PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 42 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated November 7, 2000
Rule 424(b)(3)
$37,582,568
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------
9% Reset PERQS due December 30, 2002
Mandatorily Exchangeable For
Shares of Common Stock of XILINX, INC.
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay 9% 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 Xilinx common stock based on the closing prices of Xilinx
common stock on December 28, 2001 and at maturity, in each case subject to a
cap price.
o The principal amount and issue price of each Reset PERQS is $13.3375,
which is one-fifth of the closing price of Xilinx common stock on November
7, 2000, the day we offered the Reset PERQS for initial sale to the
public.
o We will pay 9% interest (equivalent to $1.200375 per year) on the $13.3375
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning December 30, 2000.
o At maturity you will receive shares of Xilinx common stock in exchange for
each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-fifth of a share of Xilinx common stock per Reset PERQS. However, if
the price of Xilinx common stock appreciates above the first year cap
price for December 28, 2001 or the second year cap price for December 26,
2002, the exchange ratio will be adjusted downward, and you will receive
an amount of Xilinx common stock per Reset PERQS that is less than
one-fifth of a share.
o The first year cap price is $95.03, or 142.50% of the closing price of
Xilinx common stock on November 7, 2000, the day we offered the Reset
PERQS for initial sale to the public. If on December 28, 2001, the price
of Xilinx common stock is higher than the closing price of Xilinx common
stock on November 7, 2000, we will raise the cap price to 142.50% of the
closing price of Xilinx common stock on December 28, 2001. Otherwise the
cap price will remain unchanged in the second year. The maximum you can
receive at maturity is Xilinx common stock worth $27.08 per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Xilinx common
stock.
o Xilinx, Inc. is not involved in this offering of Reset PERQS in any way
and will have no obligation of any kind with respect to the Reset PERQS.
o 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 "RPX."
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."
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
---------
PRICE $13.3375 PER RESET PERQS
---------
Price Agent's Proceeds to
to Public(1) Commissions the Company(1)
------------ ----------- --------------
Per Reset PERQS....... $13.3375 $0.235 $13.1025
Total................. $37,582,567.55 $662,185.82 $36,920,381.73
---------
(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 $13.10409375 per Reset PERQS (98.25% of the Issue Price). In
that case, the underwriting discounts and commissions will be $0.00159375 per
Reset PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering to you in
general terms only. You should read the summary together with the more detailed
information that is contained in the rest of this pricing supplement and in the
accompanying prospectus and prospectus supplement. You should carefully
consider, among other things, the matters set forth in "Risk Factors."
The Reset PERQS offered are medium-term debt securities of Morgan Stanley
Dean Witter & Co. The return on the Reset PERQS is linked to the performance of
Xilinx, Inc. common stock, which we refer to as Xilinx Stock. The Reset PERQS
also provide fixed quarterly payments at an annual rate of 9% 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 Xilinx 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.
"Performance Equity-linked Redemption Quarterly-pay Securities" and
"PERQS" are our service marks.
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 9%
costs $13.3375 Reset Performance Equity-linked Redemption
Quarterly-pay Securities[SM] due December 30, 2002,
which we refer to as the Reset PERQS[SM]. The
principal amount and issue price of each Reset PERQS
is $13.3375, which is one-fifth of the closing price
of Xilinx Stock on November 7, 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 Xilinx
Stock based on the market price of Xilinx Stock,
either up or down, on December 28, 2001 and at
maturity, in each case subject to a cap price.
Investing in Reset PERQS is not equivalent to
investing in Xilinx Stock.
9% interest on the We will pay interest on the Reset PERQS, at the rate
principal amount of 9% of the principal amount per year, quarterly on
each March 30, June 30, September 30 and December
30, beginning December 30, 2000. The interest rate
we pay on the Reset PERQS is more than the current
dividend rate on Xilinx Stock. The Reset PERQS will
mature on December 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 December 28, 2001 is $95.03, or 142.50% of
the closing price of Xilinx 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 142.50% of the closing price
of Xilinx Stock on December 28, 2001 and the First
Year Cap Price. The maximum you can receive at
maturity is Xilinx Stock worth $27.08 per Reset
PERQS.
