PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 24 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated October 13, 1999
Rule 424(b)(3)
$90,000,702
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
------------
6% Reset PERQS due December 15, 2001
Mandatorily Exchangeable For
Shares of Common Stock of ORACLE CORPORATION
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 Oracle common stock based on the closing prices of Oracle
common stock on December 15, 2000 and at maturity, in each case subject to a
cap price.
o The principal amount and issue price of each Reset PERQS is $23.71875, which
is one-half of the closing price of Oracle common stock on October 13, 1999,
the day we offered the Reset PERQS for initial sale to the public.
o We will pay 6% interest (equivalent to $1.423125 per year) on the $23.71875
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning December 15, 1999.
o At maturity you will receive shares of Oracle common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-half of a share of Oracle common stock per Reset PERQS. However, if the
price of Oracle common stock appreciates above the first year cap price for
December 15, 2000 or the second year cap price for December 13, 2001, the
exchange ratio will be adjusted downward, and you will receive an amount of
Oracle common stock per Reset PERQS that is less than one-half of a share.
o The first year cap price is $64.52, or 136% of the closing price of Oracle
common stock on October 13, 1999, the day we offered the Reset PERQS for
initial sale to the public. If on December 15, 2000 the price of Oracle
common stock is higher than the closing price of Oracle common stock on
October 13, 1999, we will raise the cap price to 136% of the closing price
of Oracle common stock on December 15, 2000. Otherwise the cap price will
remain unchanged in the second year. The maximum you can receive at maturity
is Oracle common stock worth $ 43.87 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Oracle common
stock.
o Oracle Corporation is not involved in this offering of Reset PERQS in any
way and will have no financial obligation with respect to the Reset PERQS.
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 "ORP."
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 $23.71875 PER RESET PERQS
------------
Agent's Proceeds to
Price to Public Commissions the Company
--------------- ----------- -----------
Per Reset PERQS..... $23.71875 $0.33 $23.38875
Total............... $90,000,702 $1,252,183.68 $88,748,518.32
If you purchase at least 150,000 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 $23.39262 per Reset PERQS (98.625% of the Issue Price). In that
case, the underwriting discounts and commissions will be $0.00387 per Reset
PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering
to you in general terms only. You should read the summary together with the
more detailed information that is contained in the rest of this pricing
supplement and in the accompanying prospectus and prospectus supplement. You
should carefully consider, among other things, the matters set forth in "Risk
Factors."
The Reset PERQS offered are medium-term debt securities of
Morgan Stanley Dean Witter & Co. The return on the Reset PERQS is linked to
the performance of Oracle Corporation common stock, which we refer to as
Oracle 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 Oracle 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 $23.71875 Reset Performance Equity-linked Redemption Quarterly-pay
Securities[SM] due December 15, 2001, which we refer to
as the Reset PERQS[SM]. The principal amount and issue
price of each Reset PERQS is $23.71875, which is
one-half of the closing price of Oracle Stock on October
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 Oracle Stock based
on the market price of Oracle Stock, either up or down,
on December 15, 2000 and at maturity, in each case
subject to a cap price. Investing in Reset PERQS is not
equivalent to investing in Oracle 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 December 15, 1999. The interest rate we pay on
the Reset PERQS is more than the current dividend rate
on the Oracle Stock. The Reset PERQS will mature on
December 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
through December 15, 2000 is $64.52, or 136.01% of the
closing price of Oracle Stock on the day we offered the
Reset PERQS for initial sale to the public ("First Year
Cap Price"). The cap price thereafter until maturity
("Second Year Cap Price") will be the higher of 136% of
the closing price of Oracle Stock on December 15, 2000
and the First Year Cap Price. The maximum you can
receive at maturity is Oracle Stock worth $43.87 per
Reset PERQS.
Payout at Maturity At maturity, for each $23.71875 principal amount of
Reset PERQS you hold, we will give to you a number of
shares of Oracle Stock equal to the exchange ratio. The
initial exchange ratio is one-half of a share of Oracle
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 Oracle Stock exceeds the First Year
Cap Price on December 15, 2000.
The adjusted exchange ratio will be calculated as
follows:
First Year Cap Price
New Exchange = Initial Exchange x --------------------------------
Ratio Ratio Oracle Stock closing price on
December 15, 2000
If the market price of Oracle Stock on December 15,
2000 is the same as or less than the First Year Cap
Price, we will not adjust the exchange ratio at that
time.
Second Year Adjustment
The exchange ratio may be adjusted downward again at
maturity, but only if the market price of Oracle
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 Oracle Stock closing price at maturity
If the market price of Oracle 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 Payouts 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 Oracle 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 Oracle 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 Oracle Stock that you will receive at
maturity.
No affiliation with Oracle Corporation is not an affiliate of ours and is
Oracle Corporation not involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and not
of Oracle Corporation.
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 Notes--
Fixed Rate Notes" and "--Exchangeable Notes."
For a detailed description of terms of the Reset PERQS
including the specific mechanics and timing of the
exchange ratio adjustments, you should read the
"Description of Reset PERQS" section in this pricing
supplement. You should also read about some of the risks
involved in investing in Reset PERQS in the section
called "Risk Factors."
How to reach us You may contact your local Morgan Stanley Dean Witter
branch office or our principal executive offices at 1585
Broadway, New York, New York, 10036 (telephone number
(212) 761-4000).
