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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 we
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 August 16, 2000
PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 32 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated , 2000
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------------------------
8% Reset PERQS due October 30, 2002
Mandatorily Exchangeable For
Shares of Common Stock of YAHOO! INC.
Reset Performance Equity-linked Redemption Quarterly-pay SecuritiesSM
("Reset PERQS SM")
The Reset PERQS will pay 8% 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 Yahoo! common stock based on the closing prices of Yahoo! common stock
in October of 2001 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-fifth of the closing price of Yahoo! common stock on the day we offer
the Reset PERQS for initial sale to the public.
o We will pay 8% interest (equivalent to $ per year) on the $
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning October 30, 2000.
o At maturity you will receive shares of Yahoo! common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-fifth of a share of Yahoo! common stock per Reset PERQS. However, if
the price of Yahoo! common stock appreciates above the first year cap
price for October 30, 2001 or the second year cap price for October 28,
2002, the exchange ratio will be adjusted downward, and you will receive
an amount of Yahoo! common stock per Reset PERQS that is less than
one-fifth of a share.
o The first year cap price is $ , or % of the closing
price of Yahoo! common stock on the day we offer the Reset PERQS for
initial sale to the public. If on October 30, 2001, the price of Yahoo!
common stock is higher than the closing price of Yahoo! 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 Yahoo! common
stock on October 30, 2001. Otherwise the cap price will remain
unchanged in the second year. The maximum you can receive at maturity is
Yahoo! common stock worth $ per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Yahoo! common
stock.
o YAHOO! INC. is not involved in this offering of Reset PERQS in any way and
will have no obligation of any kind with respect to the Reset PERQS.
o We will apply to list the Reset PERQS to trade under the proposed symbol
"RYO" on the American Stock Exchange LLC.
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." "Performance
Equity-linked Redemption Quarterly-pay Securities" and "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
---------------------------
Price Agent's Proceeds to
to Public(1) Commissions the Company(1)
Per Reset PERQS....... $ $ $
Total................. $ $ $
---------------------
(1) Plus accrued interest, if any, from the Original Issue Date.
If you purchase at least 100,000 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 (98.50% 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)
<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
YAHOO! INC. common stock, which we refer to as Yahoo! Stock. The Reset PERQS
also provide fixed quarterly payments at an annual rate of 8% 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 Yahoo! 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 8%
costs $ Reset Performance Equity-linked Redemption
Quarterly-pay Securities(sm) due October 30, 2002,
which we refer to as the Reset PERQS(sm). The
principal amount and issue price of each Reset PERQS
is $ , which is one-fifth of the closing price of
Yahoo! 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
return of principal not guarantee any return of principal at maturity.
Instead the Reset PERQS will pay an amount of Yahoo!
Stock based on the market price of Yahoo! Stock,
either up or down, on October 30, 2001 and at
maturity, in each case subject to a cap price.
Investing in Reset PERQS is not equivalent to
investing in Yahoo! Stock.
8% interest on the We will pay interest on the Reset PERQS, at the rate
principal amount of 8% of the per principal amount year, quarterly on
each January 30, April 30, July 30 and October 30,
beginning October 30, 2000. The interest rate we pay
on the Reset PERQS is more than the current dividend
rate on Yahoo! Stock. The Reset PERQS will mature on
October 30, 2002.
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 October 30, 2001 is $ , or % of the
closing price of Yahoo! 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 Yahoo! Stock on
October 30, 2001 and the First Year Cap Price. The
maximum you can receive at maturity is Yahoo! Stock
worth $ per Reset PERQS.
Payout at maturity At maturity, for each $ principal amount of Reset
PERQS you hold, we will give to you a number of
shares of Yahoo! Stock equal to the exchange ratio.
The initial exchange ratio is one-fifth of a share of
Yahoo! 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 Yahoo! Stock exceeds the First Year
Cap Price on October 30, 2001.
