PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 53 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated February 25, 1999
Rule 424(b)(3)
$120,394,140
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------------
6% Reset PERQS due March 15, 2001
Mandatorily Exchangeable For
Shares of Common Stock of MCI WORLDCOM, INC.
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay 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 MCI WorldCom common stock based on the closing prices of
MCI WorldCom common stock after one year and at maturity, in each case subject
to a cap price.
o The principal amount and issue price of each Reset PERQS is $8.55 which is
just under one-tenth of the closing price of MCI WorldCom common stock on
February 25, 1999, the day we offered the Reset PERQS for initial sale to the
public.
o We will pay 6% interest (equivalent to $0.513 per year) on the $8.55
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning June 15, 1999.
o At maturity you will receive shares of MCI WorldCom common stock in exchange
for each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-tenth of a share of MCI WorldCom common stock per Reset PERQS. However,
if the price of MCI WorldCom common stock appreciates above the first year
cap price for March 15, 2000 or the second year cap price for March 13, 2001,
the exchange ratio will be adjusted downward, and you will receive an amount
of MCI WorldCom common stock per Reset PERQS that is less than one-tenth of a
share.
o The first year cap price is $110.78, or 129% of the closing price of MCI
WorldCom common stock on February 25, 1999, the day we offered the Reset
PERQS for initial sale to the public. If on March 15, 2000, the price of MCI
WorldCom common stock is higher than the closing price of MCI WorldCom common
stock on February 25, 1999, we will raise the cap price to 129% of the
closing price of MCI WorldCom common stock on March 15, 2000. Otherwise the
cap price will remain unchanged in the second year. The maximum you can
receive at maturity is MCI WorldCom common stock worth $14.29 per Reset
PERQS.
o Investing in Reset PERQS is not equivalent to investing in MCI WorldCom
common stock.
o MCI WorldCom, Inc. is not involved in this offering of Reset PERQS in any
way and will have no financial obligation with respect to the Reset PERQS.
o The Reset PERQS have been approved for listing on the American Stock
Exchange, Inc., subject to official notice of issuance. The AMEX symbol for
the Reset PERQS is "RPW."
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 $8.55 PER RESET PERQS
----------
<TABLE>
<CAPTION>
Agent's Proceeds to
Price to Public Commissions Company
--------------- ------------- ---------------
<S> <C> <C> <C>
Per Reset PERQS.. $8.55 $0.15 $8.40
Total............ $120,394,140.30 $2,112,177.90 $118,281,962.40
</TABLE>
If you purchase at least 300,000 Reset PERQS in any single transaction and you
comply with the holding period requirement described under "Supplemental
Information Concerning Plan of Distribution" in this Pricing Supplement, the
price will be $8.4110625 per Reset PERQS (98.375% of the Issue Price). In that
case, the underwriting discounts and commissions will be $0.0110625 per Reset
PERQS.
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering
to you in general terms only. You should read the summary together with the
more detailed information that is contained in the rest of this pricing
supplement and in the accompanying prospectus and prospectus supplement. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
The Reset PERQS
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 6%
costs $8.55 Reset Performance Equity-linked Redemption Quarterly-pay
Securities[SM] ("Reset PERQS[SM]") due March 15, 2001.
The principal amount and issue price of each Reset PERQS
is $8.55, which is just under one-tenth of the closing
price of the common stock of MCI WorldCom, Inc. ("MCI
WorldCom Stock") on February 25, 1999, the day we
offered the Reset PERQS for initial sale to the public.
No guaranteed return Unlike ordinary debt securities, the Reset PERQS do not
of principal guarantee any return of principal at maturity. Instead
the Reset PERQS will pay an amount of MCI WorldCom Stock
based on the market price of MCI WorldCom Stock, either
up or down, after one year and at maturity, in each case
subject to a cap price. Reset PERQS are not equivalent
to investing in MCI WorldCom Stock.
6% interest on the We will pay interest on the Reset PERQS, at the rate of
principal amount 6% of the principal amount per year, quarterly on each
March 15, June 15, September 15 and December 15,
beginning June 15, 1999. The interest rate we pay on the
Reset PERQS is more than the current dividend rate on
the MCI WorldCom Stock. The Reset PERQS will mature on
March 15, 2001.
Your appreciation The appreciation potential of each Reset PERQS is
potential is capped limited in each year by the cap price. The cap price in
year one is $110.78, or 129% of the closing market price
of MCI WorldCom Stock on February 25, 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 129% of
the closing market price of MCI WorldCom Stock on March
15, 2000 and the First Year Cap Price. The maximum you
can receive at maturity is MCI WorldCom stock worth
$14.29 per Reset PERQS.
Payment at Maturity
At maturity, for each $8.55 principal amount of Reset
PERQS you hold, we will give to you a number of shares
of MCI WorldCom Stock equal to the exchange ratio. The
initial exchange ratio is one-tenth of a share of MCI
WorldCom Stock per Reset PERQS and may be adjusted as
follows:
First Year Adjustment. The exchange ratio will be
adjusted downward if the market price of MCI
WorldCom Stock exceeds the First Year Cap Price on
March 15, 2000.
The adjusted exchange ratio will be calculated as
follows:
New Existing First Year Cap Price
Exchange = Exchange x --------------------------------------------
Ratio Ratio MCI WorldCom closing price on March 15, 2000
If the market price of MCI WorldCom Stock on March 15,
2000 is the same as or less than the First Year Cap
Price, we will not adjust the exchange ratio at the end
of the first year.
Second Year Adjustment. The exchange ratio may be
adjusted downward again at maturity, but only if the
market price of MCI WorldCom Stock at maturity exceeds
the Second Year Cap Price. The final exchange ratio
will then be calculated as follows:
Final Existing Second Year Cap Price
Exchange = Exchange x --------------------------------------
Ratio Ratio MCI WorldCom closing price at maturity
If the market price of MCI WorldCom Stock at maturity
is the same as or less than the Second Year Cap Price,
we will not adjust the Exchange Ratio at maturity.
On the next page, we have provided a table titled
"Hypothetical Payments on the Reset PERQS." The table
demonstrates the effect of these adjustments to the
exchange ratio under a variety of hypothetical price
scenarios. You should examine the table for examples of
how the payout on the Reset PERQS could be affected
under these or other potential price scenarios. This
table does not show every situation that may occur.
You can review the prices of MCI WorldCom Stock for the
last three years in the "Historical Information" section
of this Pricing Supplement.
During the life of the Reset PERQS, Morgan Stanley & Co.
Incorporated ("MS & Co."), acting as calculation agent,
will also make adjustments to the effective exchange
ratio to reflect the occurrence of certain corporate
events that could affect the market price of MCI
WorldCom Stock. You should read about these adjustments
in the sections called "Description of Reset
PERQS--Exchange at Maturity," "--Exchange Factor" and
"--Antidilution Adjustments."