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS.
<TABLE>
Initial Price Initial
of Reset Initial Oracle Exchange First Year First Year 12/15/00
PERQS Stock Price Ratio Cap Price Closing Price Exchange Ratio
- ------------- -------------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$23.71875 $47.4375 0.50000 $64.52 $35.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $35.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $35.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $55.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $55.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $55.00 0.50000
$23.71875 $47.4375 0.50000 $64.52 $90.00 0.35844
$23.71875 $47.4375 0.50000 $64.52 $90.00 0.35844
$23.71875 $47.4375 0.50000 $64.52 $90.00 0.35844
$23.71875 $47.4375 0.50000 $64.52 $64.52 0.50000
136.01% of
Initial Oracle
Stock Price
Reset PERQS
Payout at Maturity Reset PERQS
Second Year Oracle Stock Exchange Ratio Based on Payout at Maturity plus
Cap Price Maturity Price(1) at Maturity Oracle Stock Price 6% Coupon
----------- ----------------- -------------- ------------------ -----------------------
$64.5200 $25.0000 0.50000 $12.50 $15.57
$64.5200 $50.0000 0.50000 $25.00 $28.07
$64.5200 $85.0000 0.37953 $32.26 $35.33
$74.8000 $45.0000 0.50000 $22.50 $25.57
$74.8000 $60.0000 0.50000 $30.00 $33.07
$74.8000 $90.0000 0.41556 $37.40 $40.47
$122.4000 $75.0000 0.35844 $26.88 $29.95
$122.4000 $100.0000 0.35844 $35.84 $38.91
$122.4000 $150.0000 0.29249 $43.87 $46.94
$87.7472 $87.7472 0.50000 $43.87 $46.94
Greater of Maturity Price
(x) times
136% of Adjusted
First Year Exchange
Closing Ratio
Price and (y)
First Year
Cap Price
(1) The Oracle Stock Maturity Price does not include any dividend payments that
may have been paid to holders of Oracle Stock.
</TABLE>
<PAGE>
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than ordinary debt
securities. Because the return to investors is linked to the performance of
Oracle Stock, there is no guaranteed return of principal. To the extent that the
final market price of Oracle 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 December 15, 2000,
investors will lose money on their investment. Investing in Reset PERQS is not
equivalent to investing directly in Oracle 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 payout to you
at maturity will be a number of shares of
Oracle Stock based on the market price of
Oracle Stock on December 15, 2000 and at
maturity. If the final market price of
Oracle 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 December 15, 2000, we will pay
you an amount of Oracle Stock with a value
less than the principal amount of the Reset
PERQS. See "Hypothetical Payouts 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 $23.71875 issue price of one
Reset PERQS is equal to today's market price
of one share of Oracle Stock multiplied by
the initial exchange ratio, you may receive
a lesser fractional amount of Oracle Stock
per Reset PERQS at maturity if the initial
exchange ratio of one-half of a share has
been adjusted downwards. If the price of
Oracle Stock appreciates above both the cap
price for December 15, 2000 and the cap
price for December 13, 2001, the initial
exchange ratio of one-half of a share of
Oracle Stock per Reset PERQS will be reduced
twice.
The exchange ratio and the final market
price of Oracle Stock at maturity will be
determined on December 13, 2001, which is
two trading days prior to maturity of the
Reset PERQS. If the price of Oracle Stock is
lower on the actual maturity date than it
was on December 13, 2001, the value of any
Oracle Stock you receive will be less. Under
no circumstances will you receive an amount
of Oracle Stock for each Reset PERQS worth
more than $43.87 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. MS & Co.
currently intends to act as a market maker
for Reset PERQS but is not required to do
so.
Market Price of the Reset Several factors, many of which are beyond
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 Oracle 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 Oracle Stock
o the dividend rate on Oracle Stock
o economic, financial and political events
that affect stock markets generally and
which may affect the market price of the
Oracle Stock
o interest and yield rates in the market
o the time remaining to the maturity of the
Reset PERQS
o our creditworthiness
Some or all of 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 Oracle
Stock is at, below, or not sufficiently
above the initial market price.
You cannot predict the future performance of
Oracle Stock based on its historical
performance. The price of Oracle Stock may
decrease so that you will receive at
maturity shares of Oracle Stock worth less
than the principal amount of the Reset
PERQS. We cannot guarantee that the price of
Oracle Stock will increase so that you will
receive at maturity an amount in excess of
the principal amount of the Reset PERQS.
No Affiliation with We are not affiliated with Oracle
Oracle Corporation Corporation ("Oracle"). Although we do not
have any non-public information about Oracle
as of the date of this pricing supplement,
we or our subsidiaries may presently or from
time to time engage in business with Oracle,
including extending loans to, or making
equity investments in, Oracle or providing
advisory services to Oracle, including
merger and acquisition advisory services.
Moreover, we have no ability to control or
predict the actions of Oracle, including any
corporate actions of the type that would
require the calculation agent to adjust the
payout to you at maturity. Oracle is not
involved in the offering of the Reset PERQS
in any way and has no obligation to consider
your interest as an owner of Reset PERQS in
taking any corporate actions that might
affect the value of your Reset PERQS. None
of the money you pay for the Reset PERQS
will go to Oracle.
