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 February 15, 2000
PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 40 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
--------------------
[7]% Currency Protected PERQS(SM)
Due February 25, 2001
Mandatorily Exchangeable for the Cash Value of
Shares of Common Stock of Nokia Corporation
Currency Protected Performance Equity-linked Redemption Quarterly-pay
Securities(SM) ("CP PERQS(SM)")
--------------------
The CP PERQS will pay [7]% interest per year but do not guarantee any return of
principal at maturity. Instead the CP PERQS will pay at maturity an amount of
U.S. dollars based on the closing price of Nokia common stock on the
determination date (which we expect to be February 21, 2001), subject to a cap
price. The CP PERQS permit you to make an investment linked to the price of
Nokia common stock without being affected by future changes in the U.S.
dollar/euro exchange rate.
o The principal amount and issue price of each CP PERQS is $ ,
which represents the value of 20 shares of Nokia common stock in U.S.
dollars using the market price and U.S. dollar/euro exchange rate as
determined on the day we offer the CP PERQS for initial sale to the
public.
o We will pay [7]% interest on the $ principal amount of each
CP PERQS. Interest will be paid quarterly, on May 25, 2000, August
25, 2000, November 25, 2000 and at maturity.
o At maturity you will receive an amount of U.S. dollars based on the
percentage increase or decrease of Nokia common stock, subject to a
maximum of $ ([148-150]% of the issue price of each CP PERQS).
o Nokia is not involved in this offering of CP PERQS in any way and will
have no financial obligation with respect to the CP PERQS.
o Investing in CP PERQS is not equivalent to investing in Nokia common
stock or depositary shares.
o We will apply to list the CP PERQS to trade on the American Stock
Exchange LLC, subject to meeting its listing requirements
You should read the more detailed description of the CP PERQS in this pricing
supplement. In particular, you should review and understand the descriptions in
"Summary of Pricing Supplement" and "Description of CP PERQS." "Performance
Equity-linked Redemption Quarterly-pay Securities" and "CP PERQS" are our
service marks.
CP PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-5.
----------------------------
PRICE $ PER CP PERQS
----------------------------
Price to Public Agent's Commissions Proceeds to MSDW
--------------- ------------------- ----------------
Per CP PERQS.......... $ $ $
Total................. $ $ $
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the CP PERQS we are offering 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."
Overview of the CP PERQS
The CP PERQS are medium-term debt securities of Morgan Stanley Dean Witter
& Co. whose return is linked to the performance of the common stock, euro 0.24
par value per share, of Nokia Corporation, which we refer to in this pricing
supplement as Nokia Stock. The CP PERQS permit you to participate in the price
fluctuations of the Nokia Stock, up to a limit of [148-150]% of its current
level, without being affected by future changes in the U.S. dollar/euro exchange
rate.
Each CP PERQS We, Morgan Stanley Dean Witter & Co., are offering [7]%
costs $ Currency Protected Performance Equity-linked Quarterly
-pay Securities(SM) due February 25, 2001, which we
refer to as the CP PERQS(SM). The principal amount and
issue price of each CP PERQS is $ . $ represents
The Initial Share the value of 20 shares of Nokia Stock in U.S. dollars
Control Amount is 20 using the market price and U.S. dollar/euro exchange
rate as determined on the day we offer the CP PERQS
for initial sale to the public.
No guaranteed return Unlike ordinary debt securities, the CP PERQS do not
of principal guarantee any return of principal at maturity. Instead
the CP PERQS will pay an amount based on the market
price of Nokia Stock, either up or down, at maturity,
subject to a cap price. Investing in CP PERQS is not
equivalent to investing in Nokia Stock.
[7.0]% Interest on the We will pay interest on the CP PERQS, at the rate of
principal amount [7]% of the principal amount per year, quarterly on May
25, 2000, August 25, 2000, November 25, 2000 and at
maturity. The interest rate we pay on the CP PERQS is
more than the current dividend rate on the Nokia
Stock. As a holder of CP PERQS, you will not be
entitled to receive dividends, if any, that may be
payable on Nokia Stock. The CP PERQS will mature on
February 25, 2001.
Payment at Maturity
Your appreciation At maturity, for each $ principal amount of CP PERQS
potential is capped you hold, we will pay to you an amount of U.S. dollars
equal to the lesser of:
o the product of $ times a fraction that we
call the "Stock Price Percentage", and
o $ ([148-150]% of the issue price per CP PERQS)
The Stock Price Percentage is a fraction equal to:
the final market price of Nokia Stock
---------------------------------------
the initial market price of Nokia Stock
We will determine the final market price of Nokia
Stock on the determination date, which we expect will
be February 21, 2001, subject to certain market
disruption and extraordinary events.
This means that no matter how high the market price of
Nokia Stock goes, you will never receive more than
$ ([148-150]% of the issue price per CP PERQS).
PS-3
<PAGE>
Payment at maturity not The formula for payment at maturity depends on the
affected by fluctuations percentage change in the price the of the Nokia Stock
in U.S. dollar/euro on the Helsinki Stock Exchange and not the value of
exchange rate the underlying shares translated back to U.S. dollars.
Therefore, any payment we make to you at maturity will
not be affected by future changes in the U.S.
dollar/euro exchange rate. This means that, no matter
how much the value of the euro declines or appreciates
against the U.S. dollar, you will not share in that
decline or appreciation.