The Calculation Agent
We have appointed MS & Co. to act as calculation agent
for The Chase Manhattan Bank, the trustee for our senior
notes. As calculation agent, MS & Co. will determine
the exchange ratio and the cap prices and calculate the
amount of MCI WorldCom Stock that you will receive at
maturity.
No Affiliation with MCI WorldCom, Inc.
MCI WorldCom, Inc. is not an affiliate of ours and is
not involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and not
of MCI WorldCom, Inc.
More Information on the Reset PERQS
The Reset PERQS are senior notes issued as part of our
Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying Prospectus Supplement dated
March 26, 1998. We describe the basic features of this
type of note in the sections called "Description of
Reset PERQS-- Fixed Rate Notes" and "--Exchangeable
Notes."
For a detailed description of terms of the Reset PERQS
including the specific mechanics and timing of the
exchange ratio adjustments, you should read the
"Description of Reset PERQS" section in this Pricing
Supplement. You should also read about some of the
risks involved in investing in Reset PERQS in the
section called "Risk Factors."
How to reach us
You may contact your local Morgan Stanley Dean Witter
branch office or our principal executive offices at 1585
Broadway, New York, New York, telephone number (212)
761-4000.
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on the Initial MCI WorldCom Price of $85.875 per share of
MCI WorldCom Stock, the initial price per Reset PERQS of $8.55, a first year
cap of 129% and a second year cap of 129%, the following table illustrates, for
a range of First Year Closing Prices and Maturity Prices, the adjustments we
would make to the Exchange Ratio, Second Year Cap Prices, the Payments at
Maturity based on MCI WorldCom Stock for each $8.55 principal amount of Reset
PERQS and the total return including interest payments, based on the interest
rate of 6% per annum, for each $8.55 principal amount of Reset PERQS.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Initial MCI Initial MCI WorldCom
Initial Price per WorldCom Exchange First Year First Year 3/15/00 Adjusted Second Year Stock Maturity
Reset PERQS Price Ratio Cap Price Closing Price Exchange Ratio Cap Price Price(1)
- ---------------- ------------ -------- --------- ------------- -------------- --------- --------
$8.55 $85.875 0.10000 $110.78 $50.00 0.10000 $110.78 $35.00
$8.55 $85.875 0.10000 $110.78 $50.00 0.10000 $110.78 $90.00
$8.55 $85.875 0.10000 $110.78 $50.00 0.10000 $110.78 $125.00
$8.55 $85.875 0.10000 $110.78 $100.00 0.10000 $129.00 $75.00
$8.55 $85.875 0.10000 $110.78 $100.00 0.10000 $129.00 $120.00
$8.55 $85.875 0.10000 $110.78 $100.00 0.10000 $129.00 $150.00
$8.55 $85.875 0.10000 $110.78 $130.00 0.08521 $167.70 $75.00
$8.55 $85.875 0.10000 $110.78 $130.00 0.08521 $167.70 $150.00
$8.55 $85.875 0.10000 $110.78 $130.00 0.08521 $167.70 $175.00
$8.55 $85.875 0.10000 $110.78 $110.78 0.10000 $142.91 $142.91
129% of Greater of (x)
Initial MCI 129% of First
WorldCom Year Closing
Price Price and (y)
First Year Cap
Price
<CAPTION>
<S> <C> <C>
Reset PERQS
Payment at Reset PERQS
Maturity Payment at
Adjusted Based on Maturity plus
Exchange Ratio MCI WorldCom 6% Coupon
at Maturity Stock ("Total Payment")
----------- ------------ -----------------
0.10000 $3.50 $4.54
0.10000 $9.00 $10.04
0.08862 $11.08 $12.12
0.10000 $7.50 $8.54
0.10000 $12.00 $13.04
0.08600 $12.90 $13.94
0.08521 $6.39 $7.43
0.08521 $12.78 $13.82
0.08166 $14.29 $15.33
0.10000 $14.29 $15.33
Maturity Price
times
Adjusted
Exchange
Ratio
</TABLE>
- ----------
(1) The MCI WorldCom Stock Maturity Price does not include any dividend payments
that may have been paid to holders of MCI WorldCom Stock.
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than
ordinary debt securities. Because the return to investors is linked to the
performance of MCI WorldCom Stock, there is no guaranteed return of principal.
To the extent that the final market price of MCI WorldCom Stock at maturity is
either less than today's market price or not sufficiently above today's market
price to compensate for a downward adjustment of the exchange ratio, if any, at
March 15, 2000, investors will lose money on their investment. Reset PERQS
are not equivalent to investing directly in MCI WorldCom Stock. This section
describes the most significant risks relating to the Reset PERQS. You should
carefully consider whether the Reset PERQS are suited to your particular
circumstances before you decide to purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity
Ordinary Senior Notes -- and debt. The terms of the Reset PERQS
No guaranteed return of differ from those of ordinary debt
principal securities in that we will not pay you a
fixed amount at maturity. Our payment to
you at maturity will be a number of shares
of MCI WorldCom Stock based on the market
price of MCI WorldCom Stock on March 15,
2000 and at maturity. If the final market
price of MCI WorldCom Stock at maturity is
either less than today's market price or not
sufficiently above today's market price to
compensate for a downward adjustment of the
exchange ratio, if any, at March 15, 2000,
we will pay you an amount of MCI WorldCom
Stock with a value less than the principal
amount of the Reset PERQS. See
"Hypothetical Payments on the Reset PERQS"
above.
Your Appreciation The appreciation potential of the Reset
Potential Is Limited PERQS is limited because of the cap
prices. Even though the $8.55 issue price of
one Reset PERQS is just under today's market
price of one share of MCI WorldCom stock
multiplied by the initial exchange ratio,
you may receive a lessor fractional amount
of MCI WorldCom Stock per Reset PERQS at
maturity if the initial exchange ratio of
one-tenth of a share has been adjusted
downwards. If the price of MCI WorldCom
Stock appreciates above both the cap price
for March 15, 2000 and the cap price for
March 13, 2001, the initial exchange ratio
of one-tenth of a share of MCI WorldCom
Stock per Reset PERQS will be reduced twice.
The exchange ratio and the final market
price of MCI WorldCom Stock at maturity will
be determined on March 13, 2001, which is
two trading days prior to maturity of the
Reset PERQS. If the price of MCI WorldCom
Stock is lower on the actual maturity date
than it was on March 13, 2001, the value of
any MCI WorldCom Stock you receive will be
less. Under no circumstances will you
receive an amount of MCI WorldCom Stock for
each Reset PERQS worth more than $14.29 as
of such second scheduled trading day prior
to maturity.
Secondary Trading There may be little or no secondary market
May Be Limited for 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
PERQS Influenced by Many our control, will influence the value of the
Unpredictable Factors Reset PERQS. We expect that generally the
market price of the MCI WorldCom Stock on
any day will affect the value of the Reset
PERQS more than any other single factor.