You Have No As an owner of Reset PERQS, you will not
Shareholder Rights have voting rights or rights to receive
dividends or other distributions or any
other rights with respect to the Oracle
Stock.
Limited Antidilution MS & Co., as calculation agent, will adjus
Adjustments the amount payable at maturity for certain
events affecting the Oracle Stock, such as
stock splits and stock dividends, and
certain other corporate actions involving
Oracle, such as mergers. However, the
calculation agent is not required to make an
adjustment for every corporate event that
can affect the Oracle Stock. For example,
the calculation agent is not required to
make any adjustments if Oracle or anyone
else makes a partial tender or partial
exchange offer for the Oracle Stock. If an
event occurs that does not require the
calculation agent to adjust the amount of
Oracle Stock 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 payout 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 or to
other instruments, including trading in
Oracle Stock as well as in other instruments
related to Oracle Stock. MS & Co. and some
of our other subsidiaries also trade Oracle
Stock and other financial instruments
related to Oracle Stock on a regular basis
as part of their general broker dealer and
other businesses. Any of these activities
could influence MS & Co.'s determination of
adjustments made to Reset PERQS and,
accordingly, could affect your payout on the
Reset PERQS.
Tax Treatment You should also consider the tax
consequences of investing in the Reset
PERQS. There is no direct legal authority as
to the proper tax treatment of the Reset
PERQS, and therefore significant aspects of
the tax treatment of the Reset PERQS are
uncertain. We do not plan to request a
ruling from the Internal Revenue Service
regarding the tax treatment of the Reset
PERQS, and the 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.
<PAGE>
DESCRIPTION OF RESET PERQS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "Reset PERQS" refers to each
$23.71875 principal amount of our 6% Reset PERQS due December 15, 2001,
Mandatorily Exchangeable For Shares of Common Stock of Oracle Corporation. In
this pricing supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan
Stanley Dean Witter & Co.
Principal Amount.............. $90,000,702
Maturity Date................. December 15, 2001
Interest Rate................. 6% per annum (equivalent to $1.423125 per
annum per Reset PERQS)
Interest Payment Dates........ Each March 15, June 15, September 15 and
December 15, beginning December 15, 1999.
Specified Currency............ U.S. Dollars
Issue Price................... $23.71875 per Reset PERQS
Initial Oracle Stock Price.... $47.4375
Original Issue Date
(Settlement Date)........... October 18, 1999
CUSIP......................... 61744Y876
Denominations................. $23.71875 and integral multiples thereof
First Year Cap Price.......... $64.52 (136.01% of the Initial Oracle Stock
Price)
First Year Determination Date. December 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 Oracle
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) 136% 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 Oracle 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 $23.71875
principal amount of such Reset PERQS as payment
for a number of shares of Oracle Stock at the
Exchange Ratio. The initial Exchange Ratio,
initially set at 0.5, is subject to adjustment
on the First Year Determination Date and at
maturity in order to cap the value of the
Oracle Stock to be received upon delivery of
the Reset PERQS at $43.87 per Reset PERQS
(184.96% of the Issue Price). Solely for
purposes of adjustment upon the occurrence of
certain corporate events, the number of shares
of Oracle 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)136% 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 Payouts 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
payouts 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
Oracle Stock to be delivered with respect to
each $23.71875 principal amount of each Reset
PERQS and (ii) deliver such shares of Oracle
Stock (and cash in respect of interest and any
fractional shares of Oracle 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 senior
indenture), we will deliver the aggregate
number of shares of Oracle 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 Oracle
Stock in an amount equal to the corresponding
fractional Market Price of such fraction of a
share of Oracle 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 Oracle Stock through and
including the second scheduled Trading Day
immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price.................. If Oracle Stock (or any other security for
which a Market Price must be determined) is
listed on a national securities exchange, is a
security of The Nasdaq National Market or is
included in the OTC Bulletin Board Service
("OTC Bulletin Board") operated by the National
Association of Securities Dealers, Inc. (the
"NASD"), the Market Price for one share of
Oracle 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 Oracle Stock (or any such other
security) is listed or admitted to trading or
(ii) if not listed or admitted to trading on
any such securities exchange or if such last
reported sale price is not obtainable (even if
Oracle Stock (or any such other security) is
listed or admitted to trading on such
securities exchange), the last reported sale
price on the over-the-counter market as
reported on the Nasdaq National Market or OTC
Bulletin Board on such day. If the last
reported sale price is not available pursuant
to clause (i) or (ii) of the preceding sentence
because of a Market Disruption Event or
otherwise, the Market Price for any Trading Day
shall be the mean, as determined by the
Calculation Agent, of the bid prices for Oracle
Stock (or any such other security) obtained
from as many dealers in such stock (which may
include MS & Co. or any of our other
subsidiaries or affiliates), but not exceeding
three, as will make such bid prices available
to the Calculation Agent. A "security of the
Nasdaq National Market" shall include a
security included in any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock Exchange
("NYSE"), the AMEX, the Nasdaq National
Market, the Chicago Mercantile Exchange, and
the Chicago Board of Options Exchange and in
the over-the-counter market for equity
securities in the United States.
Acceleration Event............ If on any date the product of the Market
Price per share of Oracle 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 $23.71875 principal amount of
each Reset PERQS as payment for a number of
shares of Oracle Stock at the then current
Exchange Ratio, as adjusted by the then
current Exchange Factor. See also
"Antidilution Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to the
Maturity Date.
