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 March 16, 2000
PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 53 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 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 April 30, 2002
Mandatorily Exchangeable For
Shares of Common Stock of EMC CORPORATION
Reset Performance Equity-linked Redemption Quarterly-pay SecuritiesSM
("Reset PERQSSM")
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 EMC common stock based on the closing prices of EMC common stock
in April 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 EMC 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 July 30, 2000.
o At maturity you will receive shares of EMC common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-fifth of a share of EMC common stock per Reset PERQS. However, if the
price of EMC common stock appreciates above the first year cap price for
April 20, 2001 or the second year cap price for April 26, 2002, the
exchange ratio will be adjusted downward, and you will receive an amount
of EMC 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 EMC
common stock on the day we offer the Reset PERQS for initial sale to the
public. If on April 20, 2001, the price of EMC common stock is higher than
the closing price of EMC 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 EMC common stock on April 20, 2001. Otherwise the cap
price will remain unchanged in the second year. The maximum you can
receive at maturity is EMC common stock worth $ per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in EMC common
stock.
o EMC 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
"RME" 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(1) Commissions the Company(1)
------------------ ----------- --------------
Per Reset PERQS...... $ $ $
Total................ $ $ $
- ---------
(1) Plus accrued interest, if any, from the 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 (98.625% 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
EMC Corporation common stock, which we refer to as EMC 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 EMC 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.
<TABLE>
<S> <C>
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 8% Reset Performance Equity-
costs $ linked Redemption Quarterly-pay Securities(sm) due April 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 EMC 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 guarantee any return of
return of principal principal at maturity. Instead the Reset PERQS will pay an amount of EMC Stock
based on the market price of EMC Stock, either up or down, on April 20, 2001 and at
maturity, in each case subject to a cap price. Investing in Reset PERQS is not
equivalent to investing in EMC Stock.
8% interest on the We will pay interest on the Reset PERQS, at the rate of 8% the principal amount per year,
principal amount quarterly on each January 30, April 30, July 30 and October 30, beginning July 30,
2000. The interest rate we pay on the Reset PERQS is more than the current dividend
rate on the EMC Stock. The Reset PERQS will mature on April 30, 2002.
Your appreciation The appreciation potential of each Reset PERQS is limited in each year by the cap price.
potential is capped The cap price through April 20, 2001 is $ , or % of the closing price of EMC
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 EMC Stock on April 20, 2001 and the First
Year Cap Price. The maximum you can receive at maturity is EMC 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 EMC Stock equal to the exchange ratio. The initial exchange
ratio is one-fifth of a share of EMC 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 EMC Stock
exceeds the First Year Cap Price on April 20, 2001.
The adjusted exchange ratio will be as follows:
New Exchange Initial Exchange First Year Cap Price
Ratio = Ratio x -------------------------------------------
EMC Stock closing price on April 20, 2001
If the market price of EMC Stock on April 20, 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 EMC 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 -------------------------------------------
EMC Stock closing price at maturity
If the market price of EMC 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 EMC 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 EMC 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 EMC Stock that you will
receive at maturity.
No affiliation with EMC Corporation is not an affiliate of ours and is not involved with this offering in any
EMC Corporation way. The obligations represented by the Reset PERQS are obligations of Morgan Stanley
Dean Witter & Co. and not of EMC Corporation.
More information on The Reset PERQS are senior notes issued as part of our C medium-term note program. You can
the Reset PERQS 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." 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).
