PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 72 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated May 10, 2000
Rule 424(b)(3)
$68,850,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------------------
6% Reset PERQS due May 30, 2002
Mandatorily Exchangeable For
Shares of Common Stock of THE HOME DEPOT, INC.
Reset Performance Equity-linked Redemption Quarterly-pay SecuritiesSM
("Reset PERQSSM")
The Reset PERQS will pay 6% interest per year but do not guarantee any return
of principal at maturity. Instead the Reset PERQS will pay at maturity a number
of shares of Home Depot common stock based on the closing prices of Home Depot
common stock on May 30, 2001 and at maturity, in each case subject to a cap
price.
o The principal amount and issue price of each Reset PERQS is $13.50, which
is one-quarter of the closing price of Home Depot common stock on May 10,
2000, the day we offered the Reset PERQS for initial sale to the public.
o We will pay 6% interest (equivalent to $.81 per year) on the $13.50
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning August 30, 2000.
o At maturity you will receive shares of Home Depot common stock in exchange
for each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-quarter of a share of Home Depot common stock per Reset PERQS.
However, if the price of Home Depot common stock appreciates above the
first year cap price for May 30, 2001 or the second year cap price for May
28, 2002, the exchange ratio will be adjusted downward, and you will
receive an amount of Home Depot common stock per Reset PERQS that is less
than one-quarter of a share.
o The first year cap price is $70.20, or 130% of the closing price of Home
Depot common stock on May 10, 2000, the day we offered the Reset PERQS for
initial sale to the public. If on May 30, 2001, the price of Home Depot
common stock is higher than the closing price of Home Depot common stock
on May 10, 2000, the day we offered the Reset PERQS for initial sale to
the public, we will raise the cap price to 130% of the closing price of
Home Depot common stock on May 30, 2001. Otherwise the cap price will
remain unchanged in the second year. The maximum you can receive at
maturity is Home Depot common stock worth $22.82 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Home Depot
common stock.
o The Home Depot, Inc. is not involved in this offering of Reset PERQS in
any way and will have no financial obligation with respect to the Reset
PERQS.
o The Reset PERQS have been approved for listing on the American Stock
Exchange LLC, subject to official notice of issuance. The AMEX listing
symbol for the Reset PERQS is "RPH."
You should read the more detailed description of the Reset PERQS in this
pricing supplement. In particular, you should review and understand the
descriptions in"Summary of Pricing Supplement" and "Description of Reset
PERQS." "Performance Equity-linked Redemption Quarterly-pay Securities" and
"PERQS" are our service marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
-----------------------
PRICE $13.50 PER RESET PERQS
-----------------------
Agent's Proceeds to
Price to Public(1) Commissions the Company(1)
------------------ ----------- --------------
Per Reset PERQS........ $13.50 $0.20 $13.30
Total.................. $68,850,000 $1,020,000 $67,830,000
- ------------
(1) Plus accrued interest, if any, from the Original Issue Date
If you purchase at least 100,000 Reset PERQS in any single transaction and you
comply with the holding period requirement described under "Supplemental
Information Concerning Plan of Distribution" in this pricing supplement, the
price will be $13.314375 per Reset PERQS (98.625% of the Issue Price). In that
case, the underwriting discounts and commissions will be $.014375 per Reset
PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering to you in
general terms only. You should read the summary together with the more detailed
information that is contained in the rest of this pricing supplement and in the
accompanying prospectus and prospectus supplement. You should carefully
consider, among other things, the matters set forth in "Risk Factors."
The Reset PERQS offered are medium-term debt securities of Morgan Stanley
Dean Witter & Co. The return on the Reset PERQS is linked to the performance of
The Home Depot, Inc. common stock, which we refer to as Home Depot Stock. The
Reset PERQS also provide fixed quarterly payments at an annual rate of 6% based
on the principal amount of each Reset PERQS. Unlike ordinary debt securities,
Reset PERQS do not guarantee the return of principal at maturity. Instead the
Reset PERQS pay a number of shares of Home Depot Stock at maturity based on the
performance of this stock, either up or down, subject to a maximum value in
each year. We may not redeem the Reset PERQS prior to maturity.
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering
costs $13.50 6% Reset Performance Equity-linked Redemption
Quarterly-pay Securities(sm) due May 30, 2002, which
we refer to as the Reset PERQS(sm). The principal
amount and issue price of each Reset PERQS is $13.50,
which is one-quarter of the closing price of Home
Depot Stock on May 10, 2000, the day we offered the
Reset PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS do
return of principal not guarantee any return of principal at maturity.