Payout at maturity At maturity, for each $13.3375 principal amount of
Reset PERQS you hold, we will give to you a number
of shares of Xilinx Stock equal to the exchange
ratio. The initial exchange ratio is one-fifth of a
share of Xilinx 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 Xilinx Stock exceeds the First
Year Cap Price on December 28, 2001.
The adjusted exchange ratio will be calculated as
follows:
<TABLE>
<S> <C> <C>
New Exchange Initial Exchange First Year Cap Price
Ratio = Ratio x -----------------------------------------------
Xilinx Stock closing price on December 28, 2001
</TABLE>
If the market price of Xilinx Stock on December
28, 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
Xilinx Stock at maturity exceeds the Second Year
Cap Price. The final exchange ratio will then be
calculated as follows:
<TABLE>
<S> <C> <C>
Final Exchange Existing Exchange Second Year Cap Price
Ratio = Ratio x --------------------------------------
Xilinx Stock closing price at maturity
</TABLE>
If the market price of Xilinx 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 Xilinx 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 Xilinx
Stock. You should read about these adjustments in
the sections called "Description of Reset
PERQS--Exchange at Maturity," "--Exchange Factor"
and "--Antidilution Adjustments."
MS&Co. will be the We have appointed our affiliate MS & Co. to act as
Calculation Agent 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 Xilinx Stock
that you will receive at maturity.
No affiliation with Xilinx, Inc. is not an affiliate of ours and is not
Xilinx, Inc. involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and
not of Xilinx, Inc.
Where you can find more The Reset PERQS are senior notes issued as part
information on the Reset of our Series C medium-term note program. You can
PERQS find a general description of our Series C
medium-term note program in the accompanying
prospectus supplement dated May 18, 2000. We
describe the basic features of this type of note in
the sections called "Description of Notes--Fixed
Rate Notes" and "--Exchangeable Notes."
For a detailed description of terms of the Reset
PERQS, including the specific mechanics and timing
of the exchange ratio adjustments, you should read
the "Description of Reset PERQS" section in this
pricing supplement. You should also read about some
of the risks involved in investing in Reset PERQS in
the section called "Risk Factors." The tax and
accounting treatment of investments in equity-
linked notes such as the Reset PERQS may differ from
that of investments in ordinary debt securities or
common stock. We urge you to consult with your
investment, legal, tax, accounting and other
advisors with regard to any proposed or actual
investment in the Reset PERQS.
How to reach us You may contact your local Morgan Stanley Dean
Witter branch office or our principal executive
offices at 1585 Broadway, New York, New York, 10036
(telephone number (212) 761-4000).
PS-4
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS.