The adjusted exchange ratio will be calculated as
follows:
New Exchange = Initial Exchange x First Year Cap Price
Ratio Ratio ----------------------------------------------
Yahoo! Stock closing price on October 30, 2001
If the market price of Yahoo! Stock on October 30,
2001 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
Yahoo! Stock at maturity exceeds the Second Year
Cap Price. The final exchange ratio will then be
calculated as follows:
Final Exchange = Existing Exchange x Second Year Cap Price
Ratio Ratio ----------------------------------------
Yahoo! Stock closing price at maturity
If the market price of Yahoo! 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 Yahoo! 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 Yahoo! 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 Yahoo! Stock that you will
receive at maturity.
No affiliation with YAHOO! INC. is not an affiliate of ours and is not
YAHOO! INC. 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 YAHOO! INC.
More information on
the Reset PERQS The Reset PERQS are senior notes issued as part of
our Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying prospectus supplement
dated May 18, 2000. 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." The tax and accounting
treatment of investments in equity- linked notes such
as the Reset PERQS may differ from that of
investments in ordinary debt securities or common
stock. We urge you to consult with your investment,
legal, tax, accounting and other advisors with regard
to any proposed or actual investment in the Reset
PERQS.
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 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. The following assumptions were
made:
o Initial Price of Reset PERQS: $27.00
o Initial Yahoo! Stock Price: $135.00
o First Year Cap Price: 152% of the Initial Yahoo! Stock Price
o Second Year Cap Price: Greater of (x) 152% of the First Year
Closing Price and (y) First Year Cap Price
o Interest Rate: 8% per year
o Maturity: 26 months
<TABLE>
Reset PERQS
Payout
at Reset PERQS
Illus- Initial Maturity Payout at
tra- Price Initial Initial First Year 10/30/01 Second Exchange Based Maturity
tion of Reset Yahoo! Exchange First Year Closing Exchange Year Maturity Ratio at on Yahoo! plus
No. PERQS Stock Price Ratio Cap Price Price 1 Ratio Cap Price Price 1 Maturity Stock Price 8% Coupon
----- ------- ----------- ------- ---------- ------- ----- --------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $27.00 $135.00 0.20000 $205.20 $100.00 0.20000 $205.2000 $80.0000 0.20000 $16.00 $20.72
2 $27.00 $135.00 0.20000 $205.20 $100.00 0.20000 $205.2000 $175.0000 0.20000 $35.00 $39.72
3 $27.00 $135.00 0.20000 $205.20 $100.00 0.20000 $205.2000 $225.0000 0.18240 $41.04 $45.76
4 $27.00 $135.00 0.20000 $205.20 $175.00 0.20000 $266.0000 $135.0000 0.20000 $27.00 $31.72
5 $27.00 $135.00 0.20000 $205.20 $175.00 0.20000 $266.0000 $225.0000 0.20000 $45.00 $49.72
6 $27.00 $135.00 0.20000 $205.20 $175.00 0.20000 $266.0000 $300.0000 0.17733 $53.20 $57.92
7 $27.00 $135.00 0.20000 $205.20 $275.00 0.14924 $418.0000 $135.0000 0.14924 $20.15 $24.87
8 $27.00 $135.00 0.20000 $205.20 $275.00 0.14924 $418.0000 $300.0000 0.14924 $44.77 $49.49
9 $27.00 $135.00 0.20000 $205.20 $275.00 0.14924 $418.0000 $450.0000 0.13863 $62.38 $67.10
10 $27.00 $135.00 0.20000 $205.20 $205.20 0.20000 $311.9040 $311.9040 0.20000 $62.38 $67.10
^ ^ ^
| | |
152% Greater of (x) Maturity Price times
of Initial 152% of First Adjusted Exchange
Yahoo! Year Closing Ratio
Stock Price Price and (y) First
Year Cap Price
</TABLE>
The above table illustrates an important feature of the Reset PERQS - the
payout at maturity is not determined merely by the price of Yahoo! Stock at
maturity, but will depend on the timing and magnitude of changes in Yahoo! Stock
price. For example, in both the fourth and seventh illustrations shown above,
the Maturity Price is $135.00, but in the seventh illustration the Payout at
Maturity is $24.87 compared to $31.72 in the fourth illustration. The difference
in the seventh illustration arises because the First Year Closing Price exceeded
the First Year Cap Price, resulting in a downward adjustment in the Second Year
Exchange Ratio. Similarly, in both the ninth and tenth illustrations, the Payout
at Maturity is $67.10, but in the ninth illustration, the Maturity Price had to
equal or exceed $450.00 to produce that payout, but in the tenth illustration, a
Maturity Price of only $311.9040 was required.