Instead the Reset PERQS will pay an amount of Home
Depot Stock based on the market price of Home Depot
Stock, either up or down, on May 30, 2001 and at
maturity, in each case subject to a cap price.
Investing in Reset PERQS is not equivalent to
investing in Home Depot Stock.
6% interest on the We will pay interest on the Reset PERQS, at the rate
principal amount of 6% of the principal amount per year, quarterly on
each February 28, May 30, August 30 and November 30,
beginning August 30, 2000. The interest rate we pay
on the Reset PERQS is more than the current dividend
rate on the Home Depot Stock. The Reset PERQS will
mature on May 30, 2002.
Your appreciation The appreciation potential of each Reset PERQS is
potential is capped limited in each year by the cap price. The cap price
through May 30, 2001 is $70.20, or 130% of the
closing price of Home Depot Stock on the day we
offered the Reset PERQS for initial sale to the
public ("First Year Cap Price"). The cap price
thereafter until maturity ("Second Year Cap Price")
will be the higher of 130% of the closing price of
Home Depot Stock on May 30, 2001 and the First Year
Cap Price. The maximum you can receive at maturity is
Home Depot Stock worth $22.82 per Reset PERQS.
Payout at Maturity At maturity, for each $13.50 principal amount of
Reset PERQS you hold, we will give to you a number of
shares of Home Depot Stock equal to the exchange
ratio. The initial exchange ratio is one-quarter of a
share of Home Depot 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 Home Depot Stock exceeds the First
Year Cap Price on May 30, 2001.
The adjusted exchange ratio will be calculated as
follows:
New Exchange Initial Exchange First Year Cap Price
Ratio = Ratio x -------------------------
Home Depot Stock closing
price on May 30, 2001
If the market price of Home Depot Stock on May 30,
2001 is the same as or less than the First Year Cap
Price, we will not adjust the exchange ratio at that
time.
PS-3
<PAGE>
Second Year Adjustment
The exchange ratio may be adjusted downward again at
maturity, but only if the market price of Home Depot
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 ------------------------
Home Depot Stock closing
price at maturity
If the market price of Home Depot 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 Home Depot 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 Home Depot
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 Home Depot Stock that you
will receive at maturity.
No affiliation with The Home Depot, Inc. is not an affiliate of ours and
The Home Depot, Inc. is not involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and
not of The Home Depot, Inc.
More information on The Reset PERQS are senior notes issued as part of our
the Reset PERQS Series C medium-term note program. You can find a
general description of our Series C medium-term note
program in the accompanying prospectus supplement
dated May 6, 1999. We describe the basic features of
this type of note in the sections called "Description
of Notes--Fixed Rate Notes" and "--Exchangeable
Notes."
For a detailed description of terms of the Reset
PERQS, including the specific mechanics and timing of
the exchange ratio adjustments, you should read the
"Description of Reset PERQS" section in this pricing
supplement. You should also read about some of the
risks involved in investing in Reset PERQS in the
section called "Risk Factors." The tax and accounting
treatment of investments in equity- linked notes such
as the Reset PERQS may differ from that of
investments in ordinary debt securities or common
stock. We urge you to consult with your investment,
legal, tax, accounting and other advisors with regard
to any proposed or actual investment in the Reset
PERQS.
How to reach us You may contact your local Morgan Stanley Dean Witter
branch office or our principal executive offices at
1585 Broadway, New York, New York, 10036 (telephone
number (212) 761-4000).
PS-4
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS.