<TABLE>
Initial Price Initial First Year 12/28/01 Exchange
Illustration of Reset Initial Xilinx Exchange First Year Closing Exchange Second Year Maturity Ratio
Number PERQS Stock Price Ratio Cap Price Price(1) Ratio Cap Price Price(1) at Maturity
------------ ------------- -------------- -------- ---------- ---------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $13.33750 $66.6875 0.20000 $95.030 $65.0000 0.20000 $95.0300 $55.0000 0.20000
2 $13.33750 $66.6875 0.20000 $95.030 $65.0000 0.20000 $95.0300 $85.0000 0.20000
3 $13.33750 $66.6875 0.20000 $95.030 $65.0000 0.20000 $95.0300 $115.0000 0.16527
4 $13.33750 $66.6875 0.20000 $95.030 $85.0000 0.20000 $121.1250 $65.0000 0.20000
5 $13.33750 $66.6875 0.20000 $95.030 $85.0000 0.20000 $121.1250 $100.0000 0.20000
6 $13.33750 $66.6875 0.20000 $95.030 $85.0000 0.20000 $121.1250 $135.0000 0.17944
7 $13.33750 $66.6875 0.20000 $95.030 $120.0000 0.15838 $171.0000 $65.0000 0.15838
8 $13.33750 $66.6875 0.20000 $95.030 $120.0000 0.15838 $171.0000 $135.0000 0.15838
9 $13.33750 $66.6875 0.20000 $95.030 $120.0000 0.15838 $171.0000 $200.0000 0.13541
10 $13.33750 $66.6875 0.20000 $95.030 $95.0300 0.20000 $135.4178 $135.4178 0.20000
^ ^
| |
| |
142.50% Greater of (x)
of Initial 142.50% of First
Xilinx Stock Year Closing
Price Price and (y) First
Year Cap Price
[Financial Data -- continued]
Reset PERQS Reset PERQS
Payout at Maturity Payout at
Illustration Based on Xilinx Stock Maturity plus
Number Price 9% Coupon
------------ --------------------- -------------
<S> <C> <C>
1 $11.00 $13.57
2 $17.00 $19.57
3 $19.01 $21.58
4 $13.00 $15.57
5 $20.00 $22.57
6 $24.22 $26.79
7 $10.29 $12.86
8 $21.38 $23.95
9 $27.08 $29.65
10 $27.08 $29.65
^
|
|
Maturity Price
times Adjusted
Exchange Ratio
</TABLE>
---------
(1) The First Year Closing Price and the Maturity Price do not include any
dividend payments that may have been paid to holders of Xilinx Stock.
The above table illustrates an important feature of the Reset PERQS - the
payout at maturity is not determined merely by the price of Xilinx Stock at
maturity, but will depend on the timing and magnitude of changes in Xilinx
Stock price. For example, in both the fourth and seventh illustrations shown
above, the Maturity Price is $65.00 but in the seventh illustration the Payout
at Maturity is $12.86 compared to $15.57 in the fourth illustration. The
difference in the seventh illustration arises because the First Year Closing
Price exceeded the First Year Cap Price, resulting in a downward adjustment in
the Second Year Exchange Ratio. Similarly, in both the ninth and tenth
illustrations, the Payout at Maturity is $29.65, but in the ninth illustration,
the Maturity Price had to equal or exceed $200.00 to produce that payout, while
in the tenth illustration, a Maturity Price of only $135.4178 required.
PS-5
<PAGE>
RISK FACTORS
The Reset PERQS are not secured debt and are riskier than ordinary debt
securities. Because the return to investors is linked to the performance of
Xilinx Stock, there is no guaranteed return of principal. Investing in Reset
PERQS is not equivalent to investing directly in Xilinx Stock. This section
describes the most significant risks relating to the Reset PERQS. You should
carefully consider whether the Reset PERQS are suited to your particular
circumstances before you decide to purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity and
Ordinary Senior Notes -- debt. The terms of the Reset PERQS differ from
No Guaranteed Return of those of ordinary debt securities in that we will
Principal not pay you a fixed amount at maturity. Our
payout to you at maturity will be a number of
shares of Xilinx Stock based on the market price
of Xilinx Stock on December 28, 2001 and at
maturity. If the final market price of Xilinx
Stock at maturity is either less than today's
market price or not sufficiently above today's
market price to compensate for a downward
adjustment of the exchange ratio, if any, at
December 28, 2001, we will pay you an amount of
Xilinx 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 $13.3375 issue price of one Reset PERQS is
equal to today's market price of one share of
Xilinx Stock multiplied by the initial exchange
ratio, you may receive a lesser fractional amount
of Xilinx Stock per Reset PERQS at maturity if
the initial exchange ratio of one-fifth of a
share has been adjusted downwards. If the price
of Xilinx Stock appreciates above both the cap
price for December 28, 2001 and the cap price for
December 26, 2002, the initial exchange ratio of
one-fifth of a share of Xilinx Stock per Reset
PERQS will be reduced twice.
