanding
immediately prior to the issuance of such
rights or warrants plus the number of
additional shares of Sun Microsystems Stock
offered for subscription or purchase pursuant
to such rights or warrants and the denominator
of which shall be the number of shares of Sun
Microsystems Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional shares
of Sun Microsystems Stock which the aggregate
offering price of the total number of shares of
Sun Microsystems 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 Sun Microsystems Stock, including,
without limitation, as a result of the issuance
of any tracking stock by Sun Microsystems, (ii)
Sun Microsystems or any surviving entity or
subsequent surviving entity of Sun Microsystems
(a "Sun Microsystems Successor") has been
subject to a merger, combination or
consolidation and is not the surviving entity,
(iii) any statutory exchange of securities of
Sun Microsystems or any Sun Microsystems
Successor with another corporation occurs
(other than pursuant to clause (ii) above),
(iv) Sun Microsystems is liquidated, (v) Sun
Microsystems issues to all of its shareholders
equity securities of an issuer other than Sun
Microsystems (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
Sun Microsystems 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 $6.51875 principal
amount of each Reset PERQS, securities, cash or
any other assets distributed to holders of Sun
Microsystems Stock in any such Reorganization
Event, including, in the case of the issuance
of tracking stock, the reclassified share of
Sun Microsystems Stock and, in the case of a
Spin-off Event, the share of Sun Microsystems
Stock with respect to which the spun-off
security was issued (collectively, the
"Exchange Property") in an amount with a value
equal to the product of the final Exchange
Ratio and the Transaction Value. In addition,
following a Reorganization Event, the method of
determining the Maturity Price will be adjusted
so that the Maturity Price will mean the
Transaction Value as of the second scheduled
Trading Day immediately prior to maturity, and
if the Reorganization Event occurs prior to the
First Year Determination Date, the First Year
Closing Price will mean the Transaction Value
determined as of the First Year Determination
Date. Notwithstanding the above, if the
Exchange Property received in any such
Reorganization Event consists only of cash, the
maturity date of the Reset PERQS will be deemed
to be accelerated to the date on which such
cash is distributed to holders of Sun
Microsystems Stock and holders will receive in
lieu of any Sun Microsystems Stock and as
liquidated damages in full satisfaction of
MSDW's obligations under the Reset PERQS the
product of (i) the Transaction Value as of such
date and (ii) the then current Exchange Ratio
adjusted as if such date were the next to occur
of either the First Year Determination Date or
the second scheduled Trading Day prior to
maturity. If Exchange Property consists of more
than one type of property, holders of Reset
PERQS will receive at maturity a pro rata share
of each such type of Exchange Property. If
Exchange Property includes a cash component,
holders will not receive any interest accrued
on such cash component. "Transaction Value" at
any date means (i) for any cash received in any
such Reorganization Event, the amount of cash
received per share of Sun Microsystems Stock,
as adjusted by the Exchange Factor at the time
of such Reorganization Event, (ii) for any
property other than cash or securities received
in any such Reorganization Event, the market
value, as determined by the Calculation Agent,
as of the date of receipt, of such Exchange
Property received for each share of Sun
Microsystems Stock, as adjusted by the Exchange
Factor at the time of such Reorganization Event
and (iii) for any security received in any such
Reorganization Event, an amount equal to the
Market Price, as of the date on which the
Transaction Value is determined, per share of
such security multiplied by the quantity of
such security received for each share of Sun
Microsystems Stock, as adjusted by the Exchange
Factor at the time of such Reorganization
Event. In the event Exchange Property consists
of securities, those securities will, in turn,
be subject to the antidilution adjustments set
forth in paragraphs 1 through 5.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or
going-private transaction involving Exchange
Property of a particular type, Exchange
Property shall be deemed to include the amount
of cash or other property paid by the offeror
in the tender or exchange offer with respect to
such Exchange Property (in an amount determined
on the basis of the rate of exchange in such
tender or exchange offer or going-private
transaction). In the event of a tender or
exchange offer or a going- private transaction
with respect to Exchange Property in which an
offeree may elect to receive cash or other
property, Exchange Property shall be deemed to
include the kind and amount of cash and other
property received by offerees who elect to
receive cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one hundred-thousandth with five
one-millionths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the Sun Microsystems Stock, including, without
limitation, a partial tender or exchange
offer for the Sun Microsystems 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 Sun Microsystems Stock having a market
price of $13.01 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 Sun Microsystems Stock:
(i) a suspension, absence or material
limitation of trading of Sun Microsystems
Stock on the primary market for Sun
Microsystems 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 Sun Microsystems
Stock as a result of which the reported
trading prices for Sun Microsystems 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 Sun Microsystems
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 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 Sun
Microsystems 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 Sun Microsystems Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to Sun
Microsystems Stock are traded will not
include any time when such securities market
is itself closed for trading under ordinary
circumstances.