The Nokia Stock is Nokia Stock is currently quoted in euro on the
currently euro 195.80 Helsinki Stock Exchange. As of February 14, 2000, the
per share market price of Nokia Stock was euro 195.80. You can
review the prices of Nokia Stock for the last three
years in the "Historical Information" section of this
pricing supplement.
The Calculation Agent We have appointed Morgan Stanley & Co. Incorporated
("MS & Co.") to act as calculation agent for The Chase
Manhattan Bank, the trustee for the CP PERQS. As
calculation agent, MS & Co. will determine the market
price of the Nokia Stock and the amount of cash that
you receive at maturity. As calculation agent, MS &
Co. will also adjust any payment to you at maturity
for certain corporate events that could affect the
price of the Nokia Stock and that we describe in the
section called "Description of CP PERQS --Antidilution
Adjustments" in this pricing supplement.
No affiliation with Nokia Corporation is not an affiliate of ours and is
Nokia Corporation not involved with this offering in any way. The
obligations represented by the CP PERQS are
obligations of Morgan Stanley Dean Witter & Co. and
not of Nokia Corporation.
More information on The CP PERQS are senior notes issued as part of our
the CP PERQS Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying prospectus supplement
dated May 6, 1999. We describe the basic features of
this type of note in the sections called "Description
of Notes--Fixed Rate Notes" and "--Exchangeable
Notes."
For a detailed description of the terms of the CP
PERQS including the specific mechanics and timing of
the payment determinations, you should read the
"Description of CP PERQS" section in this pricing
supplement. You should also read about some of the
risks involved in investing in CP PERQS in the section
called "Risk Factors." The tax and accounting
treatment of investments in equity-linked notes such
as the CP 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 advisers with regards to any
proposed or actual investment in the CP PERQS.
How to reach us Please contact our principal executive offices at 1585
Broadway, New York, New York 10036, telephone number
(212) 761-4000.
PS-4
<PAGE>
RISK FACTORS
The CP PERQS are not secured debt and are riskier than ordinary debt
securities. Because the return to investors is linked to the performance of
Nokia Stock, there is no guaranteed return of principal. To the extent that the
final market price of Nokia Stock decreases from the date we offer the CP PERQS
for initial sale to the public, investors will lose money on their investment.
CP PERQS are not equivalent to investing directly in Nokia Stock. Among other
differences, investors in CP PERQS will not receive any dividends paid on Nokia
Stock. This section describes the most significant risks relating to the CP
PERQS. You should carefully consider whether the CP PERQS are suited to your
particular circumstances before you decide to purchase them.
CP PERQS are not The CP PERQS combine features of equity and debt. The
Ordinary Senior Notes -- terms of the CP PERQS differ from those of ordinary
No Guaranteed Return debt securities in that we will not pay you a fixed
of Principal principal amount at maturity. Our payout to you at
maturity is based on the price of the Nokia Stock on
the determination date. If, on the determination date,
the final market price of Nokia Stock is less than the
market price on the first trading day after we offer
the CP PERQS for initial sale to the public, we will
pay you less than the principal amount of the CP
PERQS.
Your Appreciation The appreciation potential of the CP PERQS is limited
Potential is Limited because of the cap price. Even if the final market
price in euro on the determination date is more than
[148-150]% of the initial market price, you will
receive only $ ([148-150]% of the issue price of each
CP PERQS) for each of your CP PERQS at maturity.
Secondary Trading There may be little or no secondary market for the CP
May be Limited PERQS. Although the CP PERQS have been approved for
listing on the American Stock Exchange LLC, it is not
possible to predict whether the CP PERQS will trade in
the secondary market. Even if there is a secondary
market, it may not provide significant liquidity. MS &
Co. currently intends to act as a market maker for CP
PERQS but is not required to do so.
Market Price of the Several factors, many of which are beyond our control,
CP PERQS Influenced will influence the value of the CP PERQS. We expect
by Many Unpredictable that generally the market price of Nokia Stock on any
Factors day will affect the value of the CP PERQS more than any
other single factor. Other factors that may influence
the value of the CP PERQS include:
o the volatility (frequency and magnitude of changes
in price) of the Nokia Stock
o the dividend rate on Nokia Stock
o economic, financial, regulatory and political
events that affect stock markets generally and
which may affect the market price of Nokia Stock
o interest and yield rates in the market
o the value of the euro relative to other
currencies, including the U.S. dollar
o the time remaining to the maturity of the CP PERQS
o our creditworthiness
Some or all of these factors (and the currency
exchange rate fluctuations explained below) will
influence the price you receive if you sell your CP
PERQS prior to maturity. For example, you may have to
sell your CP PERQS at a substantial discount from the
principal amount if the market price of the Nokia
Stock is at or below the initial market price.
PS-5
<PAGE>
You cannot predict the future performance of Nokia
Stock based on its historical performance. The price
of Nokia Stock may decrease so that you will receive
at maturity less than the principal amount of the CP
PERQS. We cannot guarantee that the price of Nokia
Stock will increase so that you will receive at
maturity an amount in excess of the principal amount
of the CP PERQS or that the price of Nokia Stock will
not increase above [148-150]% of the initial market
price. You will no longer share in the performance of
the Nokia Stock at market prices above [148-150]% of
the initial market price.
Currency Fluctuations By purchasing CP PERQS rather than the underlying Nokia
May Impact the Value Stock, you have a hedge against a decline in the value
of Your CP PERQS of the euro against the U.S. dollar. However, you will
Relative to Nokia Stock not benefit from any appreciation of the euro against
the U.S. dollar during the term of the CP PERQS.