<TABLE>
Initial Price Initial
Illustration of Reset Initial Home Exchange First Year First Year 5/30/01
Number PERQS Depot Stock Price Ratio Cap Price Closing Price1 Exchange Ratio
- ------------ ------------- ----------------- -------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $13.50000 $54.0000 0.25000 $70.20 $45.0000 0.25000
2 $13.50000 $54.0000 0.25000 $70.20 $45.0000 0.25000
3 $13.50000 $54.0000 0.25000 $70.20 $45.0000 0.25000
4 $13.50000 $54.0000 0.25000 $70.20 $65.0000 0.25000
5 $13.50000 $54.0000 0.25000 $70.20 $65.0000 0.25000
6 $13.50000 $54.0000 0.25000 $70.20 $65.0000 0.25000
7 $13.50000 $54.0000 0.25000 $70.20 $85.0000 0.20647
8 $13.50000 $54.0000 0.25000 $70.20 $85.0000 0.20647
9 $13.50000 $54.0000 0.25000 $70.20 $85.0000 0.20647
10 $13.50000 $54.0000 0.25000 $70.20 $70.2000 0.25000
^
|
130%
of Initial
Home Depot
Stock Price
Rest PERQS Reset PERQS
Exchange Payout at Maturity Based Payout at
Illustration Second Year Ratio on Home Depot Stock Maturity plus
Number Cap Price Maturity Price1 at Maturity Price 6% Coupon
- ------------ ----------- --------------- ----------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
1 $70.2000 $35.0000 0.25000 $8.75 $10.40
2 $70.2000 $65.0000 0.25000 $16.25 $17.90
3 $70.2000 $100.0000 0.17550 $17.55 $19.20
4 $84.5000 $50.0000 0.25000 $12.50 $14.15
5 $84.5000 $85.0000 0.24853 $21.13 $22.78
6 $84.5000 $125.0000 0.16900 $21.13 $22.78
7 $110.5000 $50.0000 0.20647 $10.32 $11.97
8 $110.5000 $100.0000 0.20647 $20.65 $22.30
9 $110.5000 $125.0000 0.18252 $22.82 $24.47
10 $91.2600 $91.2600 0.25000 $22.82 $24.47
^ ^
| |
Greater of (x) Maturity Price times
130% of First Adjusted Exchange
Year Closing Ratio
Price and (y) First
Year Cap Price
</TABLE>
The above table illustrates an important feature of the Reset PERQS - the
payout at maturity is not determined merely by the price of Home Depot Stock at
maturity, but will depend on the timing and magnitude of changes in the Home
Depot Stock price. For example, in both the fourth and seventh illustrations
shown above, the Maturity Price is $50.00, but in the seventh illustration the
Payout at Maturity is $11.97 compared to $14.15 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
Exchange Ratio at May 30, 2001. Similarly, in both the ninth and tenth
illustrations, the Payout at Maturity is $24.47 but in the ninth illustration,
the Maturity Price had to equal or exceed $125.00 to produce that payout, but
in the tenth illustration, a Maturity Price of only $91.26 was required.
- ---------
1. The First Year Closing Price and the Maturity Price do not include any
dividend payments that may have been paid to holders of Home Depot 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
Home Depot Stock, there is no guaranteed return of principal. Investing in
Reset PERQS is not equivalent to investing directly in Home Depot Stock. This
section describes the most significant risks relating to the Reset PERQS. You
should carefully consider whether the Reset PERQS are suited to your particular
circumstances before you decide to purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity and debt.
Ordinary Senior Notes -- The terms of the Reset PERQS differ from those of
No guaranteed return of ordinary debt securities in that we will not pay
principal you a fixed amount at maturity. Our payout to you at
maturity will be a number of shares of Home Depot
Stock based on the market price of Home Depot Stock
on May 30, 2001 and at maturity. If the final market
price of Home Depot 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 May 30,
2001, we will pay you an amount of Home Depot Stock
with a value less than the principal amount of the
Reset PERQS. See "Hypothetical Payouts on the Reset
PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS is
Potential Is Limited limited because of the cap prices. Even though the
$13.50 issue price of one Reset PERQS is equal to
today's market price of one share of Home Depot Stock
multiplied by the initial exchange ratio, you may
receive a lesser fractional amount of Home Depot
Stock per Reset PERQS at maturity if the initial
exchange ratio of one-quarter of a share has been
adjusted downwards. If the price of Home Depot Stock
appreciates above both the cap price for May 30, 2001
and the cap price for May 28, 2002, the initial
exchange ratio of one-quarter of a share of Home
Depot Stock per Reset PERQS will be reduced twice.
The exchange ratio and the final market price of Home
Depot Stock at maturity will be determined on May 28,
2002, which is two trading days prior to maturity of
the Reset PERQS. If the price of Home Depot Stock is
lower on the actual maturity date than it was on May
28, 2002, the value of any Home Depot Stock you
receive will be less. Under no circumstances will you
receive an amount of Home Depot Stock for each Reset
PERQS worth more than $22.82 as of such second
scheduled trading day prior to maturity.
Secondary Trading There may be little or no secondary market for the
May Be Limited Reset PERQS. Although the Reset PERQS have been
approved for listing on the American Stock Exchange
LLC, which we refer to as the AMEX, it is not
possible to predict whether the Reset PERQS will
trade in the secondary market. Even if there is a
secondary market, it may not provide significant
liquidity. MS & Co. currently intends to act as a
market maker for Reset PERQS but is not required to
do so.