Book Entry Note or
Certificated Note........... Book Entry
Senior Note or Subordinated
Note........................ Senior
Trustee....................... The Chase Manhattan Bank
Agent for the underwritten
offering of Reset PERQS..... MS & Co.
Calculation Agent............. MS & Co.
Because the Calculation Agent is our affiliate,
potential conflicts of interest may exist
between the Calculation Agent and you as an
owner of the Reset PERQS, including with
respect to certain determinations and judgments
that the Calculation Agent must make in making
adjustments to the Exchange Factor or other
antidilution adjustments or determining any
Market Price or whether a Market Disruption
Event has occurred. See "Antidilution
Adjustments" and "Market Disruption Event"
below. MS & Co. is obligated to carry out its
duties as Calculation Agent in good faith using
its reasonable judgment.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If Oracle 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 Oracle
Stock.
2. If Oracle Stock is subject (i) to a stock
dividend (issuance of additional shares of
Oracle Stock) that is given ratably to all
holders of shares of Oracle Stock or (ii) to a
distribution of Oracle Stock as a result of the
triggering of any provision of the corporate
charter of Oracle, then once the dividend has
become effective and Oracle 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 Oracle 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 Oracle
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 Oracle Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or
other distribution exceeds the immediately
preceding non-Extraordinary Dividend for Oracle
Stock by an amount equal to at least 10% of the
Market Price of Oracle 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 Oracle Stock,
the Exchange Factor with respect to Oracle
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 Oracle
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 Oracle 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 Oracle Stock described in
clause (i) or clause (v) of paragraph 5 below
that also constitutes an Extraordinary Dividend
shall cause an adjustment to the Exchange
Factor pursuant only to clause (i) or clause
(v) of paragraph 5, as applicable.
4. If Oracle issues rights or warrants to
all holders of Oracle Stock to subscribe for or
purchase Oracle Stock at an exercise price per
share less than the Market Price of the Oracle
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
Oracle Stock outstanding immediately prior to
the issuance of such rights or warrants plus
the number of additional shares of Oracle Stock
offered for subscription or purchase pursuant
to such rights or warrants and the denominator
of which shall be the number of shares of
Oracle Stock outstanding immediately prior to
the issuance of such rights or warrants plus
the number of additional shares of Oracle Stock
which the aggregate offering price of the total
number of shares of Oracle 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 Oracle Stock, including, without
limitation, as a result of the issuance of any
tracking stock by Oracle, (ii) Oracle or any
surviving entity or subsequent surviving entity
of Oracle (an "Oracle Successor") has been
subject to a merger, combination or
consolidation and is not the surviving entity,
(iii) any statutory exchange of securities of
Oracle or any Oracle Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) Oracle is liquidated,
(v) Oracle issues to all of its shareholders
equity securities of an issuer other than
Oracle (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
Oracle 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 $23.71875 principal amount of
each Reset PERQS, securities, cash or any other
assets distributed to holders of Oracle Stock
in any such Reorganization Event, including, in
the case of the issuance of tracking stock, the
reclassified share of Oracle Stock and, in the
case of a Spin-off Event, the share of Oracle
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 Oracle Stock
and holders will receive in lieu of any Oracle
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 Oracle 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 Oracle 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 Oracle 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 Oracle Stock, including, without
limitation, a partial tender or exchange offer
for the Oracle 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
Oracle Stock having a market value of $43.87 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 Oracle Stock:
(i) a suspension, absence or material
limitation of trading of Oracle Stock on the
primary market for Oracle 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 Oracle
Stock as a result of which the reported
trading prices for Oracle 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
Oracle Stock, if available, during the
one-half hour period preceding the close of
trading in the applicable market, in each
case as determined by the Calculation Agent
in its sole discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that any event
described in clause (i) above materially
interfered with the ability of MSDW or any
of its affiliates to unwind or adjust all or
a material portion of the hedge with respect
to the Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a limitation
on the hours or number of days of trading will
not constitute a Market Disruption Event if it
results from an announced change in the regular
business hours of the relevant exchange, (2) a
decision to permanently discontinue trading in
the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to NYSE Rule 80A (or any
applicable rule or regulation enacted or
promulgated by the NYSE, any other
self-regulatory organization or the Securities
and Exchange Commission of similar scope as
determined by the Calculation Agent) on trading
during significant market fluctuations shall
constitute a suspension, absence or material
limitation of trading, (4) a suspension of
trading in an options contract on Oracle 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 Oracle Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to Oracle Stock
are traded will not include any time when such
securities market is itself closed for trading
under ordinary circumstances.
Oracle Stock; Public
Information................. Oracle Corporation develops, manufactures,
markets and distributes software for
information management, which helps
corporations manage their businesses. Oracle
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 Oracle pursuant to
the Exchange Act can be located by reference to
Commission file number 0-14376. In addition,
information regarding Oracle may be obtained
from other sources including, but not limited
to, press releases, newspaper articles and
other publicly disseminated documents. We make
no representation or warranty as to the
accuracy or completeness of such information.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not relate
to Oracle Stock or other securities of Oracle.