-----------------------
1. The First Year Closing Price and the Maturity Price do not include any
dividend payments that may have been paid to holders of Yahoo! Stock.
PS-5
<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
Yahoo! Stock, there is no guaranteed return of principal. Investing in Reset
PERQS is not equivalent to investing directly in Yahoo! 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 payout
to you at maturity will be a number of shares of
Yahoo! Stock based on the market price of Yahoo!
Stock on October 30, 2001 and at maturity. If the
final market price of Yahoo! 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 October 30, 2001, we
will pay you an amount of Yahoo! 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 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 Yahoo! Stock
multiplied by the initial exchange ratio, you may
receive a lesser fractional amount of Yahoo! Stock
per Reset PERQS at maturity if the initial
exchange ratio of one-fifth of a share has been
adjusted downwards. If the price of Yahoo! Stock
appreciates above both the cap price for October
30, 2001 and the cap price for October 28, 2002,
the initial exchange ratio of one-fifth of a share
of Yahoo! Stock per Reset PERQS will be reduced
twice.
The exchange ratio and the final market price of
Yahoo! Stock at maturity will be determined on
October 28, 2002, which is two trading days prior
to maturity of the Reset PERQS. If the price of
Yahoo! Stock is lower on the actual maturity date
than it was on October 28, 2002, the value of any
Yahoo! Stock you receive will be less. Under no
circumstances will you receive an amount of Yahoo!
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 LLC,
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 Yahoo! 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 Yahoo! Stock.
Other factors that may influence the value of the
Reset PERQS include:
o the volatility (frequency and magnitude of
changes in price) of Yahoo! Stock
o the dividend rate on Yahoo! Stock
PS-6
<PAGE>
o economic, financial, political and
regulatory or judicial events that affect
stock markets generally and which may affect
the market price of Yahoo! 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
Yahoo! Stock is at, below, or not sufficiently
above the initial market price.
You cannot predict the future performance of
Yahoo! Stock based on its historical performance.
The price of Yahoo! Stock may decrease so that you
will receive at maturity shares of Yahoo! Stock
worth less than the principal amount of the Reset
PERQS. We cannot guarantee that the price of
Yahoo! 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 YAHOO! INC. Although we
YAHOO! INC. do not have any non- public information about
Yahoo! as of the date of this pricing supplement,
we or our subsidiaries may presently or from time
to time engage in business with Yahoo!, including
extending loans to, or making equity investments
in, Yahoo! or providing advisory services to
Yahoo!, including merger and acquisition advisory
services. Moreover, we have no ability to control
or predict the actions of Yahoo!, including any
corporate actions of the type that would require
the calculation agent to adjust the payout to you
at maturity. YAHOO! INC. 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 Yahoo!.
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 Yahoo! Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the
Adjustments amount payable at maturity for certain events
affecting Yahoo! Stock, such as stock splits and
stock dividends, and certain other corporate
actions involving YAHOO! INC., such as mergers.
However, the calculation agent is not required to
make an adjustment for every corporate event that
can affect Yahoo! Stock. For example, the
calculation agent is not required to make any
adjustments if YAHOO! INC. or anyone else makes a
partial tender or partial exchange offer for
Yahoo! Stock. If an event occurs that does not
require the calculation agent to adjust the amount
of Yahoo! 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 the payout to you at maturity of the Reset PERQS. MS &
Calculation Agent Co. and other affiliates may also carry out
hedging activities related to the Reset PERQS or
to other instruments, including trading in Yahoo!
Stock as well as in other instruments related to
Yahoo! Stock. MS & Co. and some of our other
subsidiaries also trade Yahoo! Stock and other
financial instruments related to Yahoo! 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 the Reset
PERQS and any such trading activity could
potentially affect the price of Yahoo! Stock 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 (the "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 8% Reset PERQS due October 30, 2002, Mandatorily
Exchangeable For Shares of Common Stock of YAHOO! INC. 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............................. October 30, 2002
Interest Rate............................. 8% per annum (equivalent to $ per
annum per Reset PERQS)
Interest Payment Dates.................... Each January 30, April 30, July 30
and October 30, beginning October
30, 2000.