Any appreciation in the value of the euro against the
U.S. dollar during the term of the CP PERQS will not
affect the amount you are paid at maturity. However,
appreciation in the euro may decrease the value of
your CP PERQS in relation to the Nokia Stock, because
you will not benefit from any such appreciation.
In addition, fluctuations in the value of the euro
relative to other currencies may influence investors
to buy or sell euro denominated assets and thus affect
the value of the Nokia Stock.
No Affiliation with We are not affiliated with Nokia Corporation. Although
Nokia Corporation we do not have any non-public information about Nokia
as of the date of this pricing supplement, we or our
subsidiaries may presently or from time to time engage
in business with Nokia, including extending loans to,
or making equity investments in, Nokia or providing
advisory services to Nokia, including merger and
acquisition advisory services. Moreover, we have no
ability to control or predict any actions of Nokia,
including any corporate actions of the type that would
require the calculation agent to adjust the payment to
you at maturity. Nokia is not involved in the offering
of the CP PERQS in any way and has no obligation to
consider your interest as a holder of CP PERQS in
taking any corporate actions that might affect the
value of your CP PERQS. None of the money you pay for
the CP PERQS will go to Nokia.
You Have No As a holder of CP PERQS, you will not have voting
Shareholder Rights rights or rights to receive dividends or other
distributions or any other rights with respect to the
Nokia Stock.
Antidilution Adjustments MS & Co., as calculation agent, will adjust the amount
Can Adversely Affect payable at maturity for certain events affecting the
the Value of the Nokia Stock, such as stock splits and stock dividends,
CP PERQS and certain other corporate actions involving Nokia,
such as mergers. In addition, the calculation agent
may, but is not required to, make adjustments for
corporate events that can affect the Nokia Stock other
than those specified. The determination by the
calculation agent to adjust, or not adjust, the amount
payable at maturity may materially and adversely
affect the market price of the CP PERQS. In addition,
we may, at our sole discretion, cause the calculation
agent to alter the specified antidilution adjustments,
if we determine that such existing adjustments do not
properly take into account the consequences of the
events enumerated in such antidilution adjustments.
Any alterations to the specified antidilution
adjustments set forth above may be materially adverse
to the holders of the CP PERQS.
PS-6
<PAGE>
Potential Risks of An investment in CP PERQS involves considerations that
Investing in a Security may not be associated with a security linked to stocks
Linked to a Foreign of U.S. issuers. These considerations relate to foreign
Security market factors generally and may include, for example,
different accounting requirements and regulations,
different and in some cases more adverse economic
environments and greater governmental involvement in
the economy.
Potential Conflicts of As calculation agent, MS & Co. will calculate the
Interest between You and payout to you at maturity of the CP PERQS. MS & Co.
the Calculation Agent and other affiliates may carry out hedging activities
related to CP PERQS, including trading in Nokia Stock
as well as in other instruments related to Nokia
Stock. MS & Co. and some of our other subsidiaries
also trade Nokia Stock and other financial instruments
related to Nokia Stock on a regular basis as part of
their general broker dealer businesses. Any of these
activities could influence MS & Co.'s determination of
adjustments made to CP PERQS and, accordingly, could
affect your payout on the CP PERQS.
Tax Treatment You should also consider the tax consequences of
investing in the CP PERQS. There is no direct legal
authority as to the proper tax treatment of the CP
PERQS, and therefore significant aspects of the tax
treatment of the CP PERQS are uncertain. We do not
plan to request a ruling from the Internal Revenue
Service ("IRS") regarding the tax treatment of the CP
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 CP
PERQS--United States Federal Income Taxation" in this
pricing supplement.
PS-7
<PAGE>
DESCRIPTION OF CP PERQS
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying prospectus supplement. The term "CP PERQS" refers to each $
principal amount of our [7]% Currency Protected PERQS(SM) due February 25, 2001
Mandatorily Exchangeable for the Cash Value of Common Stock of Nokia
Corporation. In this pricing supplement, "MSDW," "we," "us" and "our" refer to
Morgan Stanley Dean Witter & Co.
<TABLE>
<S> <C>
Principal Amount............................ $[25,000,000]
Maturity Date............................... February 25, 2001
Interest Rate............................... [7]% per annum.
Interest Payment Dates...................... May 25, 2000, August 25, 2000, November 25, 2000 and at
maturity
Specified Currency.......................... U.S. dollars
Issue Price................................. $ per CP PERQS, which equals the product of (a) the
Initial Stock Price times the Initial Share Control Amount,
multiplied by (b) the Initial FX Rate.
Original Issue Date (Settlement Date)....... February , 2000
Pricing Date................................ For the purpose of determining the Initial Stock Price and the
Initial FX Rate, the Pricing Date will be the trading day in the
Republic of Finland next succeeding the day on which the offering
of the CP PERQS is completed in the United States.
CUSIP....................................... [ ]
Denominations............................... $ and integral multiples thereof
Amount Payable at Maturity.................. At maturity, upon delivery of each CP PERQS to the Trustee, we
will, with respect to the principal amount of each CP PERQS,
deliver an amount in U.S. dollars equal to the lesser of (x) the
product of the Issue Price and the Stock Price Percentage or (y) $
, or [148-150]% of the Issue Price (the "Cap Price").
We will, or will cause the Calculation Agent to, deliver U.S.
dollars to the Trustee for delivery to the holders.
Nokia Stock................................. The common stock, par value euro 0.24 per share, of Nokia
Corporation, a Finnish corporation ("Nokia").
