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Previous: MERRILL LYNCH CALIFORNIA INSURED MUNICIPAL BOND FUND OF MERR, N-30D, 1999-10-07 |
Next: GREG MANNING AUCTIONS INC, 8-A12G, 1999-10-07 |
The information in this pricing supplement is not complete and may be changed.
We may not deliver these securities until a final pricing supplement is
delivered. This pricing supplement and the accompanying prospectus and
prospectus supplement do not constitute an offer to sell these securities and
they are not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Subject to Completion, Pricing Supplement dated September 30, 1999
PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 24 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated , 1999
Rule 424(b)(3)
$25,000,000
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 SecuritiesSM
("Reset PERQSSM")
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
in December of 2000 and at maturity, in each case subject to a cap price.
o The principal amount and issue price of each Reset PERQS is $ ,
which is one-half of the closing price of Oracle common stock on the day we
offer the Reset PERQS for initial sale to the public.
o We will pay 6% interest (equivalent to $ per year) on the
$ 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 $ , or % of the closing price of
Oracle common stock on the day we offer 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 the day we offer
the Reset PERQS for initial sale to the public, we will raise the cap price
to % of the closing price of 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 $ 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 We will apply to list the Reset PERQS to trade under the proposed symbol
"ORP" on the American Stock Exchange, Inc.
You should read the more detailed description of the Reset PERQS in this pricing
supplement. In particular, you should review and understand the descriptions
in"Summary of Pricing Supplement" and "Description of Reset PERQS." "Reset
Performance Equity-linked Redemption Quarterly-pay Securities" and "Reset PERQS"
are our service marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
--------------
PRICE $ PER RESET PERQS
--------------
Agent's Proceeds to
Price to Public Commissions the Company
--------------- ----------- -----------
Per Reset PERQS................ $ $ $
Total.......................... $ $ $
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 $ per Reset PERQS (98.625% of the Issue Price). In that case, the
underwriting discounts and commissions will be $ per Reset PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<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 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 $ , which is one-half of the closing price of
Oracle Stock on the day we offer 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 at return of principal 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 per year, principal amount 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 $ , or % of the
closing price of Oracle Stock on the day we offer 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 % 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 $ per Reset
PERQS.
Payment at Maturity At maturity, for each $ principal amount of Reset PERQS
you hold, we will give to you a number of shares of
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:
New Exchange Initial Exchange First Year Cap Price
Ratio = Ratio x -----------------------------------------------
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.
PS-3
<PAGE>
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:
Final Exchange Existing Exchange Second Year Cap Price
Ratio = Ratio x --------------------------------------
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 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 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).
PS-4
<PAGE>
HYPOTHETICAL PAYMENTS 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. The following assumptions were
made:
o Initial Price of Reset PERQS: $22.00
o Initial Oracle Stock Price: $44.00
o First Year Cap: 136%
o Second Year Cap: 136%
o Interest Rate: 6% per year
o Maturity: 26 months
<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>
$22.00 $44.00 0.50000 $59.84 $35.00 0.50000
$22.00 $44.00 0.50000 $59.84 $35.00 0.50000
$22.00 $44.00 0.50000 $59.84 $35.00 0.50000
$22.00 $44.00 0.50000 $59.84 $50.00 0.50000
$22.00 $44.00 0.50000 $59.84 $50.00 0.50000
$22.00 $44.00 0.50000 $59.84 $50.00 0.50000
$22.00 $44.00 0.50000 $59.84 $90.00 0.33244
$22.00 $44.00 0.50000 $59.84 $90.00 0.33244
$22.00 $44.00 0.50000 $59.84 $90.00 0.33244
$22.00 $44.00 0.50000 $59.84 $59.84 0.50000
^
136% of
Initial Oracle
Stock Price
<CAPTION>
Reset PERQS
Payout at Maturity Reset PERQS
Second Year Oracle Stock Exchange Rate Based on Payout at Maturity plus
Cap Price Maturity Price(1) at Maturity Oracle Stock Price 6% Coupon
----------- ----------------- ------------- ------------------- -----------------------
<S> <C> <C> <C> <C>
$59.8400 $25.0000 0.50000 $12.50 $15.36
$59.8400 $50.0000 0.50000 $25.00 $27.86
$59.8400 $85.0000 0.35200 $29.92 $32.78
$68.0000 $45.0000 0.50000 $22.50 $25.36
$68.0000 $60.0000 0.50000 $30.00 $32.86
$68.0000 $90.0000 0.37778 $34.00 $36.86
$122.4000 $75.0000 0.33244 $24.93 $27.79
$122.4000 $100.0000 0.33244 $33.24 $36.10
$122.4000 $150.0000 0.27127 $40.69 $43.55
$81.3824 $81.3824 0.50000 $40.69 $43.55
^ ^
Greater of (x) Maturity Price
136% of First times Adjusted
Year Closing Exchange 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 and
Ordinary Senior Notes -- debt. The terms of the Reset PERQS differ from
No guaranteed return of those of ordinary debt securities in that we will
principal not pay you a fixed amount at maturity. Our
payment 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
Payments on the Reset PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS is
Potential Is Limited limited because of the cap prices. Even though the
$ 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 $
as of such second scheduled trading day prior to
maturity.