The exchange ratio and the final market price of
Xilinx Stock at maturity will be determined on
December 26, 2002, which is two trading days
prior to maturity of the Reset PERQS. If the
price of Xilinx Stock is lower on the actual
maturity date than it was on December 26, 2002,
the value of any Xilinx Stock you receive will be
less. Under no circumstances will you receive an
amount of Xilinx Stock for each Reset PERQS worth
more than $27.08 as of December 26, 2002.
Secondary Trading There may be little or no secondary market for
May Be Limited the 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
Unpredictable Factors PERQS. We expect that generally the market price
of Xilinx 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 Xilinx Stock.
Other factors that may influence the value of the
Reset PERQS include:
o the volatility (frequency and magnitude of
changes in price) of Xilinx Stock
o the dividend rate on Xilinx Stock
o economic, financial, political, regulatory or
judicial events that affect stock markets
generally and which may affect the market
price of Xilinx Stock
PS-6
<PAGE>
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 Xilinx Stock is at, below, or not
sufficiently above the initial market price.
You cannot predict the future performance of
Xilinx Stock based on its historical performance.
The price of Xilinx Stock may decrease so that
you will receive at maturity shares of Xilinx
Stock worth less than the principal amount of the
Reset PERQS. We cannot guarantee that the price
of Xilinx 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 Xilinx, Inc. Although
Xilinx, Inc. we do not have any non-public information about
Xilinx, Inc. as of the date of this pricing
supplement, we or our subsidiaries may presently
or from time to time engage in business with
Xilinx, Inc., including extending loans to, or
making equity investments in, Xilinx, Inc. or
providing advisory services to Xilinx, Inc.,
including merger and acquisition advisory
services. Moreover, we have no ability to control
or predict the actions of Xilinx, Inc., including
any corporate actions of the type that would
require the calculation agent to adjust the
payout to you at maturity. Xilinx, Inc. is not
involved in the offering of the Reset PERQS in
any way and has no obligation to consider your
interest as an owner of Reset PERQS in taking any
corporate actions that might affect the value of
your Reset PERQS. None of the money you pay for
the Reset PERQS will go to Xilinx, Inc.
You Have No As an owner of Reset PERQS, you will not have
Shareholder Rights voting rights or rights to receive dividends or
other distributions or any other rights with
respect to Xilinx Stock.
The Antidilution MS & Co., as calculation agent, will adjust the
Adjustments We Are amount payable at maturity for certain events
Required to Make Do Not affecting Xilinx Stock, such as stock splits and
Cover Every Corporate stock dividends, and certain other corporate
Event that Can Affect Xilinx actions involving Xilinx, Inc., such as mergers.
Stock However, the calculation agent is not required to
make an adjustment for every corporate event that
can affect Xilinx Stock. For example, the
calculation agent is not required to make any
adjustments if Xilinx, Inc. or anyone else makes
a partial tender or partial exchange offer for
Xilinx Stock. If an event occurs that does not
require the calculation agent to adjust the
amount of Xilinx Stock payable at maturity, the
market price of the Reset PERQS may be materially
and adversely affected.
Potential Conflicts of As calculation agent, our affiliate MS & Co. will
Interest Between You and calculate the payout to you at maturity of the
the Calculation Agent Reset PERQS. MS & Co. and other affiliates may
also carry out hedging activities related to the
Reset PERQS or to other instruments, including
trading in Xilinx Stock as well as in other
instruments related to Xilinx Stock. MS & Co. and
some of our other subsidiaries also trade Xilinx
Stock and other financial instruments related to
Xilinx Stock on a regular basis as part of their
general broker dealer and other businesses. Any
of these activities could influence MS & Co.'s
determination of adjustments made to the Reset
PERQS and any such trading activity could
potentially affect the price of Xilinx Stock and,
accordingly, could affect your payout on the
Reset PERQS.