Stock Price Percentage...................... The Stock Price Percentage is a fraction, the numerator of which
will be the Final Stock Price and the denominator of which will be
the Initial Stock Price.
Initial Stock Price......................... (Euro , the Market Price of one share of Nokia Stock on the
Pricing Date, as determined by the Calculation Agent.
Final Stock Price........................... The product of the Market Price of one share of Nokia Stock and
the Share Ratio, each as determined on the Determination Date by
the Calculation Agent.
PS-8
<PAGE>
Initial Share Control Amount................ 20
Initial FX Rate............................. U.S.$ per euro 1.00, the U.S. dollar/euro exchange rate as of the
Pricing Date, as determined by the Calculation Agent.
Share Ratio................................. The Share Ratio will initially be set at 1.0, but will be subject to
adjustment upon the occurrence of certain events through and
including the Determination Date. See "--Antidilution
Adjustments" below.
Determination Date.......................... February 21, 2001, or if such day is not a Trading Day or if there is
a Market Disruption Event on such day, the Determination Date
will be the immediately succeeding Trading Day during which no
Market Disruption Event shall have occurred; provided that the
Determination Date will be no later than the second scheduled
Trading Day preceding the Maturity Date, notwithstanding the
occurrence of a Market Disruption Event on such second scheduled
Trading Day.
Market Price................................ The Market Price for any security for any date means the official
closing price of such security as reported by the principal exchange
on which such security is traded on such date. If the official
closing price is not available for any reason (including, without
limitation, the occurrence of a Market Disruption Event), the
Market Price for such security for any date shall be the mean, as
determined by the Calculation Agent, of the bid prices for such
security obtained from as many dealers in such security (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 after 3:00 p.m. (local time in such principal
market) on such date.
Trading Day................................. A day on which trading is generally conducted on the Helsinki
Stock Exchange, and, in the over-the-counter market for equity
securities in the United States and the Republic of Finland, as
determined by the Calculation Agent.
Business Day................................ Any day other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which banking institutions are authorized or
required by law or regulation to close in The City of New York or
in Helsinki.
Optional Redemption......................... We will not redeem the CP PERQS prior to the Maturity Date.
Book Entry Note or Certificated Note........ Book Entry
Senior Note or Subordinated Note............ Senior
Trustee..................................... The Chase Manhattan Bank
Agent for this Underwritten Offering
of CP PERQS................................. Morgan Stanley & Co. Incorporated
Calculation Agent........................... Morgan Stanley & Co. Incorporated and its successors ("MS &
Co.")
PS-9
<PAGE>
Because the Calculation Agent is our affiliate, potential conflicts of
interest may exist between the Calculation Agent and you as holder
of the CP PERQS with respect to its determinations of the Share
Ratio, the antidilution adjustments or the Market Price of Nokia
Stock or of whether a Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market Disruption Event" below.
MS & Co. is obligated to carry out its duties as Calculation Agent
in good faith using its reasonable judgment.
All percentages resulting from any calculation on the CP PERQS
will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point
rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used
in or resulting from such calculation will be rounded to the nearest
cent with one-half cent being rounded upwards.
Antidilution Adjustments.................... The Share Ratio (and, in the case of paragraph 5 below, the
determination of the cash payment at maturity) will be adjusted as
follows:
1. If Nokia Stock is subject to a stock split or reverse stock
split, then once such split has become effective, the Share Ratio
will be adjusted to equal the product of the prior Share Ratio and
the number of shares issued in such stock split or reverse stock split
with respect to one share of Nokia Stock.
2. If Nokia Stock is subject to (i) a stock dividend (issuance
of additional shares of Nokia Stock) that is given ratably to all
holders of shares of Nokia Stock or (ii) to a distribution of Nokia
Stock as a result of the triggering of any provision of the corporate
charter of Nokia, then once the dividend has become effective and
Nokia Stock is trading ex-dividend, the Share Ratio will be
adjusted so that the new Share Ratio shall equal the prior Share
Ratio plus the product of (i) the number of shares issued with
respect to one share of Nokia Stock and (ii) the prior Share Ratio.
3. There will be no adjustments to the Share Ratio to reflect
cash dividends or other distributions paid with respect to Nokia
Stock other than distributions described in clause (v) of paragraph
5 below and Extraordinary Dividends as described below. A cash
dividend or other distribution with respect to Nokia Stock will be
deemed to be an "Extraordinary Dividend" if such dividend or
other distribution exceeds the immediately preceding non-
Extraordinary Dividend for Nokia Stock by an amount equal to at
least 10% of the Market Price of Nokia 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 Nokia Stock, the
Share Ratio with respect to Nokia Stock will be adjusted on the ex-
dividend date with respect to such Extraordinary Dividend so that
the new Share Ratio will equal the product of (i) the then current
Share Ratio and (ii) a fraction, the numerator of which is the
PS-10
<PAGE>
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 Nokia 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 Nokia 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 Nokia Stock described in clause
(i) or (v) of paragraph 5 below that also constitutes an
Extraordinary Dividend shall cause an adjustment to the Share Ratio
pursuant only to clause (i) or clause (v) of paragraph 5.