</TABLE>
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: $25.00
o Initial EMC Stock Price: $125.00
o First Year Cap Price: 136% of the Initial EMC Stock Price
o Second Year Cap Price: Greater of (x) 136% of the First Year
Closing Price and (y) First Year Cap Price
o Interest Rate: 8% per year
o Maturity: 25 months
<TABLE>
Initial Price Initial
Illustration of Reset Initial EMC Exchange First Year First Year 4/20/01 Second Year
Number PERQS Stock Price Ratio Cap Price Closing Price(1) Exchange Ratio Cap Price
- ------------ ------------- ----------- -------- ---------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $25.00 $125.00 0.20000 $170.00 $100.00 0.20000 $170.00
2 $25.00 $125.00 0.20000 $170.00 $100.00 0.20000 $170.00
3 $25.00 $125.00 0.20000 $170.00 $100.00 0.20000 $170.00
4 $25.00 $125.00 0.20000 $170.00 $150.00 0.20000 $204.00
5 $25.00 $125.00 0.20000 $170.00 $150.00 0.20000 $204.00
6 $25.00 $125.00 0.20000 $170.00 $150.00 0.20000 $204.00
7 $25.00 $125.00 0.20000 $170.00 $200.00 0.17000 $272.00
8 $25.00 $125.00 0.20000 $170.00 $200.00 0.17000 $272.00
9 $25.00 $125.00 0.20000 $170.00 $200.00 0.17000 $272.00
10 $25.00 $125.00 0.20000 $170.00 $170.00 0.20000 $231.20
^ ^
136% Greater of (x)
of Initial EMC 136% of First Year
Stock Price Closing Price and
(y) First Year Cap
Price
Reset PERQS
Exchange Reset PERQS Payout at
Illustration EMC Stock Ratio Payout at Maturity Based Maturity plus
Number Maturity Price(1) at Maturity on EMC Stock Price 8% Coupon
- ------------ ---------------- ----------- ------------------------ -------------
<S> <C> <C> <C> <C>
1 $75.00 0.20000 $15.00 $19.17
2 $165.00 0.20000 $33.00 $37.17
3 $225.00 0.15111 $34.00 $38.17
4 $110.00 0.20000 $22.00 $26.17
5 $200.00 0.20000 $40.00 $44.17
6 $225.00 0.18133 $40.80 $44.97
7 $110.00 0.17000 $18.70 $22.87
8 $250.00 0.17000 $42.50 $46.67
9 $300.00 0.15413 $46.24 $50.41
10 $231.20 0.20000 $46.24 $50.41
^
Maturity Price times
Adjusted Exchange
Ratio
</TABLE>
The above table illustrates an important feature of the Reset PERQS - the
payout at maturity is not determined merely by the price of EMC Stock at
maturity, but will depend on the timing and magnitude of changes in the EMC
Stock price. For example, in both the fourth and seventh illustrations shown
above, the EMC Stock Maturity Price is $110.00, but in the seventh illustration
the Payout at Maturity is $22.87 compared to $26.17 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 $50.41, but in the ninth
illustration, the EMC Stock Maturity Price had to equal or exceed $272.00 to
produce that payout, but in the tenth illustration, an EMC Stock Maturity Price
of only $231.20 was required.
- ---------
(1) The First Year Closing Price and the EMC Stock Maturity Price do not
include any dividend payments that may have been paid to holders of EMC
Stock.
<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 EMC
Stock, there is no guaranteed return of principal. Investing in Reset PERQS is
not equivalent to investing directly in EMC 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.
<TABLE>
<S> <C>
Reset PERQS Are Not The Reset PERQS combine features of equity and debt. The terms of the Reset PERQS
Ordinary Senior Notes -- differ from those of ordinary debt securities in that we will not pay you a fixed
No guaranteed return of amount at maturity. Our payout to you at maturity will be a number of shares of EMC
principal Stock based on the market price of EMC Stock on April 20, 2001 and at maturity. If
the final market price of EMC 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 April 20, 2001, we will pay you an
amount of EMC 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 limited because of the cap prices.