PS-7
<PAGE>
Because the Characterization You should also consider the tax consequences of
of the Reset PERQS for investing in the Reset PERQS. There is no direct
Federal Income Tax Purposes legal authority as to the proper tax treatment of
Is Uncertain, the Material the Reset PERQS, and therefore significant
Federal Income Tax aspects of the tax treatment of the Reset PERQS
Consequences of an are uncertain. Pursuant to the terms of the Reset
Investment in the Reset PERQS, MSDW and you agree to treat a Reset PERQS
PERQS Are Uncertain. as an investment unit consisting of (i) a forward
contract pursuant to which you agree to purchase
Xilinx stock from us at maturity and (ii) a
deposit with us of a fixed amount of cash to
secure your obligation under the forward
contract, as described in "Description of Reset
PERQS--United States Federal Income
Taxation--General." If the Internal Revenue
Service were successful in asserting an
alternative characterization for the Reset PERQS,
the timing and character of income on the Reset
PERQS, and your basis for Xilinx Stock received
in exchange for the Reset PERQS, may differ. We
do not plan to request a ruling from the Internal
Revenue Service (the "IRS") regarding the tax
treatment of the Reset PERQS, and the IRS or a
court may not agree with the tax treatment
described in this pricing supplement. Please read
carefully the section "Description of Reset
PERQS--United States Federal Income Taxation" in
this pricing supplement.
PS-8
<PAGE>
DESCRIPTION OF RESET PERQS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "Reset PERQS" refers to each
$13.3375 principal amount of our 9% Reset PERQS due December 30, 2002,
Mandatorily Exchangeable for Shares of Common Stock of Xilinx, Inc. In this
pricing supplement, the terms "MSDW," "we," "us" and "our" refer to Morgan
Stanley Dean Witter & Co.
Principal Amount.............. $37,582,567.55
Maturity Date................. December 30, 2002
Interest Rate................. 9% per annum (equivalent to $1.200375 per
annum per Reset PERQS)
Interest Payment Dates........ Each March 30, June 30, September 30 and
December 30, beginning December 30, 2000.
Record Date................... The Record Date for each Interest Payment
Date, including the Maturity Date, will be
the date 15 calendar days prior to such
Interest Payment Date, whether or not that
date is a Business Day.
Specified Currency............ U.S. Dollars
Issue Price................... $13.3375 per Reset PERQS
Initial Xilinx Stock Price.... $66.6875
Original Issue Date
(Settlement Date)........... November 10, 2000
CUSIP......................... 61744Y694
Denominations................. $13.3375 and integral multiples thereof
First Year Cap Price.......... $95.03 (142.50% of the Initial Xilinx Stock
Price)
First Year Determination Date. December 28, 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 Xilinx
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) 142.50% 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 Xilinx 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
$13.3375 principal amount of such Reset PERQS
as payment for a number of shares of Xilinx
Stock at the Exchange Ratio. The Exchange
Ratio, initially set at 0.20, is subject to
adjustment on the First Year Determination
Date and at maturity in
PS-9
<PAGE>
order to cap the value of Xilinx Stock to be
received upon delivery of the Reset PERQS at
$27.08 per Reset PERQS (203.0625% of the Issue
Price). Solely for purposes of adjustment upon
the occurrence of certain corporate events,
the number of shares of Xilinx 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," which will be equal
to the greater of (x) 142.50% 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., $12.34565 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
Xilinx Stock to be delivered with respect to
each $13.3375 principal amount of the Reset
PERQS and (ii) deliver such shares of Xilinx
Stock (and cash in respect of interest and any
fractional shares of Xilinx 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 Xilinx Stock due with
respect to all of such Reset PERQS, as
described
PS-10
<PAGE>
above, but we will pay cash in lieu of
delivering any fractional share of Xilinx
Stock in an amount equal to the corresponding
fractional Market Price of such fraction of a
share of Xilinx 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 Xilinx Stock through and including
the second scheduled Trading Day immediately
prior to maturity. See "Antidilution
Adjustments" below.
Market Price.................. If Xilinx 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 Xilinx 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 Xilinx 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 Xilinx 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 Xilinx 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 Xilinx 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
the $13.3375 principal amount of each Reset
PERQS as payment for a number of shares of
Xilinx Stock at the then current Exchange
Ratio, as adjusted by the then current
Exchange Factor. See also "Antidilution
Adjustments" below.