Market Price of the Reset Several factors, many of which are beyond our
PERQS Influenced by Many control, will influence the value of the Reset PERQS.
Unpredictable Factors We expect that generally the market price of the Home
Depot Stock on any day will affect the value of the
Reset PERQS more than any other single factor.
Because adjustments to the exchange ratio for the
Reset PERQS are tied to the closing stock prices on
two specific days, however, the Reset PERQS may trade
differently from the underlying stock. Other factors
that may influence the value of the Reset PERQS
include:
o the volatility (frequency and magnitude of changes
in price) of the Home Depot Stock
o the dividend rate on Home Depot 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 Home Depot
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 Home
Depot Stock is at, below, or not sufficiently above
the initial market price.
You cannot predict the future performance of Home
Depot Stock based on its historical performance. The
price of Home Depot Stock may decrease so that you
will receive at maturity shares of Home Depot Stock
worth less than the principal amount of the Reset
PERQS. We cannot guarantee that the price of Home
Depot 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 The Home Depot, Inc. ("Home
The Home Depot, Inc. Depot"). Although we do not have any non-public
information about Home Depot as of the date of this
pricing supplement, we or our subsidiaries may
presently or from time to time engage in business
with Home Depot, including extending loans to, or
making equity investments in, Home Depot or providing
advisory services to Home Depot, including merger and
acquisition advisory services. Moreover, we have no
ability to control or predict the actions of Home
Depot, including any corporate actions of the type
that would require the calculation agent to adjust
the payout to you at maturity. Home Depot 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 Home Depot.
You Have No As an owner of Reset 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
Home Depot Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust the amount
Adjustments payable at maturity for certain events affecting the
Home Depot Stock, such as stock splits and stock
dividends, and certain other corporate actions
involving Home Depot, such as mergers. However, the
calculation agent is not required to make an
adjustment for every corporate event that can affect
the Home Depot Stock. For example, the calculation
agent is not required to make any adjustments if Home
Depot or anyone else makes a partial tender or
partial exchange offer for the Home Depot Stock. If
an event occurs that does not require the calculation
agent to adjust the amount of Home Depot Stock
payable at maturity, the market price of the Reset
PERQS may be materially and adversely affected.
PS-7
<PAGE>
Potential Conflicts of As calculation agent, MS & Co. will calculate the
Interest between You payout to you at maturity of the Reset PERQS. MS & Co.
and the Calculation and other affiliates may also carry out hedging
Agent activities related to Reset PERQS or to other
instruments, including trading inHome Depot Stock as
well as in other instruments related to Home Depot
Stock. MS & Co. and some of our other subsidiaries
also trade Home Depot Stock and other financial
instruments related to Home Depot 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 Home Depot
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.
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
$13.50 principal amount of our 6% Reset PERQS due May 30, 2002, Mandatorily
Exchangeable For Shares of Common Stock of The Home Depot, Inc. In this pricing
supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan Stanley
Dean Witter & Co.
<TABLE>
<S> <C>
Principal Amount............................ $68,850,000
Maturity Date............................... May 30, 2002
Interest Rate............................... 6% per annum (equivalent to $.81 per annum per Reset PERQS)
Interest Payment Dates...................... Each February 28, May 30, August 30 and November 30, beginning
August 30, 2000.
Specified Currency.......................... U.S. Dollars
Issue Price................................. $13.50 per Reset PERQS
Initial Home Depot Stock Price.............. $54.00
Original Issue Date (Settlement Date)....... May 15, 2000
CUSIP....................................... 61744Y777
Denominations............................... $13.50 and integral multiples thereof
First Year Cap Price........................ $70.20 (130% of the Initial Home Depot Stock Price)
First Year Determination Date............... May 30, 2001 (or if such date is not a Trading Day on which no
Market Disruption Event occurs, the immediately succeeding Trading
Day on which no Market Disruption Event occurs).