4. If Nokia issues rights or warrants to all holders of Nokia
Stock to subscribe for or purchase Nokia Stock at an exercise price
per share less than the Market Price of the Nokia 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 CP PERQS, then the Share Ratio will be adjusted to equal the
product of the prior Share Ratio and a fraction, the numerator of
which shall be the number of shares of Nokia Stock outstanding
immediately prior to the issuance of such rights or warrants plus
the number of additional shares of Nokia Stock offered for
subscription or purchase pursuant to such rights or warrants and the
denominator of which shall be the number of shares of Nokia Stock
outstanding immediately prior to the issuance of such rights or
warrants plus the number of additional shares of Nokia Stock
which the aggregate offering price of the total number of shares of
Nokia 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 Nokia
Stock, including, without limitation, as a result of the issuance of
any tracking stock by Nokia, (ii) Nokia, or any surviving entity or
subsequent surviving entity of Nokia (a "Nokia Successor") has
been subject to a merger, combination or consolidation and is not
the surviving entity, (iii) any statutory exchange of securities of
Nokia or any Nokia Successor with another corporation occurs
(other than pursuant to clause (ii) above), (iv) Nokia is liquidated
or nationalized, (v) Nokia issues to all of its shareholders equity
securities of an issuer other than Nokia (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 Nokia Stock (any
PS-11
<PAGE>
such event in clauses (i) through (vi) a "Reorganization Event"),
the method of determining the amount payable at maturity for each
CP PERQS will be adjusted to provide that each holder of CP PERQS
will receive at maturity, in respect of the principal amount of
each CP PERQS, U.S. dollars in an amount equal to (a) if the
Transaction Value (as defined below) is greater than the Cap Price,
the Cap Price or (b) if the Transaction Value is less than or equal
to the Cap Price, the Transaction Value; provided that, if the
Exchange Property (as defined below) received in any such
Reorganization Event consists only of cash or if all of the
consideration received in such Reorganization Event is denominated
in a currency other than U.S. dollars or euro (or, if such
consideration consists of property other than cash or securities,
that would reasonably be valued in a currency other than U.S.
dollars or euro), the maturity date of the CP PERQS will be deemed
to be accelerated to the date on which such cash (or other
property) is distributed to holders of Nokia Stock. "Exchange
Property" means the securities, cash or any other assets
distributed to holders of Nokia Stock in any such Reorganization
Event, including, in the case of the issuance of tracking stock,
the reclassified share of Nokia Stock and, in the case of a
Spin-off Event, the share of Nokia Stock with respect to which the
spun-off security was issued. "Transaction Value" means (i) for any
cash received in any such Reorganization Event, the amount of cash
received per share of Nokia Stock multiplied by the product of the
Initial Share Control Amount and the then current Share Ratio and,
if such cash consists of euro, multiplied by the Initial FX Rate,
(ii) for any property other than cash or securities received in any
such Reorganization Event, the market value (as determined by the
Calculation Agent) of such Exchange Property received for each
share of Nokia Stock at the date of the receipt of such Exchange
Property multiplied by the product of the Initial Share Control
Amount and the then current Share Ratio and, if the value of such
property has been valued in euro, multiplied by the Initial FX Rate
and (iii) for any security received in any such Reorganization
Event, an amount equal to the Market Price per share of such
security on the Determination Date multiplied by the quantity of
such security received for each share of Nokia Stock multiplied by
the product of the Initial Share Control Amount and the Share Ratio
for Nokia Stock at the time of such Reorganization Event and, if
the security is denominated in euro, multiplied by the Initial FX
Rate.
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 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.
PS-12
<PAGE>
6. If more than one of the events set out above occurs, the
adjustments to the Share Ratio for the second and subsequent
events shall be to the Share Ratio as adjusted for preceding events.
7. Except as described below, no adjustments to the Share
Ratio or to the amount payable at maturity of the CP PERQS will
be required other than those specified above. However, we may, at
our sole discretion, cause the Calculation Agent to make additional
adjustments to the Share Ratio or to adjust the determination of the
cash payment at maturity upon the occurrence of corporate or other
similar events that affect or could potentially affect market prices
of, or shareholders' rights in, the Nokia Stock, but only to reflect
such changes, and not with the aim of changing relative investment
risks. In addition, we may, at our sole discretion, cause the
Calculation Agent, to alter the specific adjustments set forth above
in paragraphs 1 through 6 upon the occurrence of one or more of
the events enumerated in paragraphs 1 through 6, if we determine
that such adjustments do not properly reflect the consequences of
the events enumerated in such paragraphs or would not preserve
the relative investment risks. There may be corporate or other
similar events that could affect the Market Price of the Nokia Stock
for which the Calculation Agent will not adjust the Share Ratio.
Any alterations to the specific adjustments set forth above may
be materially adverse to the holders of the CP PERQS.
No adjustments to the Share Ratio will be required unless such
Share Ratio adjustment would require a change of at least 0.1% in
the Share Ratio then in effect. The Share Ratio resulting from any
of the adjustments specified above will be rounded to the nearest
one thousandth with five ten-thousandths being rounded upward.
Notwithstanding the foregoing, the amount payable by us at
maturity with respect to each CP PERQS will not under any
circumstances exceed $ .
The Calculation Agent shall be solely responsible for the
determination and calculation of any adjustments to the Share Ratio
or method of calculating the Share 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 above (including
the identification of potential events described in paragraph 7), and
its determinations and calculations with respect thereto shall be
conclusive. If any of the Exchange Property described in
paragraph 5 above is denominated in a currency other than U.S.
dollars or euro, the Calculation Agent, in determining the
Transaction Value, will determine the value of such Exchange
Property in U.S. Dollars. In determining the value of such
Exchange Property, the Calculation Agent will assume that all
currency exchange costs would be borne by you.
The Calculation Agent will provide information as to any
adjustments to the Share Ratio or method of calculating the Share
PS-13
<PAGE>
Ratio or the cash payment at maturity upon written request by any
holder of the CP PERQS.