Specified Currency........................ U.S. Dollars
Issue Price............................... $ per Reset PERQS
Initial Yahoo! Stock Price................ $
Original Issue Date (Settlement Date)..... August , 2000
CUSIP..................................... 61744Y728
Denominations............................. $ and integral multiples
thereof
First Year Cap Price...................... $ ( % of the Initial
Yahoo! Stock Price)
First Year Determination Date............. October 30, 2001 (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 Yahoo! 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 Yahoo! Stock and (ii) the
Exchange Factor, each determined as
of the second scheduled Trading Day
immediately prior to maturity.
Exchange at Maturity...................... At maturity, 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 Yahoo! Stock
at the Exchange Ratio. The initial
Exchange Ratio, initially set at
0.20, is subject to adjustment on
the First Year Determination Date
and at maturity in order to cap the
value of Yahoo! Stock to be
received upon delivery of the Reset
PERQS at $ per Reset PERQS (
% of the Issue Price). Solely
for purposes of adjustment upon the
occurrence of certain corporate
events, the number of shares of
Yahoo! Stock to be delivered at
maturity will also be adjusted by
an Exchange Factor,
PS-9
<PAGE>
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 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
Yahoo! Stock to be delivered with
respect to each $ principal
amount of each Reset PERQS and (ii)
deliver such shares of Yahoo! Stock
(and cash in respect of interest
and any fractional shares of Yahoo!
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 Yahoo! 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
Yahoo! Stock in an amount equal to
the corresponding fractional Market
Price of such fraction of a share
of Yahoo! Stock as determined by
the Calculation Agent as of the
second scheduled Trading Day prior
to maturity of the Reset PERQS.
PS-10
<PAGE>
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 Yahoo! Stock
through and including the second
scheduled Trading Day immediately
prior to maturity. See
"Antidilution Adjustments" below.
Market Price.............................. If Yahoo! 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
YAHOO! INC. Stock (or one unit of
any such other security) on any
Trading Day means (i) the last
reported sale price, regular way,
of the principal trading session 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
Yahoo! 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 Yahoo! Stock
(or any such other security) is
listed or admitted to trading on
such securities exchange), the last
reported sale price of the
principal trading session 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 of the
principal trading session 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 Yahoo! 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 Yahoo!
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 Yahoo! 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
PS-11
<PAGE>
Trustee................................... The Chase Manhattan Bank
Agent for the underwritten offering of
Reset PERQS.......................... MS & Co.
Calculation Agent......................... MS & Co.
All determinations made by the
Calculation Agent will be at the
sole discretion of the Calculation
Agent and will, in the absence of
manifest error, be conclusive for
all purposes and binding on you and
on us.
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 and functions as Calculation
Agent in good faith and using its
reasonable judgment.
Antidilution Adjustments.................. The Exchange Factor will be
adjusted as follows:
1. If Yahoo! 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 YAHOO! INC. Stock.
2. If Yahoo! Stock is subject
(i) to a stock dividend (issuance
of additional shares of Yahoo!
Stock) that is given ratably to all
holders of shares of Yahoo! Stock
or (ii) to a distribution of Yahoo!
Stock as a result of the triggering
of any provision of the corporate
charter of Yahoo!, then once the
dividend has become effective and
Yahoo! 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
Yahoo! 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
Yahoo! 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
Yahoo! Stock will be deemed to be
an "Extraordinary Dividend" if such
dividend or other distribution
exceeds the immediately preceding
non- Extraordinary Dividend for
Yahoo! Stock by an amount equal to
at least 10% of the Market Price of
Yahoo! 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 Yahoo! Stock, the
Exchange Factor with respect to
Yahoo!
PS-12
<PAGE>
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 Yahoo! 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 Yahoo! 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
Yahoo! 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 Yahoo! issues rights or
warrants to all holders of Yahoo!