First Year Closing Price.................... First Year Closing Price means the product of (i) the Market Price of
one share of Home Depot 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) 130% 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 Home Depot 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 $13.50 principal amount of such Reset PERQS as
payment for a number of shares of Home Depot Stock at the
Exchange Ratio. The initial Exchange Ratio, initially set at 0.25, is
subject to adjustment on the First Year Determination Date and at
maturity in order to cap the value of the Home Depot Stock to be
received upon delivery of the Reset PERQS at $22.82 per Reset
PS-9
<PAGE>
PERQS (169% of the Issue Price). Solely for purposes of adjustment upon
the occurrence of certain corporate events, the number of shares of
Home Depot Stock to be delivered at maturity will also be adjusted by
an Exchange Factor, initially set at 1.0. See "Exchange Factor" and
"Antidilution Adjustments" below.
If the First Year Closing Price is less than or equal to the First Year
Cap Price, no adjustment to the Exchange Ratio will be made at such
time. If the First Year Closing Price exceeds the First Year Cap Price,
the Exchange Ratio will be adjusted so that the new Exchange Ratio will
equal the product of (i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the First Year Cap Price and
the denominator of which will be the First Year Closing Price. In
addition, on the First Year Determination Date, the Calculation Agent
will establish the "Second Year Cap Price" that will be equal to the
greater of (x) 130% 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 Home Depot Stock to be delivered with respect to each
$13.50 principal amount of each Reset PERQS and (ii) deliver such
shares of Home Depot Stock (and cash in respect of interest and any
fractional shares of Home Depot 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 Home
Depot Stock due with respect to all of such Reset PERQS, as
PS-10
<PAGE>
described above, but we will pay cash in lieu of delivering any
fractional share of Home Depot Stock in an amount equal to the
corresponding fractional Market Price of such fraction of a share of
Home Depot Stock as determined by the Calculation Agent as of the
second scheduled Trading Day prior to maturity of the Reset PERQS.
Exchange Factor............................. The Exchange Factor will be set initially at 1.0, but will be subject to
adjustment upon the occurrence of certain corporate events affecting
the Home Depot Stock through and including the second scheduled Trading
Day immediately prior to maturity. See "Antidilution Adjustments"
below.
Market Price................................ If Home Depot 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 Home Depot 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 Home Depot 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 Home Depot 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 Home
Depot 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 Home
Depot 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 $13.50 principal amount of each Reset
PERQS as payment for a number of shares of Home Depot Stock at
PS-11
<PAGE>
the then current Exchange Ratio, as adjusted by the then current
Exchange Factor. See also "Antidilution Adjustments" below.
Optional Redemption......................... We will not redeem the Reset PERQS prior to the Maturity Date.
Book Entry Note or Certificated Note........ Book Entry
Senior Note or Subordinated Note............ Senior
Trustee..................................... The Chase Manhattan Bank
Agent for the underwritten offering of
Reset PERQS............................ MS & Co.
Calculation Agent........................... MS & Co.
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 Home Depot 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 Home Depot Stock.
2. If Home Depot Stock is subject (i) to a stock dividend (issuance of
additional shares of Home Depot Stock) that is given ratably to all
holders of shares of Home Depot Stock or (ii) to a distribution of Home
Depot Stock as a result of the triggering of any provision of the
corporate charter of Home Depot, then once the dividend has become
effective and Home Depot 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 Home Depot 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 Home Depot Stock
other than distributions described in clauses (i)
PS-12
<PAGE>
and (v) of paragraph 5 below and Extraordinary Dividends as described
below. A cash dividend or other distribution with respect to Home Depot
Stock will be deemed to be an "Extraordinary Dividend" if such dividend
or other distribution exceeds the immediately preceding
non-Extraordinary Dividend for Home Depot Stock by an amount equal to
at least 10% of the Market Price of Home Depot 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 Home Depot Stock, the Exchange Factor with respect to Home
Depot 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 Home Depot 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 Home
Depot 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 Home Depot 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 Home Depot issues rights or warrants to all holders of Home Depot
Stock to subscribe for or purchase Home Depot Stock at an exercise
price per share less than the Market Price of the Home Depot 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 Home Depot Stock outstanding
immediately prior to the issuance of such rights or warrants plus the
number of additional shares of Home Depot Stock offered for
subscription or purchase pursuant to such rights or warrants and the
denominator of which shall be the number of shares of Home Depot Stock
outstanding immediately prior to the issuance of such rights or
warrants plus the number of additional shares of Home Depot Stock which
the aggregate offering price of the total number of shares of Home
Depot 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
PS-13
<PAGE>
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 Home Depot
Stock, including, without limitation, as a result of the issuance of
any tracking stock by Home Depot, (ii) Home Depot or any surviving
entity or subsequent surviving entity of Home Depot (an "Home Depot
Successor") has been subject to a merger, combination or consolidation