PS-11
<PAGE>
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 Xilinx 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
Xilinx Stock.
2. If Xilinx Stock is subject (i) to a
stock dividend (issuance of additional shares
of Xilinx Stock) that is given ratably to all
holders of shares of Xilinx Stock or (ii) to a
distribution of Xilinx Stock as a result of
the triggering of any provision of the
corporate charter of Xilinx, then once the
dividend has become effective and Xilinx 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 Xilinx
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
Xilinx Stock other than distributions
described in clauses (i) and (v) of paragraph
5 below and Extraordinary Dividends as
described below. A cash dividend or other
distribution with respect to Xilinx Stock will
be deemed to be an "Extraordinary Dividend" if
such dividend or other distribution exceeds
the immediately preceding non- Extraordinary
Dividend for Xilinx Stock by an amount equal
to at least 10% of the Market Price of Xilinx
Stock (as adjusted for any
PS-12
<PAGE>
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 Xilinx Stock,
the Exchange Factor with respect to Xilinx
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 Xilinx 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 Xilinx 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 Xilinx 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 Xilinx issues rights or warrants to
all holders of Xilinx Stock to subscribe for
or purchase Xilinx Stock at an exercise price
per share less than the Market Price of Xilinx
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
Xilinx Stock outstanding immediately prior to
the issuance of such rights or warrants plus
the number of additional shares of Xilinx
Stock offered for subscription or purchase
pursuant to such rights or warrants and the
denominator of which shall be the number of
shares of Xilinx Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional shares
of Xilinx Stock which the aggregate offering
price of the total number of shares of Xilinx
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 Xilinx Stock,
including, without limitation, as a result of
the issuance of any tracking stock by Xilinx,
(ii) Xilinx or any surviving entity or
subsequent surviving entity of Xilinx (a
"Xilinx Successor") has been subject to a
merger, combination or consolidation and is
not the surviving entity, (iii) any statutory
exchange of securities of Xilinx or any Xilinx
Successor with another corporation occurs
(other than
PS-14
<PAGE>
pursuant to clause (ii) above), (iv) Xilinx is
liquidated, (v) Xilinx issues to all of its
shareholders equity securities of an issuer
other than Xilinx (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 Xilinx 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 $13.3375 principal amount of
each Reset PERQS, securities, cash or any
other assets distributed to holders of Xilinx
Stock in any such Reorganization Event,
including, in the case of the issuance of
tracking stock, the reclassified share of
Xilinx Stock and, in the case of a Spin-off
Event, the share of Xilinx 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 Xilinx
Stock and holders will receive in lieu of any
Xilinx 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 Xilinx Stock, as
adjusted by the Exchange Factor at the time of
such Reorganization Event, (ii) for any
property other than cash or securities
received in any such Reorganization Event, the
market value, as determined by the Calculation
Agent, as of the date of receipt, of such
Exchange Property received for each share of
Xilinx 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
Xilinx Stock, as adjusted by the Exchange
Factor at the time of such Reorganization
Event. In the event Exchange Property consists
of securities, those securities will, in turn,
be subject to the antidilution adjustments set
forth in paragraphs 1 through 5.
PS-14
<PAGE>
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or
going-private transaction involving Exchange
Property of a particular type, Exchange
Property shall be deemed to include the amount
of cash or other property paid by the offeror
in the tender or exchange offer with respect
to such Exchange Property (in an amount
determined on the basis of the rate of
exchange in such tender or exchange offer or
going-private transaction). In the event of a
tender or exchange offer or a going-private
transaction with respect to Exchange Property
in which an offeree may elect to receive cash
or other property, Exchange Property shall be
deemed to include the kind and amount of cash
and other property received by offerees who
elect to receive cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the nearest
one hundred-thousandth with five
one-millionths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
Xilinx Stock, including, without limitation, a
partial tender or exchange offer for Xilinx
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 Xilinx Stock having a market value of
$27.08 as of such second scheduled Trading
Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or method of calculating the Exchange
Ratio and of any related determinations and
calculations with respect to any distributions
of stock, other securities or other property
or assets (including cash) in connection with
any corporate event described in paragraph 5
above, and its determinations and calculations
with respect thereto shall be conclusive in
the absence of manifest error.