Potential Is Limited Even though the $ issue price of one Reset PERQS is equal to today's market price of
one share of EMC Stock multiplied by the initial exchange ratio, you may receive a
lesser fractional amount of EMC 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
EMC Stock appreciates above both the cap price for April 20, 2001 and the cap price
for April 26, 2002, the initial exchange ratio of one-fifth of a share of EMC Stock
per Reset PERQS will be reduced twice
The exchange ratio and the final market price of EMC Stock at maturity will be
determined on April 26, 2002, which is two trading days prior to maturity of the
Reset PERQS. If the price of EMC Stock is lower on the actual maturity date than it
was on April 26, 2002, the value of any EMC Stock you receive will be less. Under no
circumstances will you receive an amount of EMC 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 Reset PERQS. Although we
May Be Limited 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 We expect that generally the market
PERQS Influenced by Many price of the EMC control, will influence the value of the Reset PERQS.Stock on any
Unpredictable Factors day will affect the value of the Reset PERQS more than any other single factor.
Because adjustments to the exchange ratio for the Reset PERQS are tied to the closing
stock prices on two specific days, however, the Reset PERQS may trade differently
from the underlying stock. Other factors that may influence the value of the Reset
PERQS include:
o the volatility (frequency and magnitude of changes in price) of the EMC Stock
o the dividend rate on EMC 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 the EMC 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
EMC Stock is at, below, or not sufficiently above the initial market price.
You cannot predict the future performance of EMC Stock based on its historical
performance. The price of EMC Stock may decrease so that you will receive at maturity
shares of EMC Stock worth less than the principal amount of the Reset PERQS. We
cannot guarantee that the price of EMC 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 EMC Corporation ("EMC"). Although we do not have
EMC Corporation any non-public information about EMC as of the date of this pricing supplement,
we or our subsidiaries may presently or from time to time engage in business with
EMC, including extending loans to, or making equity investments in, EMC or providing
advisory services to EMC, including merger and acquisition advisory services.
Moreover, we have no ability to control or predict the actions of EMC, including any
corporate actions of the type that would require the calculation agent to adjust the
payout to you at maturity. EMC 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 EMC.
You Have No As an owner of Reset PERQS, you will not have voting rights or other rights with
Shareholder Rights respect to the EMC rights to receive dividends or other distributions or any Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the amount payable at maturity for
Adjustments certain events affecting the EMC Stock, such as stock splits and stock dividends,
and certain other corporate actions involving EMC, such as mergers. However, the
calculation agent is not required to make an adjustment for every corporate event
that can affect the EMC Stock. For example, the calculation agent is not required to
make any adjustments if EMC or anyone else makes a partial tender or partial exchange
offer for the EMC Stock. If an event occurs that does not require the calculation
agent to adjust the amount of EMC Stock payable at maturity, the market price of the
Reset PERQS may be materially and adversely affected.
PS-7
<PAGE>
Potential Conflicts of Interest As calculation agent, MS & Co. will calculate the payout to you at maturity of
between You and the the Reset PERQS. MS & Co. and other affiliates may also carry out hedging
Calculation Agent activities related to Reset PERQS or to other instruments, including trading in
EMC Stock as well as in other instruments related to EMC Stock. MS & Co. and some of
our other subsidiaries also trade EMC Stock and other financial instruments related
to EMC 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 any such trading activity could potentially
affect the price of EMC 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 ("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.
</TABLE>
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 April 30, 2002, Mandatorily
Exchangeable For Shares of Common Stock of EMC Corporation. In this pricing
supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan Stanley
Dean Witter & Co.
<TABLE>
<S> <C>
Principal Amount............................ $25,000,000
Maturity Date............................... April 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
July 30, 2000.
Specified Currency.......................... U.S. Dollars
Issue Price................................. $ per Reset PERQS
Initial EMC Stock Price..................... $
Original Issue Date (Settlement Date)....... , 2000
CUSIP....................................... 61744Y835
Denominations............................... $ and integral multiples thereof
First Year Cap Price........................ $ ( % of the Initial EMC Stock Price)
First Year Determination Date............... April 20, 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 EMC 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 EMC 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 EMC Stock at the Exchange Ratio.