We have derived all disclosures contained in
this pricing supplement regarding Oracle 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 Oracle 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 Oracle
is accurate or complete. Furthermore, we cannot
give any assurance that all events occurring
prior to the date hereof (including events that
would affect the accuracy or completeness of
the publicly available documents described in
the preceding paragraph) that would affect the
trading price of Oracle Stock (and therefore
the Initial Oracle Stock Price, the First Year
Cap Price, the Second Year Cap Price and the
maximum appreciation amount) have been publicly
disclosed. Subsequent disclosure of any such
events or the disclosure of or failure to
disclose material future events concerning
Oracle 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
Oracle Stock.
We and/or our subsidiaries may presently or
from time to time engage in business with
Oracle, including extending loans to, or making
equity investments in, Oracle or providing
advisory services to Oracle, including merger
and acquisition advisory services. In the
course of such business, we and/or our
subsidiaries may acquire non-public
information with respect to Oracle and, in
addition, one or more of our affiliates may
publish research reports with respect to
Oracle. 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 Oracle as in your judgment is
appropriate to make an informed decision with
respect to an investment in Oracle Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1996, 1997, 1998 and
1999 through October 13, 1999. The Market
Price on October 13 was $47 7/16. 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 Oracle
Stock as an indication of future performance.
The price of Oracle Stock may decrease so
that you will receive at maturity shares of
Oracle Stock worth less than the principal
amount of the Reset PERQS. We cannot give
you any assurance that the price of Oracle
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
Oracle Stock on December 15, 2000 and
December 13, 2001, there is no guaranteed
return of principal. To the extent that the
Maturity Price of Oracle Stock is less than
the Initial Oracle Stock Price or not
sufficiently above the Initial Oracle Stock
Price to compensate for a downward adjustment
of the Exchange Ratio, if any, at December
15, 2000 and the shortfall is not offset by
the coupon paid on the Reset PERQS, you will
lose money on your investment.
Oracle High Low
------ ---- ---
(CUSIP 68389X105)
1996
First Quarter................. 16 5/64 11 55/64
Second Quarter................ 17 9/16 12 19/64
Third Quarter................. 19 25/32 15 43/64
Fourth Quarter................ 22 7/64 18 9/32
1997
First Quarter................. 19 15/16 15 11/64
Second Quarter................ 23 43/64 15 43/64
Third Quarter................. 27 27/64 21 25/64
Fourth Quarter................ 25 1/64 14 1/64
1998
First Quarter................. 21 3/64 12 3/64
Second Quarter................ 20 59/64 15 13/64
Third Quarter................. 19 27/64 12 45/64
Fourth Quarter................ 29 43/64 15 29/64
1999
First Quarter................. 40 1/2 25 15/16
Second Quarter................ 37 1/8 21 7/16
Third Quarter ................ 46 3/8 35
Fourth Quarter
(through October 13, 1999).. 47 7/16 44 11/16
Historical prices have been adjusted for three
3 for 2 stock splits of Oracle Stock, which
became effective in the second quarter of 1996,
the third quarter of 1997 and the first quarter
of 1999, respectively.
Oracle has not paid cash dividends on Oracle
Stock to date. We make no representation as to
the amount of dividends, if any, that Oracle
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 Oracle Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our subsidiaries in connection
with hedging our obligations under the Reset
PERQS. See also "Use of Proceeds" in the
accompanying prospectus.
On 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 Oracle Stock
and other instruments. Purchase activity could
have potentially increased the price of Oracle
Stock, and therefore effectively have increased
the level to which Oracle Stock must rise
before you would receive at maturity an amount
of Oracle 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
the Oracle Stock, options on Oracle Stock
listed on major securities markets or positions
in any other available securities or
instruments that we may wish to use in
connection with such hedging activity. Although
we have no reason to believe that our hedging
activity had or will have a material impact on
the price of Oracle 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 Oracle 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 Oracle 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 $23.39262 per Reset PERQS and the
underwriting discounts and commissions will be
$0.00387 per Reset PERQS for purchasers of
greater than or equal to 150,000 Reset PERQS in
any single transaction, subject to the holding
period requirements described below.
Delivery of approximately 98.625% of the Reset
PERQS to a purchaser of 150,000 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 Insurance Companies..... We and certain of our subsidiaries and
affiliates, including MS & Co. and Dean Witter
Reynolds Inc. ("DWR"), may each be considered a
"party in interest" within the meaning of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or a "disqualified
person" within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code")
with respect to many employee benefit plans.
Prohibited transactions within the meaning of
ERISA or the Code may arise, for example, if
the Reset PERQS are acquired by or with the
assets of a pension or other employee benefit
plan with respect to which MS & Co., DWR or any
of their affiliates is a service provider,
unless the Reset PERQS are acquired pursuant to
an exemption from the prohibited transaction
rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted below
if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption ("PTCE")
91-38 issued by the Department of Labor
("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and conditions
of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed by
a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section 3(32)
of ERISA) which is not subject to the
provisions of Section 401 of the Code;
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed by
an in-house asset manager and (ii) satisfies
the requirements and conditions of PTCE 96-23
issued by the DOL.