Market Disruption Event..................... "Market Disruption Event" means, with respect to Nokia Stock:
(i) a suspension, absence or material limitation of trading of
Nokia Stock on the primary market for Nokia Stock for more than
two hours of trading or during the one-half hour period preceding
the close of trading in such market; or a breakdown or failure in the
price and trade reporting systems of the primary market for Nokia
Stock as a result of which the reported trading prices for Nokia
Stock during the last one-half hour preceding the closing of trading
in such market are materially inaccurate; or the suspension,
absence or material limitation on the primary market for trading in
options contracts related to Nokia Stock, if available, during the
one-half hour period preceding the close of trading in the
applicable market, in each case as determined by the Calculation
Agent in its sole discretion; and
(ii) a determination by the Calculation Agent in its sole discretion
that the event described in clause (i) above materially interfered
with the ability of MSDW or any of its affiliates to unwind all or a
material portion of the hedge with respect to the CP 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 any applicable rule or
regulation enacted or promulgated by the Helsinki Stock Exchange
(or any other self-regulatory organization in the Republic of
Finland with jurisdiction over the Helsinki Stock Exchange) 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 Nokia 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 Nokia Stock and (5) a
suspension, absence or material limitation of trading on the primary
securities market on which options contracts related to Nokia Stock
are traded will not include any time when such securities market is
itself closed for trading under ordinary circumstances.
Alternative Determination Date
in case of an Event of Default.............. In case an Event of Default with respect to any CP PERQS shall
have occurred and be continuing, the amount declared due and
payable upon any acceleration of the CP PERQS will be
determined by the Calculation Agent as though the Determination
Date were the date of acceleration plus any accrued but unpaid
interest to but not including the date of acceleration.
PS-14
<PAGE>
Nokia Stock; Public Information............. Nokia is a mobile phone manufacturer and a leading supplier of
digital mobile and fixed networks which also supplies multimedia
equipment, satellite and cable receivers, computer monitors as well
as other telecommunications related products. American
Depositary Shares representing Nokia Stock are registered under
the Exchange Act of 1934, as amended (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 Office
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 Nokia pursuant to the Exchange Act can
be located by reference to Commission file number 1-13202. In
addition, information regarding Nokia may be obtained from other
sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated documents. We make no
representation or warranty as to the accuracy or completeness of
such reports.
This pricing supplement relates only to the CP PERQS offered
hereby and does not relate to Nokia Stock or other securities of
Nokia. We have derived all disclosures contained in this
pricing supplement regarding Nokia 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 Nokia in connection with the offering of the
CP PERQS. Neither we nor the Agent makes any
representation that such publicly available documents or any
other publicly available information regarding Nokia are
accurate or complete. Furthermore, we cannot give any
assurance that all events occurring prior to the date hereof
(including events that would affect the accuracy or
completeness of the publicly available documents described in
the preceding paragraph) that would affect the trading price of
Nokia Stock (and therefore the Initial Stock Price) have been
publicly disclosed. Subsequent disclosure of any such events or
the disclosure of or failure to disclose material future events
concerning Nokia could affect the value received at maturity
with respect to the CP PERQS and therefore the trading prices
of the CP PERQS.
PS-15
<PAGE>
Neither we nor any of our affiliates make any representation to
any purchaser of CP PERQS as to the performance of Nokia
Stock.
We and/or our subsidiaries may presently or from time to time
engage in business with Nokia, including extending loans to, or
making equity investments in, Nokia or providing advisory services
to Nokia, including merger and acquisition advisory services. In
the course of such business, we or our affiliates may acquire non-
public information with respect to Nokia and, in addition, one or
more of our affiliates may publish research reports with respect to
Nokia. The statement in the preceding sentence is not intended to
affect the right of holders of the CP PERQS under the securities
laws. As a prospective purchaser of a CP PERQS, you should
undertake an independent investigation of Nokia as in your
judgment is appropriate to make an informed decision with respect
to an investment in Nokia Stock.
Historical Information...................... The following table sets forth the high and low Market Price of
Nokia Stock during 1997, 1998, 1999 and during 2000 through
February 14 on the Helsinki Stock Exchange. The Market Price on
February 14, 2000 was (U)195.80. The Market Prices, quoted in
Finnish markka on the Helsinki Stock Exchange prior to January 1,
1999, have been converted to euro at the official rate. Prior to a
consolidation of Nokia's share capital effective on the trading
market as of April 12, 1999, Nokia's A Shares traded on the
Helsinki Stock Exchange. Effective April 12, 1999, Nokia's share
capital comprised only Nokia Stock. 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 Nokia Stock as an indication of future
performance. The price of Nokia Stock may decrease so that you
will receive at maturity cash in an amount that is less than the
principal amount of the CP PERQS. We cannot give you any
assurance that the price of Nokia Stock will increase so that at
maturity you will receive cash in an amount in excess of the
principal amount of the CP PERQS or that, if such price
appreciates, it will not exceed [148-150]% of the Initial Stock
Price. Because your return is linked to the performance of Nokia
Stock, there is no guaranteed return of principal. To the extent that
Nokia Stock drops below the issue price and the shortfall is not
offset by the coupon paid on the CP PERQS, you will lose money
on your investment. The Nokia Stock is listed under the ISIN and
SEDOL numbers of FI0009000681 and 5655212, respectively.