Stock to subscribe for or purchase
Yahoo! Stock at an exercise price
per share less than the Market
Price of Yahoo! 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 Yahoo! Stock
outstanding immediately prior to
the issuance of such rights or
warrants plus the number of
additional shares of Yahoo! Stock
offered for subscription or
purchase pursuant to such rights or
warrants and the denominator of
which shall be the number of shares
of Yahoo! Stock outstanding
immediately prior to the issuance
of such rights or warrants plus the
number of additional shares of
Yahoo! Stock which the aggregate
offering price of the total number
of shares of Yahoo! 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
Yahoo! Stock, including, without
limitation, as a result of the
issuance of any tracking stock by
Yahoo!, (ii) Yahoo! or any
surviving entity or subsequent
surviving entity of Yahoo! (a
"Yahoo! Successor") has been
subject to a merger, combination or
consolidation and is not the
surviving entity, (iii) any
statutory exchange of securities of
Yahoo! or any Yahoo! Successor with
another corporation occurs (other
than pursuant to clause (ii)
above), (iv) Yahoo! is liquidated,
(v) Yahoo! issues to all of its
shareholders equity securities of
an issuer other than Yahoo! (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
PS-13
<PAGE>
going-private transaction is
consummated for all the outstanding
shares of Yahoo! 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
Yahoo! Stock in any such
Reorganization Event, including, in
the case of the issuance of
tracking stock, the reclassified
share of Yahoo! Stock and, in the
case of a Spin-off Event, the share
of Yahoo! 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 Yahoo! Stock and holders will
receive in lieu of any Yahoo! 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 Yahoo! 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
Yahoo! 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 Yahoo! 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
PS-14
<PAGE>
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 Yahoo! Stock,
including, without limitation, a
partial tender or exchange offer
for Yahoo! 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
Yahoo! 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 in the absence
of manifest error.
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 Yahoo! Stock:
(i) a suspension, absence or
material limitation of trading
of Yahoo! Stock on the primary
market for Yahoo! Stock for more
than two hours of trading or
during the one-half hour period
preceding the close of the
principal trading session in
such market; or a breakdown or
failure in the price and trade
reporting systems of the primary
market for Yahoo! Stock as a
result of which the reported
trading prices for Yahoo! Stock
during the last one-half hour
preceding the closing of the
principal trading session in
such market are materially
inaccurate; or the suspension,
absence or material limitation
on the primary market for
trading in options contracts
related to Yahoo! Stock, if
available, during the one-half
hour period preceding the close
of the principal trading session
in the applicable market, in
each case as determined by the
Calculation Agent in its sole
discretion; and
PS-15
<PAGE>
(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 Yahoo! 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 Yahoo! Stock and (5) a
suspension, absence or material
limitation of trading on the
primary securities market on which
options contracts related to Yahoo!
Stock are traded will not include
any time when such securities
market is itself closed for trading
under ordinary circumstances.
Alternate Exchange Calculation In case an event of default with
in case of an Event of Default............ respect to the Reset PERQS shall
have occurred and be continuing,
the amount declared due and payable
upon any acceleration of the Reset
PERQS shall be determined by the
Calculation Agent and shall be
equal to the product of (i) the
Market Price of Yahoo! Stock as of
the date of such acceleration and
(ii) the then current Exchange
Ratio adjusted as if such date were
the second scheduled Trading Day
prior to maturity and, if such date
occurs prior to the First Year
Determination Date, the First Year
Determination Date.
Yahoo! Stock; Public Information.......... YAHOO! INC. is a global Internet
communications, commerce and media
company that offers a comprehensive
branded network of services to
users each month worldwide. Yahoo!
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
PS-16
<PAGE>
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 Yahoo! pursuant to
the Exchange Act can be located by
reference to Commission file number
0-28018. In addition, information
regarding Yahoo! 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
Yahoo! Stock or other securities of
Yahoo! We have derived all
disclosures contained in this
pricing supplement regarding Yahoo!
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 Yahoo! 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 Yahoo! 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 Yahoo!
Stock (and therefore the Initial
Yahoo! 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 Yahoo!
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
Yahoo! Stock.
We and/or our subsidiaries may
presently or from time to time
engage in business with Yahoo!,
including extending loans to, or
making equity investments in,
Yahoo! or providing advisory
services to Yahoo!, 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
Yahoo! and, in addition, one or
more of our affiliates may publish
research reports with respect to
Yahoo!. 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 Yahoo! as in your
judgment is appropriate to make an
informed decision with respect to
an investment in Yahoo! Stock.