Under ERISA the assets of a pension or other
employee benefit plan may include assets held
in the general account of an insurance company
which has issued an insurance policy to such
plan or assets of an entity in which the plan
has invested. In addition to considering the
consequences of owning the Reset PERQS,
employee benefit plans subject to ERISA (or
insurance companies deemed to be investing
ERISA plan assets) purchasing Reset PERQS
should consider the possible implications of
owning the Oracle 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, our special
tax counsel ("Tax Counsel"), and is a general
discussion of the principal potential U.S.
federal income tax consequences to initial
holders of the Reset PERQS purchasing the Reset
PERQS at the Issue Price, 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.
General
Pursuant to the terms of the Reset PERQS, we
and every holder of a Reset PERQS agree (in the
absence of an administrative determination or
judicial ruling to the contrary) to
characterize a Reset PERQS for all tax purposes
as an investment unit consisting of the
following components (the "Components"): (i) a
contract (the "Forward Contract") that requires
the holder of the Reset PERQS to purchase, and
us to sell, for an amount equal to $23.97594
(the "Forward Price"), the Oracle Stock at
maturity (or, alternatively, upon an earlier
redemption of the Reset PERQS), and (ii) a
deposit with us of a fixed amount of cash,
equal to the Issue Price, to secure the
holder's obligation to purchase the Oracle
Stock (the "Deposit"), which Deposit bears an
annual yield of 6.50% per annum, which yield is
based on our cost of borrowing. Based on our
determination of the relative fair market
values of the Components at the time of
issuance of the Reset PERQS, we will allocate
100% of the Issue Price of the Reset PERQS to
the Deposit and none to the Forward Contract.
Our 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 ours. The treatment of the Reset
PERQS described above and our allocation are
not, however, binding on the IRS or the courts.
No statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS for U.S.
federal income tax purposes, and no ruling is
being requested from the IRS with respect to
the Reset PERQS. Due to the absence of
authorities that directly address instruments
that are similar to the Reset PERQS, Tax
Counsel is unable to render an opinion as to
the proper U.S. federal income tax
characterization of the Reset PERQS. As a
result, significant aspects of the U.S. federal
income tax consequences of an investment in the
Reset PERQS are not certain, and no assurance
can be given that the IRS or the courts will
agree with the characterization described
herein. Accordingly, you are urged to consult
your tax advisor regarding the U.S. federal
income tax consequences of an investment in the
Reset PERQS (including alternative
characterizations of the Reset PERQS) and with
respect to any tax consequences arising under
the laws of any state, local or foreign taxing
jurisdiction. Unless otherwise stated, the
following discussion is based on the treatment
and the allocation described above.
U.S. Holders
As used herein, the term "U.S. Holder" means an
owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the laws
of the United States or any political
subdivision thereof or (iii) an estate or trust
the income of which is subject to United States
federal income taxation regardless of its
source.
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 and Original Issue Discount
on the Reset PERQS. Because the Deposit is
treated as bearing a yield of 6.50% per annum,
which is greater than the stated interest rate
on the Reset PERQS, the Deposit will be subject
to the "original issue discount" rules, and a
U.S. Holder will include "qualified stated
interest" equal to the stated interest on the
Reset PERQS in income in accordance with the
U.S. Holder's method of accounting for federal
income tax purposes. Additionally, each U.S.
Holder, including a taxpayer who otherwise uses
the cash method of accounting, will be required
to include original issue discount ("OID") on
the Deposit (in an aggregate amount equal to
the Forward Price less the Issue Price) in
income as it accrues, in accordance with a
constant yield method based on a compounding of
interest. This method will generally cause the
U.S. Holder to include OID in each accrual in
an amount equal to the product of the "adjusted
issue price" (which is the Issue Price
increased by OID previously accrued on the
Deposit) at the beginning of the accrual period
and the yield of the Deposit, minus the amount
of any qualified stated interest allocable to
the accrual period. Under these circumstances,
the amount of income recognized by a U.S.
Holder will generally be more than the stated
interest paid to the U.S. Holder and will
increase during the term of the Reset PERQS.
Tax Basis. Based on our determination set forth
above, the U.S. Holder's tax basis in the
Forward Contract will be zero, and the U.S.
Holder's tax basis in the Deposit will be 100%
of the Issue Price. The U.S. Holder's tax basis
in the Deposit will be subsequently increased
by OID accrued with respect thereto.
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 Oracle Stock, and a U.S. Holder
would not recognize any gain or loss with
respect to any Oracle 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 Oracle Stock received upon maturity, the
U.S. Holder would have an adjusted tax basis in
such Oracle Stock equal to the pro rata portion
of the Forward Price allocable thereto. The
allocation of the Forward Price between cash
and Oracle Stock should be based on the amount
of the cash received and the relative fair
market value, as of the maturity, of the Oracle
Stock. The U.S. Holder's holding period of any
Oracle Stock received would start on the day
after the maturity of the Reset PERQS.
U.S. Holders should note that any gain or loss
recognized upon the final settlement of the
Forward Contract generally would be capital
gain or loss. The distinction between capital
gain or loss and ordinary gain or loss is
potentially significant in several respects.
For example, limitations apply to a U.S.
Holder's ability to offset capital losses
against ordinary income, and certain U.S.