Secondary Trading There may be little or no secondary market for the
May Be Limited Reset PERQS. Although we will apply to list the
Reset PERQS on the American Stock Exchange, Inc.,
which we refer to as the AMEX, we may not meet the
requirements for listing. 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 our
PERQS Influenced by Many control, will influence the value of the Reset
Unpredictable Factors PERQS. We expect that generally the market price
of the 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:
PS-6
<PAGE>
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 Corporation
Oracle 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 payment 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 have
Shareholder Rights 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 adjust the
Adjustments 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.
PS-7
<PAGE>
Potential Conflicts of As calculation agent, MS & Co. will calculate the
Interest between You and payment to you at maturity of the Reset PERQS. MS
the Calculation Agent & 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 ("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.
PS-8
<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 $
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........................... $25,000,000
Maturity Date.............................. December 15, 2001
Interest Rate.............................. 6% per annum (equivalent to $
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................................ $ per Reset PERQS
Initial Oracle Stock Price................. $
Original Issue Date (Settlement Date)...... , 1999
CUSIP...................................... 61744Y876
Denominations.............................. $ and integral multiples
thereof
First Year Cap Price....................... $ ( % 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) % 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
$ 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 $ per Reset PERQS
( %
PS-9
<PAGE>
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) % of the First Year Closing
Price and (y) the First Year Cap
Price. Notice of the Second Year
Cap Price and of any such
adjustment to the Exchange Ratio
shall promptly be sent by
first-class mail to The Depository
Trust Company, New York, New York
(the "Depositary"). If the
Maturity Price is less than or
equal to the Second Year Cap
Price, no further adjustment to
the Exchange Ratio will be made.
If the Maturity Price exceeds the
Second Year Cap Price, the then
existing Exchange Ratio will be
adjusted so that the final
Exchange Ratio will equal the
product of (i) the existing
Exchange Ratio and (ii) a fraction
the numerator of which will be the
Second Year Cap Price and the
denominator of which will be the
Maturity Price. Please review each
example in the table called
"Hypothetical Payments on the
Reset PERQS" on PS-5.
All calculations with respect to
the Exchange Ratios for the Reset
PERQS will be rounded to the
nearest one hundred-thousandth,
with five one-millionths rounded
upwards (e.g., .876545 would be
rounded to .87655); all
calculations with respect to the
Second Year Cap Price will be
rounded to the nearest
ten-thousandth, with five
one-hundred-thousandths rounded
upwards (e.g., $12.34567 would be
rounded to $12.3457); and all
dollar amounts related to payments
at maturity resulting from such
calculations will be rounded to
the nearest cent with one-half
cent being rounded upwards.
We shall, or shall cause the
Calculation Agent to, (i) provide
written notice to the Trustee and
to the Depositary, on or prior to
10:30 a.m. on the Trading Day
immediately prior to maturity of
the Reset PERQS, of the amount of
Oracle Stock to be delivered with
respect to each $ 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
PS-10
<PAGE>
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 $ principal
amount of each Reset PERQS as
payment for a number of shares of
Oracle Stock at the then
PS-11
<PAGE>
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
PS-12
<PAGE>
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
PS-13
<PAGE>
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 $ 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
PS-14
<PAGE>
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 $ 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.
PS-15
<PAGE>
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
PS-16
<PAGE>
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
PS-17
<PAGE>
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
September 30, 1999. The Market
Price on September 30, 1999 was
$451/2. 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
(through September 30, 1999)...... 46 3/8 35
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
PS-18
<PAGE>
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 or prior to the date of this
pricing supplement, we, through
our subsidiaries or others, may
hedge our anticipated exposure in
connection with the Reset PERQS by
taking positions in Oracle Stock,
in options contracts on Oracle
Stock listed on major securities
markets or positions in any other
instruments that we may wish to
use in connection with such
hedging. In the event that we
pursue such a hedging strategy,
the price at which we are able to
purchase such positions may be a
factor in determining the pricing
of the Reset PERQS. Purchase
activity could potentially
increase the price of Oracle
Stock, and therefore effectively
increase 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. Although we have
no reason to believe that our
hedging activity will have a
material impact on the price of
Oracle Stock, we cannot give any
assurance that we will not affect
such price as a result of our
hedging activities. Through our
subsidiaries, we are likely to
modify our hedge position
throughout the life of the Reset
PERQS, including on the First Year
Determination Date, by purchasing
and selling the securities and
instruments listed above and any
other available securities and
instruments that we may wish to
use in connection with such
hedging.