and is not the surviving entity, (iii) any statutory exchange of
securities of Home Depot or any Home Depot Successor with another
corporation occurs (other than pursuant to clause (ii) above), (iv)
Home Depot is liquidated, (v) Home Depot issues to all of its
shareholders equity securities of an issuer other than Home Depot
(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 Home Depot 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 $13.50 principal amount of each Reset PERQS,
securities, cash or any other assets distributed to holders of Home
Depot Stock in any such Reorganization Event, including, in the case of
the issuance of tracking stock, the reclassified share of Home Depot
Stock and, in the case of a Spin-off Event, the share of Home Depot
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
Home Depot Stock and holders will receive in lieu of any Home Depot
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 Home Depot Stock, as adjusted by the
Exchange Factor at the time of such Reorganization Event, (ii) for any
property other than cash or
PS-14
<PAGE>
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 Home Depot 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 Home Depot
Stock, as adjusted by the Exchange Factor at the time of such
Reorganization Event. In the event Exchange Property consists of
securities, those securities will, in turn, be subject to the
antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of paragraph 5 above, in the case of a consummated tender
or exchange offer or going-private transaction involving Exchange
Property of a particular type, Exchange Property shall be deemed to
include the amount of cash or other property paid by the offeror in the
tender or exchange offer with respect to such Exchange Property (in an
amount determined on the basis of the rate of exchange in such tender
or exchange offer or going-private transaction). In the event of a
tender or exchange offer or a going- private transaction with respect
to Exchange Property in which an offeree may elect to receive cash or
other property, Exchange Property shall be deemed to include the kind
and amount of cash and other property received by offerees who elect to
receive cash.
No adjustments to the Exchange Factor will be required unless such
adjustment would require a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor resulting from any of the
adjustments specified above will be rounded to the nearest one
hundred-thousandth with five one-millionths being rounded upward.
No adjustments to the Exchange Factor or method of calculating the
Exchange Ratio will be made other than those specified above. The
adjustments specified above do not cover all events that could affect
the Market Price of the Home Depot Stock, including, without
limitation, a partial tender or exchange offer for the Home Depot
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 Home Depot Stock having a market value of $22.82 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.
PS-15
<PAGE>
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 Home Depot
Stock:
(i) a suspension, absence or material limitation of trading of
Home Depot Stock on the primary market for Home Depot 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 Home Depot Stock as a result of
which the reported trading prices for Home Depot Stock during the
last one-half hour preceding the closing of the principal trading
session in such market are materially inaccurate; or the
suspension, absence or material limitation on the primary market
for trading in options contracts related to Home Depot 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 Home Depot 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 Home Depot Stock and (5) a suspension, absence or material
limitation of trading on the primary securities market on which options
contracts related to Home Depot Stock are traded will not include any
time when such securities market is itself closed for trading under
ordinary circumstances.
PS-16
<PAGE>
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 Home Depot 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.
Home Depot Stock; Public Information........ The Home Depot, Inc. is a retailer in the home improvement industry
that sells building materials and home improvement and lawn and
garden products. Home Depot Stock is registered under the
Exchange Act. Companies with securities registered under the
Exchange Act are required to file periodically certain financial and
other information specified by the Securities and Exchange
Commission (the "Commission"). Information provided to or filed
with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at its Regional Offices
located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of such material can be
obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, information provided to or filed with the Commission
electronically can be accessed through a website maintained by the
Commission. The address of the Commission's website is
http://www.sec.gov. Information provided to or filed with the
Commission by Home Depot pursuant to the Exchange Act can be
located by reference to Commission file number 1-8207. In addition,
information regarding Home Depot 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 Home Depot Stock or other securities of Home
Depot. We have derived all disclosures contained in this pricing
supplement regarding Home Depot 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 Home Depot 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 Home Depot 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 Home Depot Stock (and therefore the Initial Home Depot Stock
Price, the First
PS-17
<PAGE>
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 Home Depot 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 Home Depot Stock.
We and/or our subsidiaries may presently or from time to time engage in
business with Home Depot, including extending loans to, or making
equity investments in, Home Depot or providing advisory services to
Home Depot, 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 Home Depot and, in addition, one
or more of our affiliates may publish research reports with respect to
Home Depot. 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 Home Depot as in your judgment is
appropriate to make an informed decision with respect to an investment
in Home Depot Stock.