Sun Microsystems Stock;
Public Information............ Sun Microsystems is a leading
supplier of enterprise network computing
products including desktop systems, servers,
storage subsystems, network switches, software,
microprocessors and a full range of services
and support. Sun Microsystems 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 Sun Microsystems
pursuant to the Exchange Act of 1934 can be
located by reference to Commission file number
0- 15086. In addition, information regarding
Sun Microsystems 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
Reset PERQS offered hereby and does not
relate to Sun Microsystems Stock or other
securities of Sun Microsystems. We have
derived all disclosures contained in this
pricing supplement regarding Sun Microsystems
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 Sun
Microsystems 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 Sun
Microsystems 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 Sun Microsystems Stock (and
therefore the Initial Sun Microsystems 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
Sun Microsystems 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 Sun Microsystems stock.
We, or our affiliates, may presently or from
time to time engage in business with Sun
Microsystems, including extending loans to, or
making equity investments in, Sun
Microsystems or providing advisory services
to Sun Microsystems, including merger and
acquisition advisory services. In the course
of such business, we, or our affiliates, may
acquire non-public information with respect to
Sun Microsystems and, in addition, one or
more of our affiliates may publish research
reports with respect to Sun Microsystems. 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 Sun Microsystems as in your
judgment is appropriate to make an informed
decision with respect to an investment in Sun
Microsystems Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1996, 1997, 1998 and
1999 through May 13, 1999. The Market Price
on May 13, 1999 was $65(3)/(16). 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 Sun
Microsystems Stock as an indication of future
performance. The price of Sun Microsystems
Stock may decrease so that you will receive
at maturity shares of Sun Microsystems Stock
worth less than the principal amount of the
Reset PERQS. We cannot give you any
assurance that the price of Sun Microsystems
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
Sun Microsystems Stock on May 30, 2000 and May
25, 2001, there is no guaranteed return of
principal. To the extent that the Maturity
Price of Sun Microsystems Stock is less than
the Initial Sun Microsystems Price or not
sufficiently above the Initial Sun
Microsystems Price to compensate for a
downward adjustment of the Exchange Ratio, if
any, at May 30, 2000 and the shortfall is not
offset by the coupon paid on the Reset PERQS,
you will lose money on your investment.
Sun Microsystems High Low
---------------- ---- ---
(CUSIP 866810104)
1996
First Quarter.................... 14 1/32 9 11/32
Second Quarter................... 16 21/32 11 13/32
Third Quarter.................... 16 1/4 11 31/32
Fourth Quarter................... 17 1/2 12 27/32
1997
First Quarter.................... 17 1/2 13 5/32
Second Quarter................... 18 31/32 13 7/16
Third Quarter.................... 26 21/32 18 9/32
Fourth Quarter................... 23 3/8 15 7/8
1998
First Quarter.................... 24 15/16 18 57/64
Second Quarter................... 22 9/16 19 13/32
Third Quarter.................... 26 3/8 19 13/16
Fourth Quarter................... 43 7/16 20
1999
First Quarter.................... 62 31/32 44 27/32
Second Quarter
(through May 13, 1999)......... 71 1/2 50 1/8
Historical prices have been adjusted for two
2 for 1 stock splits of Sun Microsystems
Stock, which became effective in the fourth
quarter of 1996 and the second quarter of
1999, respectively.