Holders may be subject to lower U.S. federal
income tax rates with respect to long-term
capital gain than with respect to ordinary
gain. U.S. Holders should consult their tax
advisors with respect to the treatment of
capital gain or loss on a Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a
sale or exchange of a Reset PERQS prior to the
maturity of the Reset PERQS, a U.S. Holder
would recognize taxable gain or loss equal to
the difference between the amount realized on
such sale or exchange and such U.S. Holder's
tax basis in the Reset PERQS so sold or
exchanged. Any such gain or loss would
generally be capital gain or loss, as the case
may be. Such U.S. Holder's tax basis in the
Reset PERQS would generally equal the U.S.
Holder's tax basis in the Deposit. For these
purposes, the amount realized does not include
any amount attributable to accrued interest on
the Deposit, which would be taxed as described
under "--Quarterly Payments and Original Issue
Discount on the Reset PERQS" above.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that directly
address the proper characterization of the
Reset PERQS, no assurance can be given that the
IRS will accept, or that a court will uphold,
the characterization and tax treatment
described above. In particular, the IRS could
seek to analyze the U.S. federal income tax
consequences of owning a Reset PERQS under
Treasury regulations governing contingent
payment debt instruments (the "Contingent
Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly affected.
Among other things, a U.S. Holder would be
required to accrue as original issue discount
income, subject to adjustments, at a
"comparable yield" on the Issue Price. In
addition, a U.S. Holder would recognize income
upon maturity of the Reset PERQS to the extent
that the value of Oracle Stock and cash (if
any) received exceeds the adjusted issue price.
Furthermore, any gain realized with respect to
the Reset PERQS would generally be treated as
ordinary income.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other alternative
federal income tax characterizations or
treatments of the Reset PERQS are also
possible, and if applied could also affect the
timing and the character of the income or loss
with respect to the Reset PERQS. It is
possible, for example, that a Reset PERQS could
be treated as constituting a prepaid forward
contract. Accordingly, prospective purchasers
are urged to consult their tax advisors
regarding the U.S. federal income tax
consequences of an investment in the Reset
PERQS.
Proposed Legislation
In recent years, several legislative proposals
(including H.R. 2488 (the "Taxpayer Refund and
Relief Act of 1999"), which was vetoed by the
President on September 23, 1999) have included
provisions (the "Constructive Ownership
Legislation") which, if enacted, would treat a
taxpayer owning certain types of derivative
positions in property as having "constructive
ownership" in that property, with the result
that all or a portion of the long term capital
gain recognized by such taxpayer with respect
to the derivative position would be
recharacterized as ordinary income. Although
recent drafts of the Constructive Ownership
Legislation, if enacted, would not apply to the
Reset PERQS, the recent drafts would have
authorized the Treasury Department to
promulgate regulations (possibly with
retroactive effect) to expand the application
of the "constructive ownership" rule. There is
no assurance that the Treasury Department would
not promulgate regulations to apply the rule to
the Reset PERQS. If the Constructive Ownership
Legislation were to apply to the Reset PERQS,
the effect on a U.S. Holder would be to treat
all or a portion of the long term capital gain
recognized by such U.S. Holder on sale or
maturity of a Reset PERQS as ordinary income,
but only to the extent such long term capital
gain exceeds the long term capital gain that
would have been recognized by such U.S. Holder
if the U.S. Holder had acquired Oracle Stock
itself on the issue date of the Reset PERQS and
disposed of the Oracle Stock upon disposition
of the Reset PERQS. In addition, the
Constructive Ownership Legislation would impose
an interest charge on the gain that was
recharacterized on the sale or maturity of the
Reset PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of a Reset PERQS may be subject
to information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid to the U.S. Holder, unless such
U.S. Holder provides proof of an applicable
exemption or a correct taxpayer identification
number, and otherwise complies with applicable
requirements of the backup withholding rules.
The amounts withheld under the backup
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.
Non-U.S. Holders
As used herein, the term "Non-U.S. Holder"
means an owner of a Reset PERQS that is, for
United States federal income tax purposes, (i)
a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien
fiduciary of a foreign trust or estate or (iv)
a foreign partnership one or more of the
members of which is, for United States federal
income tax purposes, a nonresident alien
individual, a foreign corporation or a
nonresident alien fiduciary of a foreign trust
or estate. This summary does not deal with
persons that are not Non-U.S. Holders or that
are subject to special rules, such as
nonresident alien individuals that have lost
United States citizenship or that have ceased
to be taxed as United States resident aliens,
corporations that are treated as foreign
personal holding companies, controlled foreign
corporations or passive foreign investment
companies, and certain other Non-U.S. Holders
that are owned or controlled by persons subject
to United States federal income tax. In
addition, the following summary does not apply
to persons for whom interest or gain on a Reset
PERQS is effectively connected with a trade or
business in the United States.
As described above in "United States Federal
Income Taxation--General," we and every holder
of a Reset PERQS agree (in the absence of an
administrative determination or judicial ruling
to the contrary) to characterize a Reset PERQS
for all U.S. tax purposes as an investment unit
consisting of the Forward Contract and the
Deposit.