Because adjustments to the exchange ratio
for the Reset PERQS are tied to the closing
stock prices on two specific days, however,
the Reset PERQS may trade differently from
the underlying stock. Other factors that
may influence the value of the Reset PERQS
include:
o the volatility (frequency and magnitude
of changes in price) of the MCI WorldCom
Stock
o the dividend rate on MCI WorldCom Stock
o economic, financial and political events
that affect stock markets generally and
which may affect the market price of the
MCI WorldCom Stock
o interest and yield rates in the market
o the time remaining to the maturity of the
Reset PERQS
o our creditworthiness
These factors will influence the price you
will receive if you sell your Reset PERQS
prior to maturity. For example, you may
have to sell your Reset PERQS at a
substantial discount from the principal
amount if the market price of the MCI
WorldCom Stock is at, below, or not
sufficiently above the initial market price.
You cannot predict the future performance of
MCI WorldCom Stock based on its historical
performance. The price of MCI WorldCom Stock
may decrease so that you will receive at
maturity shares of MCI WorldCom Stock worth
less than the principal amount of the Reset
PERQS. We cannot guarantee that the price
of MCI WorldCom Stock will increase so that
you will receive at maturity an amount in
excess of the principal amount of the Reset
PERQS.
No Affiliation with MCI We are not affiliated with MCI WorldCom,
WorldCom, Inc. Inc. ("MCI WorldCom"). We do not have any
non-public information about MCI WorldCom as
of the date of this Pricing Supplement,
although we or our affiliates may presently
or from time to time engage in business with
MCI WorldCom, including extending loans to,
or making equity investments in, MCI
WorldCom or providing advisory services to
MCI WorldCom, including merger and
acquisition advisory services. Moreover, we
have no ability to control or predict the
actions of MCI WorldCom, including any
corporate actions of the type that would
require the calculation agent to adjust the
payment to you at maturity. MCI WorldCom is
not involved in the offering of the Reset
PERQS in any way and has no obligation to
consider your interest as a holder of Reset
PERQS in taking any corporate actions that
might affect the value of your Reset PERQS.
None of the money you pay for the Reset
PERQS will go to MCI WorldCom.
You Have No Shareholder As a holder of Reset PERQS, you will not
Rights have voting rights or rights to receive
dividends or other distributions or any
other rights with respect to the MCI
WorldCom Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust
Adjustments the amount payable at maturity for certain
events affecting the MCI WorldCom Stock,
such as stock splits and stock dividends,
and certain other corporate actions
involving MCI WorldCom, such as mergers.
However, the calculation agent is not
required to make an adjustment for every
corporate event that can affect the MCI
WorldCom Stock. For example, the calculation
agent is not required to make any
adjustments if MCI WorldCom or anyone else
makes a partial tender or partial exchange
offer for the MCI WorldCom Stock. If an
event occurs that does not require the
calculation agent to adjust the amount
payable at maturity, the market price of the
Reset PERQS may be materially and adversely
affected.
Potential Conflicts of Interest As calculation agent, MS & Co. will
between You and the calculate the payment to you at maturity of
Calculation Agent the Reset PERQS. MS & Co. and other
affiliates may also carry out hedging
activities related to Reset PERQS, including
trading in MCI WorldCom Stock as well as in
other instruments related to MCI WorldCom
Stock. MS & Co. and some of our other
subsidiaries also trade MCI WorldCom Stock
and other financial instruments related to
MCI WorldCom Stock on a regular basis as
part of their general broker dealer
businesses. Any of these activities could
influence MS & Co.'s determination of
adjustments made to Reset PERQS and,
accordingly, could affect your payout on the
Reset PERQS.
Tax Treatment You should also consider the tax
consequences of investing in the Reset
PERQS. There is no direct legal authority
as to the proper tax treatment of the Reset
PERQS, and therefore significant aspects of
the tax treatment of the Reset PERQS are
uncertain. We do not plan to request a
ruling from the Internal Revenue Service
("IRS") regarding the tax treatment of the
Reset PERQS, and the IRS or a court may not
agree with the tax treatment described in
this Pricing Supplement. Please read
carefully the section "Description of Reset
PERQS--United States Federal Income
Taxation" in this Pricing Supplement.
DESCRIPTION OF RESET PERQS
Capitalized terms not defined herein have the meanings given to
such terms in the accompanying Prospectus Supplement. In this Pricing
Supplement, the "Company," "we," "us," and "our" refer to Morgan Stanley Dean
Witter & Co.
Principal Amount....................... $120,394,140.30
Maturity Date.......................... March 15, 2001
Interest Rate.......................... 6% per annum (equivalent to $0.513 per
annum per Reset PERQS)
Interest Payment Dates................. Each March 15, June 15, September 15
and December 15, beginning June 15,
1999.
Specified Currency..................... U.S. Dollars
Issue Price............................ $8.55 per Reset PERQS
Initial MCI WorldCom Price............. $85.875
Original Issue Date (Settlement Date).. March 2, 1999
CUSIP.................................. 617446257
Denominations.......................... $8.55 and integral multiples thereof
First Year Cap Price................... $110.78 (129% of the Initial MCI
WorldCom Price)
First Year Determination Date.......... March 15, 2000 (or if such date is not
a Trading Day on which no Market
Disruption Event occurs, the
immediately succeeding Trading Day on
which no Market Disruption Event
occurs)
First Year Closing Price............... First Year Closing Price means the
product of (i) the Market Price of one
share of MCI WorldCom Stock and (ii)
the Exchange Factor, each determined as
of the First Year Determination Date.
Second Year Cap Price.................. Second Year Cap Price means the greater
of (x)129% of the First Year Closing
Price and (y) the First Year Cap Price.
See "Exchange at Maturity" below.
Maturity Price......................... Maturity Price means the product of (i)
the Market Price of one share of MCI
WorldCom Stock and (ii) the Exchange
Factor, each determined as of the
second scheduled Trading Day
immediately prior to maturity.
Exchange at Maturity................... At maturity (including as a result of
acceleration under the terms of the
indenture or otherwise), upon delivery
of each Reset PERQS to the Trustee, we
will apply each $8.55 principal amount
of such Reset PERQS as payment for a
number of shares of MCI WorldCom Stock
at the Exchange Ratio. The initial
Exchange Ratio, initially set at 0.1,
is subject to adjustment on the First
Year Determination Date and at maturity
in order to cap the value of the MCI
WorldCom Stock to be received upon
delivery of the Reset PERQS at $14.29
per principal amount of each Reset
PERQS (167.13% of the Issue Price).
Solely for purposes of adjustment upon
the occurrence of certain corporate
events, the number of shares of MCI
WorldCom Stock to be delivered at
maturity will also be adjusted by an
Exchange Factor, initially set at 1.0.
See "Exchange Factor" and "Antidilution
Adjustments" below.