The initial Exchange Ratio, initially set at 0.2, is subject to adjustment
on the First Year Determination Date and at maturity in order to cap
the value of the EMC 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 EMC Stock to be delivered at
PS-9
<PAGE>
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 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 EMC Stock to be delivered with respect to each $
principal amount of each Reset PERQS and (ii) deliver such shares of
EMC Stock (and cash in respect of interest and any fractional shares of
EMC 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 EMC
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 EMC Stock in an amount equal to the corresponding fractional
Market Price of such fraction of a share of EMC Stock as determined
PS-10
<PAGE>
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 EMC Stock through and including the second scheduled Trading
Day immediately prior to maturity. See "Antidilution Adjustments"
below.
Market Price................................ If EMC 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 EMC 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 EMC 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 EMC 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 EMC 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 EMC
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 EMC 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.
PS-11
<PAGE>
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.
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 EMC 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 EMC Stock.
2. If EMC Stock is subject (i) to a stock dividend (issuance of
additional shares of EMC Stock) that is given ratably to all holders of
shares of EMC Stock or (ii) to a distribution of EMC Stock as a result
of the triggering of any provision of the corporate charter of EMC,
then once the dividend has become effective and EMC 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 EMC
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 EMC 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 EMC Stock will be deemed to be an
"Extraordinary Dividend" if such dividend or other distribution exceeds
the immediately preceding non- Extraordinary Dividend for EMC Stock by
an amount equal to at least 10% of the Market Price of EMC Stock (as
adjusted for any subsequent corporate event requiring an adjustment
hereunder, such
PS-12
<PAGE>
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 EMC Stock, the Exchange Factor with respect to EMC 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 EMC
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 EMC 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 EMC 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 EMC issues rights or warrants to all holders of EMC Stock to
subscribe for or purchase EMC Stock at an exercise price per share less
than the Market Price of the EMC 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 EMC Stock outstanding immediately prior to the
issuance of such rights or warrants plus the number of additional
shares of EMC Stock offered for subscription or purchase pursuant to
such rights or warrants and the denominator of which shall be the
number of shares of EMC Stock outstanding immediately prior to the
issuance of such rights or warrants plus the number of additional
shares of EMC Stock which the aggregate offering price of the total
number of shares of EMC 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 EMC Stock,
including, without limitation, as a result of the issuance of any
tracking stock by EMC, (ii) EMC or any surviving entity or subsequent
surviving entity of EMC (an "EMC Successor") has been subject to a
merger, combination or consolidation and is not the surviving entity,
(iii) any statutory exchange of securities of EMC or
PS-13
<PAGE>
any EMC Successor with another corporation occurs (other than pursuant
to clause (ii) above), (iv) EMC is liquidated, (v) EMC issues to all of
its shareholders equity securities of an issuer other than EMC (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 EMC 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 EMC Stock in any
such Reorganization Event, including, in the case of the issuance of
tracking stock, the reclassified share of EMC Stock and, in the case of
a Spin-off Event, the share of EMC 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 EMC Stock and holders will receive in lieu of any EMC
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 EMC 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 EMC 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 EMC 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.
PS-14
<PAGE>
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 EMC Stock, including, without limitation, a
partial tender or exchange offer for the EMC 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 EMC 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 EMC Stock:
(i) a suspension, absence or material limitation of trading of EMC
Stock on the primary market for EMC 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
EMC Stock as a result of which the reported trading prices for EMC
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
PS-15
<PAGE>
or material limitation on the primary market for trading in options
contracts related to EMC 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
(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 EMC 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 EMC Stock and (5) a suspension, absence or material
limitation of trading on the primary securities market on which options
contracts related to EMC 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 of an Event of Default.............. In case an event of default with 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 EMC 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.
EMC Stock; Public Information............... EMC Corporation and its subsidiaries ("EMC") design, manufacture,
market and support a wide range of hardware, software and service
products for the enterprise storage market. EMC 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 EMC pursuant to the Exchange Act can
be located by reference to Commission file number 1-9853. In addition,
information regarding EMC 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 EMC Stock or other securities of EMC. We have
derived all disclosures contained in this pricing supplement regarding
EMC 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 EMC
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 EMC 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 EMC Stock (and therefore the Initial EMC 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 EMC 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 EMC Stock.