Subject to the discussion below concerning
backup withholding, payments with respect to a
Reset PERQS by us or a paying agent to a
Non-U.S. Holder, and gain realized on the sale,
exchange or other disposition of such Reset
PERQS, should not be subject to United States
federal income or withholding tax, provided
that: (i) such Non-U.S. Holder does not own,
actually or constructively, 10 percent or more
of the total combined voting power of all
classes of our stock entitled to vote, is not a
controlled foreign corporation related,
directly or indirectly, to us through stock
ownership, and is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code;
(ii) the statement required by Section 871(h)
or Section 881(c) of the Code has been provided
with respect to the beneficial owner, as
discussed below; (iii) such Non-U.S. Holder is
not an individual who is present in the United
States for 183 days or more in the taxable year
of disposition, or such individual does not
have a "tax home" (as defined in Section
911(d)(3) of the Code) or an office or other
fixed place of business in the United States;
and (iv) such payment and gain are not
effectively connected with the conduct by such
Non-U.S. Holder of a trade or business in the
United States.
Sections 871(h) and 881(c) of the Code and
applicable regulations require that, in order
to obtain the portfolio interest exemption from
withholding tax, either the beneficial owner of
the Reset PERQS, or a securities clearing
organization, bank or other financial
institution that holds customers' securities in
the ordinary course of its trade or business (a
"Financial Institution") and that is holding
the Reset PERQS on behalf of such beneficial
owner, file a statement with the withholding
agent to the effect that the beneficial owner
of the Reset PERQS is not a United States
person. Under United States Treasury
Regulations, such requirement will be fulfilled
if the beneficial owner of a Reset PERQS
certifies on Internal Revenue Service Form W-8
(or any successor form), under penalties of
perjury, that it is not a United States person
and provides its name and address, and any
Financial Institution holding the Reset PERQS
on behalf of the beneficial owner files a
statement with the withholding agent to the
effect that it has received such a statement
from the Non-U.S. Holder (and furnishes the
withholding agent with a copy thereof). With
respect to Reset PERQS held by a foreign
partnership, under current law, the Form W-8
(or any successor form) may be provided by the
foreign partnership. However, for payments with
respect to a Reset PERQS after December 31,
2000, unless the foreign partnership has
entered into a withholding agreement with the
Internal Revenue Service, a foreign partnership
will be required, in addition to providing an
intermediary Form W-8 (or any successor form),
to attach an appropriate certification by each
partner. If you are a prospective investor, you
should consult your tax advisor regarding
possible additional reporting requirements,
including reporting requirements that apply to
foreign partnerships and their partners.
Under the treatment of a Reset PERQS as a unit
consisting of the Deposit and the Forward
Contract (as described above), a Reset PERQS
held by a Non-U.S. Holder at the time of his
death is likely to be subject to United States
federal estate tax as a result of such
individual's death, to the extent of the value
of the Forward Contract, if any, unless a
relevant estate tax treaty applies.
Possible Alternative Tax Treatments of an
Investment in a Reset PERQS
As described above in "United States Federal
Income Taxation--U.S. Holders--Possible
Alternative Tax Treatments of an Investment
in a Reset PERQS," the IRS may seek to treat
the Reset PERQS as a debt instrument subject
to the Contingent Payment Regulations. If
such a characterization were successful, the
tax consequences to a Non-U.S. Holder of
ownership and disposition of a Reset PERQS
would be the same as those described
immediately above. However, if the IRS
sought to recharacterize a Reset PERQS as a
pre-paid forward contract, it is possible
that payments of stated interest made with
respect to a Reset PERQS would be subject to
withholding at a rate of 30%, unless a
relevant income tax treaty applies. We do
not currently intend to withhold on payments
of stated interest with respect to a Reset
PERQS, but will do so if required by law.
Due to the absence of authorities that
directly address instruments that are similar
to a Reset PERQS, significant aspects of the
U.S. federal income tax consequences of an
investment in a Reset PERQS are not certain,
and no assurance can be given that the IRS or
the courts will agree with the
characterization of a Reset PERQS as an
investment unit consisting of the Forward
Contract and the Deposit. Accordingly,
prospective purchasers are urged to consult
their tax advisors regarding the U.S. federal
income tax consequences of an investment in a
Reset PERQS.
Backup Withholding and Information Reporting
Under current Treasury Regulations, backup
withholding at 31% will not apply to payments
by us made on a Reset PERQS if the
certifications required by Sections 871(h) or
881(c) are received.
Under current Treasury Regulations, payments on
the sale, exchange or other disposition of a
Reset PERQS made to or through a foreign office
of a broker generally will not be subject to
backup withholding. However, if such broker is
a United States person, a controlled foreign
corporation for United States tax purposes, a
foreign person 50 percent or more of whose
gross income is effectively connected with a
United States trade or business for a specified
three-year period or, in the case of payments
made after December 31, 2000, a foreign
partnership with certain connections to the
United States, information reporting will be
required unless the broker has in its records
documentary evidence that the beneficial owner
is not a United States person and certain other
conditions are met or the beneficial owner
otherwise establishes an exemption. Payments to
or through the United States office of a broker
will be subject to backup withholding and
information reporting unless the Non-U.S.
Holder certifies, under penalties of perjury,
that it is not a United States person or
otherwise establishes an exemption.
Non-U.S. Holders of Reset PERQS should consult
their tax advisors regarding the application of
information reporting and backup withholding in
their particular situations, the availability
of an exemption therefrom, and the procedure
for obtaining such an exemption, if available.
Any amounts withheld from a payment to a
Non-U.S. Holder under the backup withholding
rules will be allowed as a credit against such
Non-U.S. Holder's United States federal income
tax liability and may entitle such Non-U.S.
Holder to a refund, provided that the required
information is furnished to the Internal
Revenue Service.