If the First Year Closing Price is less
than or equal to 129% of the Initial
MCI WorldCom Price (the "First Year Cap
Price"), no adjustment to the Exchange
Ratio will be made at such time. If
the First Year Closing Price exceeds
the First Year Cap Price, the Exchange
Ratio will be adjusted so that the new
Exchange Ratio will equal the product
of (i) the existing Exchange Ratio and
(ii) a fraction the numerator of which
will be the First Year Cap Price and
the denominator of which will be the
First Year Closing Price. In addition,
on the First Year Determination Date,
the Calculation Agent will establish
the "Second Year Cap Price" that will
be equal to the greater of (x)129% of
the First Year Closing Price and (y)
the First Year Cap Price. Notice of
the Second Year Cap Price and of any
such adjustment to the Exchange Ratio
shall promptly be sent by first-class
mail to The Depository Trust Company,
New York, New York (the "Depositary").
If the Maturity Price is less than or
equal to the Second Year Cap Price, no
further adjustment to the Exchange
Ratio will be made. If the Maturity
Price exceeds the Second Year Cap
Price, the existing Exchange Ratio will
be adjusted so that the final Exchange
Ratio will equal the product of (i) the
existing Exchange Ratio and (ii) a
fraction the numerator of which will be
the Second Year Cap Price and the
denominator of which will be the
Maturity Price. Please review each
example in the table called
"Hypothetical Payments on the Reset
PERQS" on PS-5.
All calculations with respect to the
Exchange Ratios for the Reset PERQS
will be rounded to the nearest one
hundred-thousandth, with five
one-millionths rounded upwards (e.g.
.876545 would be rounded to .87655);
all calculations with respect to the
Second Year Cap Price will be rounded
to the nearest ten-thousandth, with
five one-hundred- thousandths rounded
upwards (e.g. $12.34567 would be
rounded to $12.3457); and all dollar
amounts related to payments at maturity
resulting from such calculations will
be rounded to the nearest cent with
one-half cent being rounded upwards.
We shall, or shall cause the
Calculation Agent to, (i) provide
written notice to the Trustee and to
the Depositary, on or prior to 10:30
a.m. on the Trading Day immediately
prior to maturity of the Reset PERQS,
of the amount of MCI WorldCom Stock to
be delivered with respect to each $8.55
principal amount of each Reset PERQS
and (ii) deliver such shares of MCI
WorldCom Stock (and cash in respect of
interest and any fractional shares of
MCI WorldCom Stock) to the Trustee for
delivery to the holders. The
Calculation Agent shall determine the
Exchange Ratio applicable at the
maturity of the Reset PERQS and
calculate the Exchange Factor.
References to payment "per Reset PERQS"
refer to each $8.55 principal amount of
any Reset PERQS.
No Fractional Shares................... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a
result of acceleration or otherwise),
we will deliver the aggregate number of
shares of MCI WorldCom Stock due with
respect to all of such Reset PERQS, as
described above, but we will pay cash
in lieu of delivering any fractional
share of MCI WorldCom Stock in an
amount equal to the corresponding
fractional Market Price of such
fraction of a share of MCI WorldCom
Stock as determined by the Calculation
Agent as of the second scheduled
Trading Day prior to maturity of the
Reset PERQS.
Exchange Factor........................ The Exchange Factor will be set
initially at 1.0, but will be subject
to adjustment upon the occurrence of
certain corporate events through and
including the second scheduled Trading
Day immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price........................... If MCI WorldCom Stock (or any other
security for which a Market Price must
be determined) is listed on a national
securities exchange, is a security of
The Nasdaq National Market ("NASDAQ
NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin
Board") operated by the National
Association of Securities Dealers, Inc.
(the "NASD"), the Market Price for one
share of MCI WorldCom Stock (or one
unit of any such other security) on any
Trading Day means (i) the last reported
sale price, regular way, on such day on
the principal United States securities
exchange registered under the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), on which
MCI WorldCom Stock (or any such other
security) is listed or admitted to
trading or (ii) if not listed or
admitted to trading on any such
securities exchange or if such last
reported sale price is not obtainable,
the last reported sale price on the
over-the-counter market as reported on
the NASDAQ NMS or OTC Bulletin Board on
such day. If the last reported sale
price is not available pursuant to
clause (i) or (ii) of the preceding
sentence, the Market Price for any
Trading Day shall be the mean, as
determined by the Calculation Agent, of
the bid prices for MCI WorldCom Stock
(or any such other security) obtained
from as many dealers in such stock
(which may include MS & Co. or any of
our other subsidiaries or affiliates),
but not exceeding three, as will make
such bid prices available to the
Calculation Agent. A "security of the
NASDAQ NMS" shall include a security
included in any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor
service thereto.
Trading Day............................ A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock
Exchange ("NYSE"), the AMEX, the NASDAQ
NMS, the Chicago Mercantile Exchange,
and the Chicago Board of Options
Exchange and in the over-the-counter
market for equity securities in the
United States.
Acceleration Event..................... If on any date the product of the
Market Price per share of MCI WorldCom
Stock and the Exchange Factor is less
than $4.00, the maturity date of the
Reset PERQS will be deemed to be
accelerated to such date, and we will
apply each $8.55 principal amount of
each Reset PERQS as payment for a
number of shares of MCI WorldCom Stock
at the then current Exchange Ratio, as
adjusted by the then current Exchange
Factor. See also "Antidilution
Adjustments" below.
Optional Redemption.................... We will not redeem the Reset PERQS
prior to the Maturity Date.
Book Entry Note or Certificated Note... Book Entry
Senior Note or Subordinated Note....... Senior
Trustee............................... The Chase Manhattan Bank
Agent................................. Morgan Stanley & Co. Incorporated
Calculation Agent..................... Morgan Stanley & Co. Incorporated and
its successors ("MS & Co.").
Because the Calculation Agent is our
affiliate, potential conflicts of
interest may exist between the
Calculation Agent and you as a holder of
the Reset PERQS, including with respect
to certain determinations and judgments
that the Calculation Agent must make in
making adjustments to the Exchange
Factor or other antidilution adjustments
or determining any Market Price or
whether a Market Disruption Event has
occurred. See "Antidilution Adjustments"
and "Market Disruption Event" below. MS
& Co. is obligated to carry out its
duties as Calculation Agent in good
faith using its reasonable judgment.
Antidilution Adjustments.............. The Exchange Factor will be adjusted as
follows:
1. If MCI WorldCom Stock is subject
to a stock split or reverse stock split,
then once such split has become
effective, the Exchange Factor will be
adjusted to equal the product of the
prior Exchange Factor and the number of
shares issued in such stock split or
reverse stock split with respect to one
share of MCI WorldCom Stock.
2. If MCI WorldCom Stock is subject
(i) to a stock dividend (issuance of
additional shares of MCI WorldCom Stock)
that is given ratably to all holders of
shares of MCI WorldCom Stock or (ii) to
a distribution of MCI WorldCom Stock as
a result of the triggering of any
provision of the corporate charter of
MCI WorldCom, then once the dividend has
become effective and MCI WorldCom Stock
is trading ex-dividend, the Exchange
Factor will be adjusted so that the new
Exchange Factor shall equal the prior
Exchange Factor plus the product of (i)
the number of shares issued with respect
to one share of MCI WorldCom Stock and
(ii) the prior Exchange Factor.