Dividend Per
Nokia High Low Share(1)
------------------------- ----------- ----------- ------------
1997
First Quarter.......... Euro 13.897 Euro 11.100 Euro 0.875
Second Quarter......... 16.524 11.815 0.000
Third Quarter.......... 21.150 18.766 0.000
Fourth Quarter......... 22.457 15.095 0.000
1998
First Quarter.......... 15.477 25.396 1.875
Second Quarter......... 33.932 25.733 0.000
PS-16
<PAGE>
Dividend Per
Nokia High Low Share
------------------------ ----------- ----------- ------------
Third Quarter ........ 41.879 30.047 0.000
Fourth Quarter ........ 53.635 25.312 0.000
1999
First Quarter.......... 74.550 54.950 2.875
Second Quarter 85.800 65.800 0.000
Third Quarter.......... 95.390 73.000 0.000
Fourth Quarter......... 180.000 84.400 0.000
2000
First Quarter
(through February
14, 2000)............. 204.200 158.010 0.000
-------------------
1 Dividends are reported at ex-dividend date.
Historical prices have been adjusted for two 2 for 1 stock splits
of Nokia Stock, which became effective in the second quarter of
1998 and the second quarter of 1999, respectively.
We make no representation as to the amount of dividends, if any,
that Nokia will pay in the future. In any event, as a holder of the
CP PERQS, you will not be entitled to receive dividends, if any,
that may be payable on Nokia Stock.
Comparative Historical Returns.............. The following table sets forth, for each of the years in the left hand
column, (i) the historical annual rate of return (including dividends)
of the Nokia Stock in euro, (ii) the historical rate of return
(including dividends) of the Nokia Stock stated in U.S. dollars,
using the U.S dollar/euro exchange rate at the beginning and end
of each yearly period, and (iii) the hypothetical annualized rate of
return of the CP PERQS (including a coupon of [7]%) and
assuming a cap price equal to [148-150]% of the Issue Price of the
CP PERQS, calculated as if the Stock Price Percentage had been
determined for each one-year period.
The historical returns of Nokia Stock in euro or U.S. dollars should
not be taken as an indication of future performance, and no
assurance can be given that the price of Nokia Stock will not
decrease with the result that the beneficial owners of the
CP PERQS would receive at maturity cash in an amount that is less
than the principal amount of the CP PERQS
Annual Total
Return of Annual Total Hypothetical
Nokia Stock in Return of Annualized Return
euro Nokia Stock in $ of CP PERQS
--------------- ---------------- -----------------
1997 46.6% 24.4% [55-57]%
1998 215.5 226.0 [55-57]
1999 233.6 174.8 [55-57]
2000(1) 3.2 -0.9 [ ]
---------------------------
1 through February 14, 2000
Use of Proceeds and Hedging................. The net proceeds we receive from the sale of the CP PERQS will
be used for general corporate purposes and, in part, by us or by one
PS-17
<PAGE>
or more of our subsidiaries in connection with hedging our
obligations under the CP 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 CP PERQS by taking positions in Nokia Stock,
in options contracts on Nokia Stock listed on major securities
markets or positions in any other instruments that we may wish to
use in connection with such hedging, including, without limitation,
instruments linked to or denominated in euro. 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 CP PERQS. Purchase activity could potentially increase the
price of Nokia Stock, and therefore effectively increase the level to
which Nokia Stock must rise before you would receive at maturity
cash in an amount that is equal to or greater than the principal
amount of the CP PERQS. Although we have no reason to believe
that our hedging activity had or will have a material impact on the
price of Nokia 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 CP PERQS, including on the
Determination Date, by purchasing and selling Nokia Stock and/or
other securities and financial instruments.
Supplemental Information
Concerning Plan of Distribution............. In order to facilitate the offering of the CP PERQS, the Agent may
engage in transactions that stabilize, maintain or otherwise affect
the price of the CP PERQS or Nokia Stock. Specifically, the
Agent may overallot in connection with the offering, creating a
short position in the CP PERQS for its own account. In addition,
to cover allotments or to stabilize the price of the CP PERQS, the
Agent may bid for, and purchase, the CP PERQS or Nokia Stock in
the open market. See "Use of Proceeds and Hedging" above.
We have agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933. See also
"Plan of Distribution" in the accompanying Prospectus
Supplement.
ERISA Matters for Pension Plans and
Insurance Companies......................... MSDW and certain of our subsidiaries and affiliates, including MS
& Co. and Dean Witter Reynolds ("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 CP 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 such the
CP PERQS are acquired pursuant to an exemption from the
prohibited transaction rules.
PS-18
<PAGE>
The acquisition of the CP 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.
The assets of a pension or other employee benefit plan may include
assets held in the general account of an insurance company that are
deemed to be "plan assets" under ERISA. Any insurance company or
pension or employee benefit plan proposing to invest in the CP
PERQS should consult with its legal counsel.
United States Federal Income Taxation....... The following summary is based on the advice of Davis Polk &
Wardwell, special tax counsel to MSDW ("Tax Counsel"), and is a
general discussion of the principal potential U.S. federal income
tax consequences to U.S. Holders (as defined below) who are
initial holders of the CP PERQS purchasing the CP PERQS at the
Issue Price, and who will hold the CP PERQS as capital assets
within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (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 CP 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 CP PERQS is technical and
PS-19
<PAGE>
complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
As used herein, the term "U.S. Holder" means an owner of a CP
PERQS that is, for U.S. federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a corporation or other entity
created or organized under the laws of the United States or any
political subdivision thereof or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless
of its source.