Historical Information...................... The following table sets forth the high and low Market Price during
1997, 1998, 1999 and 2000 through May 10, 2000. The Market Price
on May 10, 2000 was $54. 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 Home Depot Stock as an indication of future performance. The
price of Home Depot Stock may decrease so that you will receive at
maturity shares of Home Depot Stock worth less than the principal
amount of the Reset PERQS. We cannot give you any assurance that
the price of Home Depot 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 Home
Depot Stock on May 30, 2001 and May 28, 2002, there is no
guaranteed return of principal. To the extent that the Maturity Price
of Home Depot Stock is less than the Initial Home Depot Stock Price
or not sufficiently above the Initial Home Depot Stock Price to
compensate for a downward adjustment of the Exchange Ratio, if any,
at May 30, 2001 and the shortfall is not offset by the coupon paid on
the Reset PERQS, you will lose money on your investment.
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
(CUSIP 437076102)
1997
First Quarter................... 12 71/73 10 2/3 0.0133
Second Quarter.................. 15 29/55 11 7/9 0.0167
Third Quarter................... 17 56/61 14 5/6 0.0167
Fourth Quarter.................. 19 50/51 17 0.0167
1998
First Quarter................... 23 1/6 18 71/83 0.0167
Second Quarter.................. 28 5/16 22 3/16 0.0200
Third Quarter................... 32 28/67 25 19/35 0.0200
Fourth Quarter.................. 41 4/93 22 2/3 0.0200
PS-18
<PAGE>
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
1999
First Quarter................... 43 3/4 36 0.0200
Second Quarter.................. 44 7/8 37 0.0267
Third Quarter................... 46 5/8 37 29/99 0.0267
Fourth Quarter.................. 68 9/16 45 5/8 0.0400
2000
First Quarter................... 68 51 13/16 0.0400
Second Quarter
(through May 10, 2000)....... 67 3/4 52
<S> <C>
Historical prices have been adjusted for two 3 for 2 stock splits of
Home Depot Stock, which became effective in the third quarter of 1997
and the fourth quarter of 1999, respectively, and one 2 for 1 stock
split, which became effective in the third quarter of 1998.
We make no representation as to the amount of dividends, if any, that
Home Depot 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 Home Depot Stock.
Use of Proceeds and Hedging................. The net proceeds we receive from the sale of the Reset PERQS will
be used for general corporate purposes and, in part, by us or by one
or more of our subsidiaries in connection with hedging our
obligations under the Reset PERQS. See also "Use of Proceeds" in
the accompanying prospectus.
On the date of this pricing supplement, we, through our subsidiaries or
others, hedged our anticipated exposure in connection with the Reset
PERQS by taking positions in Home Depot Stock and other instruments.
Purchase activity could potentially increase the price of Home Depot
Stock, and therefore effectively increase the level to which Home Depot
Stock must rise before you would receive at maturity an amount of Home
Depot Stock worth as much as or more than the principal amount of the
Reset PERQS. Through our subsidiaries, we are likely to modify our
hedge position throughout the life of the Reset PERQS, including on the
First Year Determination Date, by purchasing and selling Home Depot
Stock, option contracts on Home Depot Stock listed on major securities
markets or positions in any other available securities or instruments
that we may wish to use in connection with such hedging activity.
Although we have no reason to believe that our hedging activity had or
will have a material impact on the price of Home Depot Stock, we cannot
give any assurance that we did not, or in the future will not, affect
such price as a result of our hedging activities.
Supplemental Information Concerning
Plan of Distribution........................ In order to facilitate the offering of the Reset PERQS, the Agent may
engage in transactions that stabilize, maintain or otherwise affect the
price of the Reset PERQS or the Home Depot 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 Home
PS-19
<PAGE>
Depot 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 $13.314375 per Reset PERQS and the underwriting
discounts and commissions will be $.014375 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 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:
PS-20
<PAGE>
(a) (i) is made solely with the assets of a bank collective investment
fund and (ii) satisfies the requirements and conditions of Prohibited
Transaction Class Exemption ("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an insurance company pooled
separate account and (ii) satisfies the requirements and conditions of
PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed by a qualified professional
asset manager and (ii) satisfies the requirements and conditions of
PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a governmental plan (as defined in
Section 3(32) of ERISA) which is not subject to the provisions of
Section 401 of the Code;
(e) (i) is made solely with assets of an insurance company general
account and (ii) satisfies the requirements and conditions of PTCE
95-60 issued by the DOL; or
(f) (i) is made solely with assets managed by an in-house asset manager
and (ii) satisfies the requirements and conditions of PTCE 96-23 issued
by the DOL.