We make no representation as to the amount of
dividends, if any, that Sun Microsystems 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 Sun Microsystems Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our affiliates in connection
with hedging our obligations under the Reset
PERQS. See also "Use of Proceeds" in the
accompanying Prospectus.
On the date of this Pricing Supplement, we,
through our subsidiaries or others, hedged
our anticipated exposure in connection with
the Reset PERQS by taking positions in Sun
Microsystems Stock and other instruments.
Purchase activity could have potentially
increased the price of Sun Microsystems
Stock, and therefore effectively have
increased the level to which Sun Microsystems
Stock must rise before you would receive at
maturity an amount of Sun Microsystems Stock
worth as much as or more than the principal
amount of the Reset PERQS. Through our
subsidiaries, we are likely to modify our
hedge position throughout the life of the
Reset PERQS, including on the First Year
Determination Date, by purchasing and selling
Sun Microsystems Stock, options on Sun
Microsystems Stock listed on major securities
markets or positions in any other available
securities or instruments that we may wish to
use in connection with our hedging activity.
Although we have no reason to believe that
our hedging activity had or will have a
material impact on the price of Sun
Microsystems Stock, we cannot give any
assurance that we did not, or in the future
will not, affect such price as a result of
our hedging activities.
Supplemental Information
Concerning Plan of
Distribution.................. In order to facilitate the offering of the
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset PERQS
or the Sun Microsystems 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
Sun Microsystems 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 $6.4291171875 per Reset
PERQS and the underwriting discounts and
commissions will be $0.0003671875 per Reset
PERQS for purchasers of greater than or equal
to 500,000 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 500,000 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....... We and certain of our affiliates, including
MS & Co. and Dean Witter Reynolds Inc.
("DWR"), may each be considered a "party in
interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "disqualified person"
within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code") with
respect to many employee benefit plans.
Prohibited transactions within the meaning of
ERISA or the Code may arise, for example, if
the Reset PERQS are acquired by or with the
assets of a pension or other employee benefit
plan with respect to which MS & Co., DWR or
any of their affiliates is a service
provider, unless the Reset PERQS are acquired
pursuant to an exemption from the prohibited
transaction rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption
("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and
conditions of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed
by a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to the
provisions of Section 401 of the Code;
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed
by an in-house asset manager and (ii)
satisfies the requirements and conditions of
PTCE 96-23 issued by the DOL.
Under ERISA the assets of a pension or other
employee benefit plan may include assets held
in the general account of an insurance
company which has issued an insurance policy
to such plan or assets of an entity in which
the plan has invested. In addition, 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 Sun Microsystems 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 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 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,
MSDW 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 MSDW to sell,
for an amount equal to $6.51875 (the "Forward
Price"), the Sun Microsystems Stock at
maturity (or, alternatively, upon an earlier
redemption of the Reset PERQS), and (ii) a
deposit with MSDW of a fixed amount of cash,
equal to the Issue Price, to secure the
holder's obligation to purchase the Sun
Microsystems Stock (the "Deposit"). For this
purpose, MSDW has determined that, of the
quarterly payments on the Reset PERQS, 5.74%
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 Reset 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 Reset PERQS, MSDW will
allocate 100% of the Issue Price of the
Reset 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 Reset 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 Reset
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 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 the interest on
the Deposit, quarterly payments on the Reset
PERQS will generally be taxable to a U.S.
Holder as ordinary income at the time accrued
or received in accordance with the U.S.
Holder's method of accounting for U.S.
federal income tax purposes. Although the
federal income tax treatment of the Contract
Fees is uncertain, 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 would, pursuant to the Forward
Contract, be deemed to have applied the
Forward Price toward the purchase of Sun
Microsystems Stock, and a U.S. Holder would
not recognize any gain or loss with respect
to any Sun Microsystems 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 Sun
Microsystems Stock received upon maturity,
the U.S. Holder would have an adjusted tax
basis in such Sun Microsystems Stock equal to
the pro rata portion of the Forward Price
allocable thereto. The allocation of the
Forward Price between cash and Sun
Microsystems Stock should be based on the
amount of the cash received and the relative
fair market value, as of the maturity, of the
Sun Microsystems Stock. The U.S. Holder's
holding period of any Sun Microsystems 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.
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.