General
Pursuant to the terms of the CP PERQS, MSDW and every holder
of a CP PERQS agree (in the absence of an administrative
determination or judicial ruling to the contrary) to characterize a
CP 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 CP PERQS to
pay an amount as described below under "Settlement of the
Forward Contract" and entitles the holder to receive a cash amount
at maturity as described above in "Description of the CP PERQS
-- Amount Payable at Maturity", and (ii) a deposit with MSDW of
a fixed amount of cash, to secure the holder's obligation under the
Forward Contract. For this purpose, MSDW has determined that,
of the quarterly payments on the CP PERQS, % is attributable
to interest on the Deposit. This determination is based on
MSDW's judgment as to, among other things, MSDW's normal
borrowing cost and the value of the Forward Contract. Under this
characterization, the remainder of the quarterly payments on the CP
PERQS represents payments attributable to the holders' entry into
the Forward Contract (the "Contract Fees"). Furthermore, based
on MSDW's determination of the relative fair market values of the
Components at the time of issuance of the CP PERQS, MSDW will
allocate 100% of the Issue Price of the CP PERQS to the Deposit
and none to the Forward Contract.
MSDW's allocation of the Issue Price among the Components will
be binding on a holder of the CP PERQS, unless such holder timely
and explicitly discloses to the Internal Revenue Service (the "IRS")
that its allocation is different from MSDW's. The treatment of the
CP PERQS described above and MSDW's allocation are not,
however, binding on the IRS or the courts. No statutory, judicial or
administrative authority directly addresses the characterization of
the CP PERQS or instruments similar to the CP PERQS for U.S.
federal income tax purposes, and no ruling is being requested from
the IRS with respect to the CP PERQS. Due to the absence of
authorities that directly address instruments that are similar to
the CP PERQS, tax counsel is unable to render an opinion as to
the proper U.S. federal income tax characterization of the CP
PERQS. As a result, significant aspects of the U.S. federal
income tax consequences of an investment in the CP PERQS
are not certain, and no assurance can be given that the IRS or
the courts will agree with the characterization described
PS-20
<PAGE>
herein. Accordingly, prospective purchasers are urged to consult
their tax advisors regarding the U.S. federal income tax
consequences of an investment in the CP PERQS (including
alternative characterizations of the CP PERQS) and with respect to
any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction. Unless otherwise stated, the following
discussion is based on the treatment and the allocation described
above.
Tax Treatment of the CP PERQS
Assuming the characterization of the CP PERQS and the allocation
of the Issue Price as set forth above, Tax Counsel believes that the
following U.S. federal income tax consequences should result.
Quarterly Payments on the CP PERQS. To the extent attributable
to the interest on the Deposit, quarterly payments on the CP
PERQS will generally be taxable to a U.S. Holder as ordinary
income at the time accrued or received in accordance with the U.S.
Holder's method of accounting for U.S. federal income tax
purposes. Although the federal income tax treatment of the
Contract Fees is uncertain, MSDW intends to take the position that
the Contract Fees constitute taxable income to the holders at the
time accrued or received in accordance with the U.S. Holder's
method of accounting for U.S. federal income tax purposes.
Tax Basis. Based on MSDW's determination set forth above, the
U.S. Holder's tax basis in the Forward Contract will be zero, and
the U.S. Holder's tax basis in the Deposit will be 100% of the Issue
Price.
Settlement of the Forward Contract. Upon the maturity of the
Forward Contract, a U.S. Holder receiving cash would, pursuant to
the Forward Contract, be deemed to have applied the Deposit
toward the exchange for the cash payment at maturity, and 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 U.S. Holder's tax basis in the Deposit. Any such
gain or loss would generally be capital gain or loss, as the case may
be.
Sale or Exchange of the CP PERQS. Upon a sale or exchange of a
CP PERQS prior to the maturity of the CP 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 CP 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 CP PERQS
would generally equal the U.S. Holder's tax basis in the Deposit.
For these purposes, the amount realized does not include any
amount attributable to accrued but unpaid interest payments on the
Deposit, which would be taxed as described under "--Quarterly
Payments on the CP 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
PS-21
<PAGE>
advisers regarding the treatment of accrued but unpaid Contract
Fees upon the sale or exchange of a CP PERQS.
Possible Alternative Tax Treatments of an Investment in the
CP PERQS
Due to the absence of authorities that directly address the proper
characterization of the CP 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 CP 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 CP PERQS, the timing and character of
income thereon would be significantly affected. Among other
things, a U.S. Holder would be required to accrue as original issue
discount income, subject to adjustments, at a "comparable yield"
on the Issue Price. Furthermore, any gain realized with respect to
the CP PERQS would generally be treated as ordinary income.
Even if the Contingent Payment Regulations do not apply to the CP
PERQS, other alternative federal income tax characterizations or
treatments of the CP PERQS are also possible, and if applied could
also affect the timing and the character of the income or loss with
respect to the CP PERQS. It is possible, for example, that a CP
PERQS could be treated as constituting a prepaid forward contract
or a combination of a prepaid forward contract and one or more
options. 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 CP 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 CP 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 CP PERQS. If Section 1260
were to apply to the CP 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 CP
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 Nokia Stock itself on the issue date of the CP PERQS and
PS-22
<PAGE>
disposed of the Nokia Stock upon disposition (including retirement)
of the CP PERQS. In addition, Section 1260 would impose an interest
charge on the gain that was recharacterized on the sale or maturity
of the CP PERQS
Backup Withholding and Information Reporting
A U.S. Holder of a CP 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>
PS-23