Historical Information.................... The following table sets forth the
high and low Market Price during
1997, 1998, 1999 and 2000 through
August 16, 2000. The Market Price
on August 16, 2000 was 134. 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
PS-17
<PAGE>
of Yahoo! Stock as an indication of
future performance. The price of
Yahoo! Stock may decrease so that
you will receive at maturity shares
of Yahoo! Stock worth less than the
principal amount of the Reset
PERQS. We cannot give you any
assurance that the price of Yahoo!
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 Yahoo! Stock on October
30, 2001 and October 28, 2002,
there is no guaranteed return of
principal. To the extent that the
Maturity Price of Yahoo! Stock is
less than the Initial Yahoo! Stock
Price or not sufficiently above the
Initial Yahoo! Stock Price to
compensate for a downward
adjustment of the Exchange Ratio,
if any, at October 30, 2001 and the
shortfall is not offset by the
coupon paid on the Reset PERQS, you
will lose money on your investment.
High Low
---- ---
(CUSIP 984332106)
1997
First Quarter................ 3-2/57 1-16/35
Second Quarter............... 3-7/26 2-2/7
Third Quarter................ 6-59/64 2-23/29
Fourth Quarter............... 8-7/8 4-3/4
1998
First Quarter................ 11-50/79 7-25/97
Second Quarter............... 19-11/16 11-21/32
Third Quarter................ 32-7/8 17-1/4
Fourth Quarter............... 68-7/8 26-13/64
1999
First Quarter................ 103-5/8 62
Second Quarter............... 109-9/16 59-5/8
Third Quarter................ 92-11/32 60-1/2
Fourth Quarter............... 216-11/32 83-25/32
2000
First Quarter................ 237-1/2 153-13/16
Second Quarter............... 167-3/8 112-1/16
Third Quarter
(through August 16, 2000).. 139-13/16 105-1/2
Historical prices have been
adjusted for one 3 for 2 stock
split which became effective in the
third quarter of 1997, and three 2
for 1 stock splits, which became
effective in the third quarter of
1998, the first quarter of 1999 and
the first quarter of 2000,
respectively.
Yahoo! has not paid cash dividends
on Yahoo! Stock to date. We make no
representation as to the amount of
dividends, if any, that Yahoo! 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 Yahoo! 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 Yahoo! Stock,
in options contracts on Yahoo!
Stock listed on major securities
PS-18
<PAGE>
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 Yahoo! Stock, and
therefore effectively increase the
level to which Yahoo! Stock must
rise before you would receive at
maturity an amount of Yahoo! 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 Yahoo!
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 Yahoo! 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 Yahoo! 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 100,000 Reset
PERQS in any single transaction,
subject to the holding period
requirements described below.
Delivery of approximately 98.50% of
the Reset PERQS to a purchaser of
100,000 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 1.50% 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
PS-19
<PAGE>
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................... Each fiduciary of a pension,
profit-sharing or other employee
benefit plan subject to the
Employee Retirement Income Security
Act of 1974, as amended ("ERISA")
(a "Plan"), should consider the
fiduciary standards of ERISA in the
context of the Plan's particular
circumstances before authorizing an
investment in the Reset PERQS.
Accordingly, among other factors,
the fiduciary should consider
whether the investment would
satisfy the prudence and
diversification requirements of
ERISA and would be consistent with
the documents and instruments
governing the Plan.
In addition, we and certain of our
subsidiaries and affiliates,
including MS & Co. and Dean Witter
Reynolds Inc. ("DWR"), are 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 Plans.
Prohibited transactions within the
meaning of ERISA or the Code would
likely arise, for example, if the
Reset PERQS are acquired by or with
the assets of a 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. A violation of
these "prohibited transaction"
rules may result in an excise tax
or other liabilities under ERISA
and/or Section 4975 of the Code for
such persons, unless exemptive
relief is available under an
applicable statutory or
administrative exemption.