3. There will be no adjustments to
the Exchange Factor to reflect cash
dividends or other distributions paid
with respect to MCI WorldCom Stock other
than distributions described in clause
(v) of paragraph 5 below and
Extraordinary Dividends as described
below. A cash dividend or other
distribution with respect to MCI
WorldCom Stock will be deemed to be an
"Extraordinary Dividend" if such
dividend or other distribution exceeds
the immediately preceding
non-Extraordinary Dividend for MCI
WorldCom Stock by an amount equal to at
least 10% of the Market Price of MCI
WorldCom Stock (as adjusted for any
subsequent corporate event requiring an
adjustment hereunder, such as a stock
split or reverse stock split) on the
Trading Day preceding the ex-dividend
date for the payment of such
Extraordinary Dividend (the "ex-dividend
date"). If an Extraordinary Dividend
occurs with respect to MCI WorldCom
Stock, the Exchange Factor with respect
to MCI WorldCom Stock will be adjusted
on the ex-dividend date with respect to
such Extraordinary Dividend so that the
new Exchange Factor will equal the
product of (i) the then current Exchange
Factor and (ii) a fraction, the
numerator of which is the Market Price
on the Trading Day preceding the
ex-dividend date, and the denominator of
which is the amount by which the Market
Price on the Trading Day preceding the
ex-dividend date exceeds the
Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with
respect to an Extraordinary Dividend for
MCI WorldCom Stock will equal (i) in the
case of cash dividends or other
distributions that constitute regular
dividends, the amount per share of such
Extraordinary Dividend minus the amount
per share of the immediately preceding
non-Extraordinary Dividend for MCI
WorldCom Stock or (ii) in the case of
cash dividends or other distributions
that do not constitute regular
dividends, the amount per share of such
Extraordinary Dividend. To the extent an
Extraordinary Dividend is not paid in
cash, the value of the non-cash
component will be determined by the
Calculation Agent, whose determination
shall be conclusive. A distribution on
the MCI WorldCom Stock described in
clause (v) of paragraph 5 below that
also constitutes an Extraordinary
Dividend shall cause an adjustment to
the Exchange Factor pursuant only to
clause (v) of paragraph 5.
4. If MCI WorldCom issues rights or
warrants to all holders of MCI WorldCom
Stock to subscribe for or purchase MCI
WorldCom Stock at an exercise price per
share less than the Market Price of the
MCI WorldCom Stock on both (i) the date
the exercise price of such rights or
warrants is determined and (ii) the
expiration date of such rights or
warrants, and if the expiration date of
such rights or warrants precedes the
maturity of the Reset PERQS, then the
Exchange Factor will be adjusted to
equal the product of the prior Exchange
Factor and a fraction, the numerator of
which shall be the number of shares of
MCI WorldCom Stock outstanding
immediately prior to the issuance of
such rights or warrants plus the number
of additional shares of MCI WorldCom
Stock offered for subscription or
purchase pursuant to such rights or
warrants and the denominator of which
shall be the number of shares of MCI
WorldCom Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional
shares of MCI WorldCom Stock which the
aggregate offering price of the total
number of shares of MCI WorldCom Stock
so offered for subscription or purchase
pursuant to such rights or warrants
would purchase at the Market Price on
the expiration date of such rights or
warrants, which shall be determined by
multiplying such total number of shares
offered by the exercise price of such
rights or warrants and dividing the
product so obtained by such Market
Price.
5. If (i) there occurs any
reclassification of MCI WorldCom Stock,
(ii) MCI WorldCom or any surviving
entity or subsequent surviving entity of
MCI WorldCom (a "MCI WorldCom
Successor") has been subject to a
merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of MCI
WorldCom or any MCI WorldCom Successor
with another corporation occurs (other
than pursuant to clause (ii) above),
(iv) MCI WorldCom is liquidated, (v) MCI
WorldCom issues to all of its
shareholders equity securities of an
issuer other than MCI WorldCom (other
than in a transaction described in
clauses (ii), (iii) or (iv) above) (a
"Spin-off Event") or (vi) a tender or
exchange offer or going-private
transaction is consummated for all the
outstanding shares of MCI WorldCom Stock
(any such event in clauses (i) through
(vi) a "Reorganization Event"), the
method of determining the amount payable
upon exchange at maturity for each Reset
PERQS will be adjusted to provide that
each holder of Reset PERQS will receive
at maturity, in respect of each $8.55
principal amount of each Reset PERQS,
securities, cash or any other assets
distributed in any such Reorganization
Event, including, in the case of a
Spin-off Event, the share of MCI
WorldCom Stock with respect to which the
spun-off security was issued
(collectively, the "Exchange Property")
in an amount with a value equal to (a)
if the Exchange Ratio has not been
adjusted prior to maturity, the
Transaction Value or (b) if the Exchange
Ratio has been adjusted, an amount equal
to the product of the final Exchange
Ratio and the Transaction Value. In
addition, following a Reorganization
Event, the method of determining the
Maturity Price will be adjusted so that
the Maturity Price will mean the
Transaction Value as of the second
scheduled Trading Day immediately prior
to maturity, and if the Reorganization
Event occurs prior to the First Year
Determination Date, the First Year
Closing Price will mean the Transaction
Value determined as of the First Year
Determination Date. Notwithstanding the
above, if the Exchange Property received
in any such Reorganization Event
consists only of cash, the maturity date
of the Reset PERQS will be deemed to be
accelerated to the date on which such
cash is distributed to holders of MCI
WorldCom Stock and holders will receive
in lieu of any MCI WorldCom Stock and as
liquidated damages in full satisfaction
of the Company's obligations under the
Reset PERQS the product of (i) the
Transaction Value as of such date and
(ii) the then current Exchange Ratio
adjusted as if such date were the next
to occur of either the First Year
Determination Date or the second
scheduled Trading Day prior to maturity.
If Exchange Property consists of more
than one type of property, holders of
Reset PERQS will receive at maturity a
pro rata share of each such type of
Exchange Property. If Exchange Property
includes a cash component, holders will
not receive any interest accrued on such
cash component. "Transaction Value" at
any date means (i) for any cash received
in any such Reorganization Event, the
amount of cash received per share of MCI
WorldCom Stock, as adjusted by the
Exchange Factor, (ii) for any property
other than cash or securities received
in any such Reorganization Event, the
market value, as determined by the
Calculation Agent, as of the date of
receipt, of such Exchange Property
received for each share of MCI WorldCom
Stock, as adjusted by the Exchange
Factor and (iii) for any security
received in any such Reorganization
Event, an amount equal to the Market
Price, as of the date on which the
Transaction Value is determined, per
share of such security multiplied by the
quantity of such security received for
each share of MCI WorldCom Stock, as
adjusted by the Exchange Factor.