We and/or our subsidiaries may presently or from time to time engage in
business with EMC, including extending loans to, or making equity
investments in, EMC or providing advisory services to EMC, 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 EMC and, in addition, one or more of our affiliates may
publish research reports with respect to EMC. 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
EMC as in your judgment is appropriate
PS-17
<PAGE>
to make an informed decision with respect to an investment in EMC
Stock.
Historical Information...................... The following table sets forth the high and low Market Price during
1997, 1998, 1999 and 2000 through March 15, 2000. The Market
Price on March 15, 2000 was $115 1/4. 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 EMC Stock as an indication of future
performance. The price of EMC Stock may decrease so that you will
receive at maturity shares of EMC Stock worth less than the principal
amount of the Reset PERQS. We cannot give you any assurance that
the price of EMC 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 EMC
Stock on April 20, 2001 and April 26, 2002, there is no guaranteed
return of principal. To the extent that the Maturity Price of EMC
Stock is less than the Initial EMC Stock Price or not sufficiently
above the Initial EMC Stock Price to compensate for a downward
adjustment of the Exchange Ratio, if any, at April 20, 2001 and the
shortfall is not offset by the coupon paid on the Reset PERQS, you
will lose money on your investment.
EMC High Low
--- ---- ---
<S> <C> <C>
(CUSIP 268648102)
1997
First Quarter.................. 9 13/16 8 1/32
Second Quarter................. 10 5/32 8 1/8
Third Quarter.................. 15 7/16 9 51/64
Fourth Quarter................. 16 1/4 11 13/16
1998
First Quarter.................. 19 13/32 12 19/32
Second Quarter................. 23 1/2 17 31/32
Third Quarter.................. 30 15/16 22 7/32
Fourth Quarter................. 42 1/2 22 19/32
1999
First Quarter.................. 64 15/16 43 1/2
Second Quarter................. 67 15/32 47 3/4
Third Quarter.................. 74 5/8 53 5/8
Fourth Quarter.................109 1/4 63
2000
First Quarter
(through March 15, 2000).....132 99 5/8
<S> <C>
Historical prices have been adjusted for two 2 for 1 stock splits of
EMC stock, which became effective in the fourth quarter of 1997 and the
second quarter of 1999, respectively.
EMC has not paid cash dividends on EMC Stock to date. We make no
representation as to the amount of dividends, if any, that EMC 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
EMC 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
PS-18
<PAGE>
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 EMC Stock, in
options contracts on EMC 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 EMC
Stock, and therefore effectively increase the level to which EMC Stock
must rise before you would receive at maturity an amount of EMC 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 EMC 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 EMC 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 EMC
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 98.625% 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 1.375% 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
PS-19
<PAGE>
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;
(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.
PS-20
<PAGE>
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 EMC 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 EMC Stock at
maturity (or, alternatively, upon an earlier redemption of the Reset
PERQS), and (ii) a deposit with us of a fixed amount of cash, equal to
the Issue Price, to secure the holder's obligation to purchase the EMC
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
PS-21
<PAGE>
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 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
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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 EMC
Stock, and a U.S. Holder would not recognize any gain or loss with
respect to any EMC 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 EMC Stock received upon maturity, the U.S. Holder
would have an adjusted tax basis in such EMC Stock equal to the pro
rata portion of the Forward Price allocable thereto. The allocation of
the Forward Price between cash and EMC Stock should be based on the
amount of the cash received and the relative fair market value, as of
the
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maturity, of the EMC Stock. The U.S. Holder's holding period of any EMC
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
Price. In addition, a U.S. Holder would recognize income upon maturity
of the Reset PERQS to the extent that the value of EMC 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.
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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 by such taxpayer with respect to the derivative
position would be recharacterized as ordinary income. Although Section
1260 will 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" rule. There is no assurance that the Treasury Department
will not promulgate regulations to apply the rule 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. In addition, Section 1260 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.
</TABLE>
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MORGAN STANLEY DEAN WITTER & CO.
CLF #80812