The U.S. Department of Labor has
issued five prohibited transaction
class exemptions ("PTCEs") that may
provide exemptive relief for direct
or indirect prohibited transactions
resulting from the purchase or
holding of the Reset PERQS. Those
class exemptions are PTCE 96-23
(for certain transactions
determined by in-house asset
managers), PTCE 95-60 (for certain
transactions involving insurance
company general accounts), PTCE
91-38 (for certain transactions
involving bank collective
investment funds), PTCE 90-1 (for
certain transactions involving
insurance company separate
accounts), and PTCE 84-14 (for
certain transactions determined by
independent qualified asset
managers).
Because we are considered a party
in interest with respect to many
Plans, the Reset PERQS may not be
purchased or held by any Plan, any
entity whose underlying assets
include "plan assets" by reason of
any Plan's investment in the entity
(a "Plan Asset Entity") or any
person investing "plan assets" of
any Plan, unless such purchaser or
holder is eligible for exemptive
relief, including relief available
under PTCE 96-23, 95-60, 91-38,
90-1, or 84-14 or such purchase and
holding is otherwise not
prohibited. Any purchaser,
including any fiduciary purchasing
on behalf of a Plan, or holder of
the Reset PERQS will be deemed to
have represented, in its corporate
and
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fiduciary capacity, by its purchase
and holding thereof that it either
(a) is not a Plan or a Plan Asset
Entity and is not purchasing such
securities on behalf of or with
"plan assets" of any Plan or (b) is
eligible for exemptive relief or
such purchase or holding is not
prohibited by ERISA or Section 4975
of the Code.
Due to the complexity of these
rules and the penalties that may be
imposed upon persons involved in
non-exempt prohibited transactions,
it is particularly important that
fiduciaries or other persons
considering purchasing the Reset
PERQS on behalf of or with "plan
assets" of any Plan consult with
their counsel regarding the
availability of exemptive relief
under PTCE 96-23, 95-60, 91-38, 90-
1 or 84-14.
Purchasers of the Reset PERQS have
exclusive responsibility for
ensuring that their purchase and
holding of the Reset PERQS do not
violate the prohibited transaction
rules of ERISA or the Code.
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"), Yahoo! 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
Yahoo! Stock (the "Deposit"), which
Deposit bears an annual yield of %
per annum, which yield is based on
our
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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 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 0.25% of
the Forward Price multiplied by the
number of complete years to
maturity, the Deposit will be
subject to the "original issue
discount" rules, and a U.S. Holder
will include "qualified stated
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<PAGE>
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 0.25% of the Forward
Price multiplied by the number of
complete years to maturity, 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). 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.
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 Yahoo! Stock, and a U.S. Holder
would not recognize any gain or
loss with respect to any Yahoo!
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
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<PAGE>
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 Yahoo! Stock
received upon maturity, the U.S.
Holder would have an adjusted tax
basis in such Yahoo! Stock equal to
the pro rata portion of the Forward
Price allocable thereto. The
allocation of the Forward Price
between cash and Yahoo! Stock
should be based on the amount of
the cash received and the relative
fair market value, as of the
maturity, of Yahoo! Stock. U.S.
Holders should note that the
holding period of any Yahoo! 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 but unpaid interest
payments 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
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<PAGE>
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 Yahoo! 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. 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.
Constructive Ownership
Section 1260 of the Code treats 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 or deemed
to be recognized (as described
below) by such taxpayer with
respect to the derivative position
would be recharacterized as
ordinary income. Although Section
1260 in its current form does not
apply to the Reset PERQS, Section
1260 authorizes the Treasury
Department to promulgate
regulations (possibly with
retroactive effect) to expand the
application of the "constructive
ownership" regime. There is no
assurance that the Treasury
Department will not promulgate
regulations to apply the regime to
the Reset PERQS. If Section 1260
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 (if any)
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 the underlying stock
itself on the issue date of the
Reset PERQS and disposed of the
underlying stock upon disposition
(including retirement) of the Reset
PERQS. Section 1260, if applicable,
would require a U.S. Holder that
receives shares of Yahoo! Stock at
maturity to recognize as ordinary
income the amount that would have
been treated as ordinary income
according to the rule described in
the preceding sentence, if the U.S.
Holder had sold the Reset PERQS at
maturity for fair market value. In
addition, Section 1260 would impose
an interest charge on the gain (or
deemed 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
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<PAGE>
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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MORGAN STANLEY DEAN WITTER & CO.
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