For purposes of paragraph 5 above, in
the case of a consummated tender or
exchange offer or going-private
transaction involving Exchange Property
of a particular type, Exchange Property
shall be deemed to include the amount of
cash or other property paid by the
offeror in the tender or exchange offer
with respect to such Exchange Property
(in an amount determined on the basis of
the rate of exchange in such tender or
exchange offer or going-private
transaction). In the event of a tender
or exchange offer or a going- private
transaction with 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 MCI
WorldCom Stock, including, without
limitation, a partial tender or exchange
offer for the MCI WorldCom Stock.
Notwithstanding the foregoing, the
amount payable by us at maturity with
respect to each Reset PERQS, determined
as of the second scheduled Trading Day
prior to maturity, will not under any
circumstances exceed an amount of MCI
WorldCom Stock having a market price of
$14.29 as of such second scheduled
Trading Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Exchange Factor or method of calculating
the Exchange Ratio and of any related
determinations and calculations with
respect to any distributions of stock,
other securities or other property or
assets (including cash) in connection
with any corporate event described in
paragraph 5 above, and its
determinations and calculations with
respect thereto shall be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating
the Exchange Ratio upon written request
by any holder of the Reset PERQS.
Market Disruption Event............... "Market Disruption Event" means, with
respect to MCI WorldCom Stock:
(i) a suspension, absence or material
limitation of trading of MCI WorldCom
Stock on the primary market for MCI
WorldCom Stock for more than two hours
of trading or during the one-half hour
period preceding the close of trading in
such market; or a breakdown or failure
in the price and trade reporting systems
of the primary market for MCI WorldCom
Stock as a result of which the reported
trading prices for MCI WorldCom Stock
during the last one-half hour preceding
the closing of trading in such market
are materially inaccurate; or the
suspension, absence or material
limitation on the primary market for
trading in options contracts related to
MCI WorldCom Stock, if available, during
the one-half hour period preceding the
close of trading in the applicable
market, in each case as determined by
the Calculation Agent in its sole
discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that the
event described in clause (i) above
materially interfered with the ability
of the Company or any of its affiliates
to unwind all or a material portion of
the hedge with respect to the Reset
PERQS.
For purposes of determining whether a
Market Disruption Event has occurred:
(1) a limitation on the hours or number
of days of trading will not constitute a
Market Disruption Event if it results
from an announced change in the regular
business hours of the relevant exchange,
(2) a decision to permanently
discontinue trading in the relevant
option contract will not constitute a
Market Disruption Event, (3) limitations
pursuant to New York Stock Exchange Rule
80A (or any applicable rule or
regulation enacted or promulgated by the
NYSE, any other self-regulatory
organization or the Securities and
Exchange Commission of similar scope as
determined by the Calculation Agent) on
trading during significant market
fluctuations shall constitute a
suspension, absence or material
limitation of trading, (4) a suspension
of trading in an options contract on MCI
WorldCom Stock by the primary securities
market trading in such options, if
available, by reason of (x) a price
change exceeding limits set by such
securities exchange or market, (y) an
imbalance of orders relating to such
contracts or (z) a disparity in bid and
ask quotes relating to such contracts
will constitute a suspension or material
limitation of trading in options
contracts related to MCI WorldCom Stock
and (5) a suspension, absence or
material limitation of trading on the
primary securities market on which
options contracts related to MCI
WorldCom Stock are traded will not
include any time when such securities
market is itself closed for trading
under ordinary circumstances.
MCI WorldCom Stock;
Public Information ................. MCI WorldCom is one of the largest
telecommunications companies in the
United States, serving local, long
distance and Internet customers
domestically and internationally. MCI
WorldCom Stock is registered under the
Exchange Act. Companies with securities
registered under the Exchange Act are
required to file periodically certain
financial and other information
specified by the Securities and Exchange
Commission (the "Commission").
Information provided to or filed with
the Commission can be inspected and
copied at the public reference
facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its
Regional Offices located at Suite 1400,
Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of
such material can be obtained from the
Public Reference Section of the
Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed
rates. In addition, information provided
to or filed with the Commission
electronically can be accessed through a
Website maintained by the Commission.
The address of the Commission's Website
is http://www.sec.gov. Information
provided to or filed with the Commission
by MCI WorldCom pursuant to the Exchange
Act of 1934 can be located by reference
to Commission file number 0-11258. In
addition, information regarding MCI
WorldCom may be obtained from other
sources including, but not limited to,
press releases, newspaper articles and
other publicly disseminated documents.
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 MCI WorldCom Stock or
other securities of MCI WorldCom. We
have derived all disclosures contained
in this pricing supplement regarding MCI
WorldCom from the publicly available
documents described in the preceding
paragraph. Neither we nor the Agent has
participated in the preparation of such
documents or made any due diligence
inquiry with respect to MCI WorldCom in
connection with the offering of the
Reset PERQS. Neither we nor the Agent
makes any representation that such
publicly available documents or any
other publicly available information
regarding MCI WorldCom are accurate or
complete. Furthermore, we cannot give
any assurance that all events occurring
prior to the date hereof (including
events that would affect the accuracy or
completeness of the publicly available
documents described in the preceding
paragraph) that would affect the trading
price of MCI WorldCom Stock (and
therefore the Initial MCI WorldCom
Price, the First Year Cap Price and the
maximum appreciation amount) have been
publicly disclosed. Subsequent
disclosure of any such events or the
disclosure of or failure to disclose
material future events concerning MCI
WorldCom could affect the value received
at maturity with respect to the Reset
PERQS and therefore the trading prices
of the Reset PERQS.
Neither we nor any of our affiliates
makes any representation to you as to
the performance of MCI WorldCom stock.
We, or our affiliates, may presently or
from time to time engage in business
with MCI WorldCom, including extending
loans to, or making equity investments
in, MCI WorldCom or providing advisory
services to MCI WorldCom, including
merger and acquisition advisory
services. In the course of such
business, we, or our affiliates, may
acquire non-public information with
respect to MCI WorldCom and, in
addition, one or more of our affiliates
may publish research reports with
respect to MCI WorldCom. The statement
in the preceding sentence is not
intended to affect the right of holders
of the Reset PERQS under the securities
laws. As a prospective purchaser of a
Reset PERQS, you should undertake an
independent investigation of MCI
WorldCom as in your judgment is
appropriate to make an informed decision
with respect to an investment in MCI
WorldCom Stock.
Historical Information................ The following table sets forth the high
and low Market Price during 1996, 1997,
1998 and 1999 through February 25, 1999.