Supplemental Information Concerning
Plan of Distribution......................... In order to facilitate the
offering of the Reset PERQS, the
Agent may engage in transactions
that stabilize, maintain or
otherwise affect the price of the
Reset PERQS or the 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 $
per Reset PERQS and the
underwriting discounts and
commissions will be $ 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
PS-19
<PAGE>
the Reset PERQS referred to on the
cover of this pricing supplement.
The balance of approximately
1.375% of the Reset PERQS (the
"Escrowed Reset PERQS") purchased
by each such investor will be held
in escrow at MS & Co. for the
benefit of the investor and
delivered to such investor if the
investor and any accounts in which
the investor may have deposited
any of its Delivered Reset PERQS
have held all of the Delivered
Reset PERQS for 45 calendar days
following the date of the pricing
supplement or any shorter period
deemed appropriate by the Agent.
If an investor or any account in
which the investor has deposited
any of its Delivered Reset PERQS
fails to satisfy the holding
period requirement, as determined
by the Agent, all of the
investor's Escrowed Reset PERQS
will be forfeited by the investor
and not delivered to it. The
Escrowed Reset PERQS will instead
be delivered to the Agent for sale
to investors. This forfeiture will
have the effect of increasing the
purchase price per Reset PERQS for
such investors to 100% of the
principal amount of the Reset
PERQS. Should investors who are
subject to the holding period
requirement sell their Reset PERQS
once the holding period is no
longer applicable, the market
price of the Reset PERQS may be
adversely affected. See also "Plan
of Distribution" in the
accompanying prospectus
supplement.
ERISA Matters for Pension Plans
and Insurance Companies...................... We and certain of our 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;
PS-20
<PAGE>
(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 $ (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
PS-21
<PAGE>
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 % per annum, which yield
is based on our cost of borrowing.
Under this characterization, it is
possible that less than the full
quarterly payments on the Reset
PERQS will be attributable to the
yield on the Deposit. If this is
the case, the excess of the
quarterly payments on the Reset
PERQS over the portion of those
payments attributable to the yield
on the Deposit would represent
payments attributable to the
holders' entry into the Forward
Contract (the "Contract Fees").
Furthermore, 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.
If the Forward Price exceeds the
Issue Price by at least
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<PAGE>
0.50% of the Forward Price, 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. 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.
If the Forward Price of the Reset
PERQS exceeds the Issue Price by
less than 0.50% of the Forward
Price, such excess will be treated
as de minimis OID, and will be
taxable to the holder at maturity
as capital gain (unless the holder
elects to accrue such de minimis
OID on a current basis).
However, if the Forward Price does
not exceed the Issue Price, then
to the extent attributable to the
yield 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. As
discussed above, any excess of the
quarterly payments over the
portion thereof attributable to
the yield on the Deposit will be
treated as Contract Fees. Although
the federal income tax treatment
of Contract Fees is uncertain, we
intend to take the position that
any Contract Fees with respect to
the Reset PERQS constitute taxable
income to a U.S. Holder 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 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 any 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.
However, as stated above, any de
minimis OID on the Deposit that
the holder has not previously
included in income will be taxable
to the holder at the maturity of
the Deposit and the concurrent
settlement of the Forward
Contract. 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
PS-23
<PAGE>
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
while any accrued but unpaid
interest on the Deposit and any
Contract Fees would be taxable as
ordinary income, 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. It is uncertain whether the
amount realized includes any
amount attributable to accrued but
unpaid Contract Fees. U.S. Holders
should consult their tax advisors
regarding the treatment of accrued
but unpaid Contract Fees upon the
sale or exchange of a Reset PERQS.
Possible Alternative Tax
Treatments of an Investment in the
Reset PERQS
Due to the absence of authorities
that directly address the proper
characterization of the Reset
PERQS, no assurance can be given
that the IRS will accept, or that
a court will uphold, the
characterization and tax treatment
described above. In particular,
the IRS could seek to analyze the
U.S. federal income tax
consequences of owning a Reset
PERQS under Treasury regulations
governing contingent payment debt
instruments (the "Contingent
Payment Regulations").
If the IRS were successful in
asserting that the Contingent
Payment Regulations applied to the
Reset PERQS, the timing and
character of income thereon would
be significantly affected. Among
other things, a U.S. Holder would
be required to accrue as original
issue discount income, subject to
adjustments, at a "comparable
yield" on the Issue
PS-24
<PAGE>
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.
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 QCOM Stock itself on the
issue date of the Reset PERQS and
disposed of the QCOM 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.
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<PAGE>
NON-U.S. HOLDERS
The following discussion assumes
that the entire amount of each
quarterly payment on the Reset
PERQS will be attributable to the
yield on the Deposit and that
therefore no portion of the
quarterly payments on the Reset
PERQS will constitute Contract
Fees.
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.
PS-26
<PAGE>
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,
PS-27
<PAGE>
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.
PS-28
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