Under ERISA the assets of a pension or other employee benefit plan may
include assets held in the general account of an insurance company
which has issued an insurance policy to such plan or assets of an
entity in which the plan has invested. In addition to considering the
consequences of owning the Reset PERQS, employee benefit plans subject
to ERISA (or insurance companies deemed to be investing ERISA plan
assets) purchasing Reset PERQS should consider the possible
implications of owning the Home Depot 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
PS-21
<PAGE>
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 $13.93036 (the "Forward Price"), the Home
Depot 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 Home Depot Stock (the "Deposit"), which Deposit bears an
annual yield of 7.54% per annum, which yield is based on our cost of
borrowing. 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
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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. As
described above, the Deposit is treated as having a yield of 7.54% per
annum, which is greater than the stated interest rate on the Reset
PERQS. Accordingly, the Deposit will be subject to the "original issue
discount" rules. A U.S. Holder will include "qualified stated interest"
equal to the quarterly payments 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
income as it accrues, in accordance with a constant yield method based
on a compounding of interest. This method will generally cause the U.S.
Holder to include OID in each accrual period in an amount equal to the
product of the "adjusted issue price" of the Deposit (which is the
Issue Price increased by OID previously accrued on the Deposit) at the
beginning of the accrual period and the yield of the Deposit, minus the
amount of any qualified stated interest allocable to the accrual
period. Because the yield on the Deposit is higher than the stated
interest rate on the Reset PERQS, the amount of income recognized by
the U.S. Holder will generally be more than the quarterly payments to
the U.S. Holder, and will increase during the term of the Reset PERQS.
Tax Basis. Based on our determination set forth above, the U.S.
Holder's tax basis in the Forward Contract will be zero, and the U.S.
Holder's tax basis in the Deposit will be 100% of the Issue Price. The
U.S. Holder's tax basis in the Deposit will be subsequently increased
by 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 Home
Depot Stock, and a U.S. Holder would not recognize any gain or loss
with respect to any Home Depot Stock received thereon. With respect to
any cash received upon maturity, a U.S. Holder would recognize gain or
loss. The amount of such gain or loss would be the extent to which the
amount of such cash received differs from the pro rata portion of the
Forward Price allocable to the cash. Any such gain or loss would
generally be capital gain or loss, as the case may be. With respect to
any Home Depot Stock received upon maturity, the U.S. Holder would have
an adjusted tax basis in such Home Depot Stock equal to the pro rata
portion of the Forward Price allocable thereto. The allocation of the
Forward Price between
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cash and Home Depot Stock should be based on the amount of the cash
received and the relative fair market value, as of the maturity, of the
Home Depot Stock. The U.S. Holder's holding period of any Home Depot
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 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.
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 Home Depot 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 or deemed to be recognized (as described below)
by such taxpayer with respect to the derivative position would be
recharacterized as ordinary income. Although Section 1260 in its
current form does not apply to the Reset PERQS, Section 1260 authorizes
the Treasury Department to promulgate regulations (possibly with
retroactive effect) to expand the application of the "constructive
ownership" regime. There is no assurance that the Treasury Department
will not promulgate regulations to apply the regime to the Reset PERQS.
If Section 1260 were to apply to the Reset PERQS, the effect on a U.S.
Holder would be to treat all or a portion of the long term capital gain
(if any) recognized by such U.S. Holder on sale or maturity of a Reset
PERQS as ordinary income, but only to the extent such long term capital
gain exceeds the long term capital gain that would have been recognized
by such U.S. Holder if the U.S. Holder had acquired the underlying
stock itself on the issue date of the Reset PERQS and disposed of the
underlying stock upon disposition (including retirement) of the Reset
PERQS. Section 1260, if applicable, would require a U.S. Holder that
receives shares of Home Depot Stock at maturity to recognize as
ordinary income the amount that would have been treated as ordinary
income according to the rule described in the preceding sentence, if
the U.S. Holder had sold the Reset PERQS at maturity for fair market
value. In addition, Section 1260 would impose an interest charge on the
gain (or deemed gain) that was recharacterized on the sale or maturity
of the Reset PERQS.
Backup Withholding and Information Reporting
A U.S. Holder of a Reset PERQS may be subject to information reporting
and to backup withholding at a rate of 31 percent of the amounts paid
to the U.S. Holder, unless such U.S. Holder provides 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 #80814