The Market Price on February 25, 1999
was $85(7)/(8). We obtained the Market
Prices listed below from Bloomberg
Financial Markets and we believe such
information to be accurate. You should
not take the historical prices of MCI
WorldCom Stock as an indication of
future performance. The price of MCI
WorldCom Stock may decrease so that you
will receive at maturity shares of MCI
WorldCom Stock worth less than the
principal amount of the Reset PERQS. We
cannot give you any assurance that the
price of MCI WorldCom Stock will
increase so that at maturity you will
receive an amount in excess of the
principal amount of the Reset PERQS.
Because your return is linked to the
Market Price of MCI WorldCom Stock on
March 15, 2000 and March 13, 2001, there
is no guaranteed return of principal. To
the extent that the Maturity Price of
MCI WorldCom Stock is less than the
Initial MCI WorldCom Price or not
sufficiently above the Initial MCI
WorldCom Price to compensate for a
downward adjustment of the Exchange
Ratio, if any, at March 15, 2000 and the
shortfall is not offset by the coupon
paid on the Reset PERQS, you will lose
money on your investment.
<TABLE>
<CAPTION>
MCI WorldCom High Low
------------ ---- ---
(CUSIP 55268B106)
<S> <C> <C>
1996
First Quarter....................... 23 16 1/2
Second Quarter...................... 27 11/16 21 3/4
Third Quarter....................... 28 18 5/8
Fourth Quarter...................... 26 1/16 21 5/8
1997
First Quarter....................... 27 1/2 22
Second Quarter...................... 32 21 7/8
Third Quarter....................... 37 29 15/16
Fourth Quarter...................... 38 1/16 28 15/16
1998
First Quarter....................... 44 7/16 28 13/16
Second Quarter...................... 48 7/16 42 1/4
Third Quarter....................... 56 7/8 40 15/16
Fourth Quarter...................... 74 1/4 43 1/8
1999
First Quarter
(through February 25, 1999)....... 85 7/8 69 7/8
</TABLE>
Historical prices have been adjusted for
a 2 for 1 stock split of MCI WorldCom
stock, which became effective in the
third quarter of 1996.
MCI WorldCom has not paid cash dividends
on the MCI WorldCom Stock to date. We
make no representation as to the amount
of dividends, if any, that MCI WorldCom
will pay in the future. In any event, as
a holder of the Reset PERQS, you will
not be entitled to receive dividends, if
any, that may be payable on MCI WorldCom
Stock.
Use of Proceeds and Hedging........... The net proceeds we receive from the
sale of the Reset PERQS will be used for
general corporate purposes and, in part,
by us or by one or more of our
affiliates in connection with hedging
our obligations under the Reset PERQS.
See also "Use of Proceeds" in the
accompanying Prospectus.
On 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 MCI WorldCom Stock.
Purchase activity could potentially have
increased the price of MCI WorldCom
Stock, and therefore effectively have
increased the level to which MCI
WorldCom Stock must rise before you
would receive at maturity an amount of
MCI WorldCom Stock worth as much as or
more than the principal amount of the
Reset PERQS. We, through our
subsidiaries, are likely to modify our
hedge position throughout the life of
the Reset PERQS, including on the First
Year Determination Date, by purchasing
or selling MCI WorldCom Stock, options
on MCI WorldCom 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
MCI WorldCom 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 MCI WorldCom Stock.
Specifically, the Agent may overallot in
connection with the offering, creating a
short position in the Reset PERQS for
its own account. In addition, to cover
allotments or to stabilize the price of
the Reset PERQS, the Agent may bid for,
and purchase, the Reset PERQS or the MCI
WorldCom Stock in the open market. See
"Use of Proceeds and Hedging" above.
The Agent proposes initially to offer
the Reset PERQS directly to the public
at the public offering price set forth
on the cover page hereof plus accrued
interest, if any, from the Original
Issue Date; provided that the price will
be $8.4110625 per Reset PERQS and the
underwriting discounts and commissions
will be $0.0110625 per Reset PERQS for
purchasers of greater than or equal to
300,000 Reset PERQS in any single
transaction, subject to the holding
period requirements described below.
Delivery of approximately 98.375% of the
Reset PERQS to a purchaser of 300,000 or
more Reset PERQS at the reduced price
(the "Delivered Reset PERQS") will be
made on the date of delivery of the
Reset PERQS referred to on the cover of
this Pricing Supplement. The balance of
approximately 1.625% 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 MCI WorldCom
Stock. Thus, any insurance company,
pension or employee benefit plan or
entity holding assets of such a plan
proposing to invest in the Reset PERQS
should consult with its legal counsel
prior to such investment.
United States Federal
Income Taxation..................... The following summary is based on the
advice of Davis Polk & Wardwell, special
tax counsel to the Company ("Tax
Counsel"), and is a general discussion
of the principal potential U.S. federal
income tax consequences to U.S. Holders
(as defined below) who are initial
holders of the Reset PERQS purchasing
the Reset PERQS at the Issue Price, and
who will hold the Reset PERQS as capital
assets within the meaning of Section
1221 of the Code. This summary is based
on the Code, administrative
pronouncements, judicial decisions and
currently effective and proposed
Treasury Regulations, changes to any of
which subsequent to the date of this
Pricing Supplement may affect the tax
consequences described herein. This
summary does not address all aspects of
the U.S. federal income taxation that
may be relevant to a particular holder
in light of its individual circumstances
or to certain types of holders subject
to special treatment under the U.S.
federal income tax laws (e.g., certain
financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset
PERQS as a part of a hedging
transaction, straddle, conversion or
other integrated transaction). As the
law applicable to the U.S. federal
income taxation of instruments such as
the Reset PERQS is technical and
complex, the discussion below
necessarily represents only a general
summary. Moreover, the effect of any
applicable state, local or foreign tax
laws is not discussed.
As used herein, the term "U.S. Holder"
means an owner of a Reset PERQS that is,
for U.S. federal income tax purposes,
(i) a citizen or resident of the United
States, (ii) a corporation or other
entity created or organized under the
laws of the United States or any
political subdivision thereof or (iii)
an estate or trust the income of which
is subject to United States federal
income taxation regardless of its
source.
General
Pursuant to the terms of the Reset
PERQS, the Company and every holder of a
Reset PERQS agree (in the absence of an
administrative determination or judicial
ruling to the contrary) to characterize
a Reset PERQS for all tax purposes as an
investment unit consisting of the
following components (the "Components"):
(i) a contract (the "Forward Contract")
that requires the holder of the Reset
PERQS to purchase, and the Company to
sell, for an amount equal to $8.55 (the
"Forward Price"), the MCI WorldCom Stock
at maturity (or, alternatively, upon an
earlier redemption of the Reset PERQS),
and (ii) a deposit with the Company of a
fixed amount of cash to secure the
holder's obligation to purchase the MCI
WorldCom Stock (the "Deposit"). For this
purpose, the Company has determined
that, of the quarterly payments on the
Reset PERQS, 5.71% is attributable to
interest on the Deposit. This
determination is based on the Company's
judgment as to, among other things, the
Company's normal borrowing cost and the
value of the Forward Contract. Under
this characterization, the remainder of
the quarterly payments on the Reset
PERQS represents payments attributable
to the holders' entry into the Forward
Contract (the "Contract Fees").
Furthermore, based on the Company's
determination of the relative fair
market values of the Components at the
time of issuance of the Reset PERQS, the
Company will allocate 100% of the Issue
Price of the Reset PERQS to the Deposit
and none to the Forward Contract. The
Company's allocation of the Issue Price
among the Components will be binding on
a holder of the Reset PERQS, unless such
holder timely and explicitly discloses
to the Internal Revenue Service (the
"IRS") that its allocation is different
from the Company's. The treatment of the
Reset PERQS described above and the
Company's allocation are not, however,
binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS
for U.S. federal income tax purposes,
and no ruling is being requested from
the IRS with respect to the Reset PERQS.
Due to the absence of authorities that
directly address instruments that are
similar to the Reset PERQS, tax counsel
is unable to render an opinion as to the
proper U.S. federal income tax
characterization of the Reset PERQS. As
a result, significant aspects of the
U.S. federal income tax consequences of
an investment in the Reset PERQS are not
certain, and no assurance can be given
that the IRS or the courts will agree
with the characterization described
herein. Accordingly, prospective
purchasers are urged to consult their
tax advisors regarding the U.S. federal
income tax consequences of an investment
in the Reset PERQS (including
alternative characterizations of the
Reset PERQS) and with respect to any tax
consequences arising under the laws of
any state, local or foreign taxing
jurisdiction. Unless otherwise stated,
the following discussion is based on the
treatment and the allocation described
above.
Tax Treatment of the Reset PERQS
Assuming the characterization of the
Reset PERQS and the allocation of the
Issue Price as set forth above, Tax
Counsel believes that the following U.S.
federal income tax consequences should
result.
Quarterly Payments on the Reset PERQS.
To the extent attributable to interest
on the Deposit, quarterly payments on
the Reset PERQS will generally be
taxable to a U.S. Holder as ordinary
income at the time accrued or received
in accordance with the U.S. Holder's
method of accounting for U.S. federal
income tax purposes. Although the
federal income tax treatment of the
Contract Fees is uncertain, the Company
intends to take the position that the
Contract Fees constitute taxable income
to the holders at the time accrued or
received in accordance with the U.S.
Holder's method of accounting for U.S.
federal income tax purposes.
Tax Basis. Based on the Company's
determination set forth above, the U.S.
Holder's tax basis in the Forward
Contract will be zero, and the U.S.
Holder's tax basis in the Deposit will
be 100% of the Issue Price.
Settlement of the Forward Contract. Upon
the maturity of the Forward Contract, a
U.S. Holder would, pursuant to the
Forward Contract, be deemed to have
applied the Forward Price toward the
purchase of MCI WorldCom Stock, and a
U.S. Holder would not recognize any gain
or loss with respect to any MCI WorldCom
Stock received thereon. With respect to
any cash received upon maturity, a U.S.
Holder would recognize gain or loss. The
amount of such gain or loss would be the
extent to which the amount of such cash
received differs from the pro rata
portion of the Forward Price allocable
to the cash. Any such gain or loss would
generally be capital gain or loss, as
the case may be. With respect to any MCI
WorldCom Stock received upon maturity,
the U.S. Holder would have an adjusted
tax basis in such MCI WorldCom Stock
equal to the pro rata portion of the
Forward Price allocable thereto. The
allocation of the Forward Price between
cash and MCI WorldCom Stock should be
based on the amount of the cash received
and the relative fair market value, as
of the maturity, of the MCI WorldCom
Stock. The U.S. Holder's holding period
of any MCI WorldCom Stock received would
start on the day after the maturity of
the Reset PERQS.
Sale or Exchange of the Reset PERQS.
Upon a sale or exchange of a Reset PERQS
prior to the maturity of the Reset
PERQS, a U.S. Holder would recognize
taxable gain or loss equal to the
difference between the amount realized
on such sale or exchange and such U.S.
Holder's tax basis in the Reset PERQS so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss,
as the case may be. Such U.S. Holder's
tax basis in the Reset PERQS would
generally equal the U.S. Holder's tax
basis in the Deposit. For these
purposes, the amount realized does not
include any amount attributable to
accrued but unpaid interest payments on
the Deposit, which would be taxed as
described under "--Quarterly Payments on
the Reset PERQS" above. It is uncertain
whether the amount realized includes any
amount attributable to accrued but
unpaid Contract Fees. U.S. Holders
should consult their tax advisers
regarding the treatment of accrued but
unpaid Contract Fees upon the sale or
exchange of a Reset PERQS.
The Internal Revenue Service
Restructuring and Reform Act of 1998
eliminated the 18-month holding period
requirement for certain individual
taxpayers to qualify for the lowest tax
rate for capital gain. The minimum
holding period required to qualify for
the lowest tax rate currently is 12
months.
Possible Alternative Tax Treatments of
an Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper
characterization of the Reset PERQS, no
assurance can be given that the IRS will
accept, or that a court will uphold, the
characterization and tax treatment
described above. In particular, the IRS
could seek to analyze the U.S. federal
income tax consequences of owning a
Reset PERQS under Treasury regulations
governing contingent payment debt
instruments (the "Contingent Payment
Regulations").
If the IRS were successful in asserting
that the Contingent Payment Regulations
applied to the Reset PERQS, the timing
and character of income thereon would be
significantly affected. Among other
things, a U.S. Holder would be required
to accrue as original issue discount
income, subject to adjustments, at a
"comparable yield" on the Issue Price.
Furthermore, any gain realized with
respect to the Reset PERQS would
generally be treated as ordinary income.
Even if the Contingent Payment
Regulations do not apply to the Reset
PERQS, other alternative federal income
tax characterizations or treatments of
the Reset PERQS are also possible, and
if applied could also affect the timing
and the character of the income or loss
with respect to the Reset PERQS. It is
possible, for example, that a Reset
PERQS could be treated as constituting a
prepaid forward contract. Other
alternative characterizations are also
possible. Accordingly, prospective
purchasers are urged to consult their
tax advisors regarding the U.S. federal
income tax consequences of an investment
in the Reset PERQS.
Backup Withholding and Information
Reporting
A U.S. Holder of a Reset PERQS may be
subject to information reporting and to
backup withholding at a rate of 31
percent of the amounts paid to the U.S.
Holder, unless such U.S. Holder provides
proof of an applicable exemption or a
correct taxpayer identification number,
and otherwise complies with applicable
requirements of the backup withholding
rules. The amounts withheld under the
backup withholding rules are not an
additional tax and may be refunded, or
credited against the U.S. Holder's U.S.
federal income tax liability, provided
the required information is furnished to
the IRS. In addition, the effective date
of the New Regulations (as defined in
"United States Federal Taxation --
Backup Withholding" in the accompanying
Prospectus Supplement) has been changed
so that the New Regulations will apply
to payments made after December 31,
1999.