The Calculation Agent will provide information
as to any adjustments to the Exchange Factor
or to the method of calculating the amount
payable upon exchange at maturity of the Reset
PERQS in accordance with paragraph 5 above
upon written request by any holder of the
Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Xilinx Stock:
(i) a suspension, absence or material
limitation of trading of Xilinx Stock on
the primary market for Xilinx 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 Xilinx Stock as a
result of which the reported trading
prices for Xilinx 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 Xilinx 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 Xilinx 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 Xilinx Stock
and (5) a suspension, absence or material
limitation of trading on the primary
securities market on which options contracts
related to Xilinx Stock are traded will not
include any time when such securities market
is itself closed for trading under ordinary
circumstances.
Alternate Exchange
Calculation in case of
an Event of Default......... In case an event of default with respect to
the Reset PERQS shall have occurred and be
continuing, the amount declared due and
payable per Reset PERQS 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 Xilinx
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.
Xilinx Stock; Public
Information................. Xilinx, Inc. designs, develops and markets
complete programmable logic solutions,
including advanced integrated circuits,
software design tools, predefined system
functions delivered as cores of logic and
field engineering support. Xilinx 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
PS-17
<PAGE>
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
Xilinx pursuant to the Exchange Act can be
located by reference to Commission file number
0-18548. In addition, information regarding
Xilinx may be obtained from other sources
including, but not limited to, press releases,
newspaper articles and other publicly
disseminated documents.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not relate
to Xilinx Stock or other securities of Xilinx.
We have derived all disclosures contained in
this pricing supplement regarding Xilinx 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 Xilinx 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
Xilinx 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 Xilinx Stock (and therefore the Initial
Xilinx Stock Price, the First Year Cap Price,
the Second Year Cap Price and the maximum
appreciation amount) have been publicly
disclosed. Subsequent disclosure of any such
events or the disclosure of or failure to
disclose material future events concerning
Xilinx 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
Xilinx Stock.
We and/or our subsidiaries may presently or
from time to time engage in business with
Xilinx, including extending loans to, or
making equity investments in, Xilinx or
providing advisory services to Xilinx,
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 Xilinx and, in
addition, one or more of our affiliates may
publish research reports with respect to
Xilinx. The statement in the preceding
sentence is not intended to affect the rights
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 Xilinx as in your
judgment is appropriate
PS-17
<PAGE>
to make an informed decision with respect to
an investment in Xilinx Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1997, 1998, 1999 and
2000 through November 7, 2000. The Market
Price on November 7, 2000 was 66 11/16. 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 Xilinx Stock
as an indication of future performance. The
price of Xilinx Stock may decrease so that you
will receive at maturity shares of Xilinx
Stock worth less than the principal amount of
the Reset PERQS. We cannot give you any
assurance that the price of Xilinx 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 Xilinx Stock on
December 28, 2001 and December 26, 2002, there
is no guaranteed return of principal. To the
extent that the Maturity Price of Xilinx Stock
is less than the Initial Xilinx Stock Price or
not sufficiently above the Initial Xilinx
Stock Price to compensate for a downward
adjustment of the Exchange Ratio, if any, at
December 28, 2001 and the shortfall is not
offset by the coupon paid on the Reset PERQS,
you will lose money on your investment.
High Low
---- ---
(CUSIP 983919101)
1997
First Quarter........... 12 23/32 9
Second Quarter.......... 14 3/8 11 5/16
Third Quarter........... 14 3/32 11 19/64
Fourth Quarter.......... 12 3/32 7 27/64
1998
First Quarter........... 11 21/32 8 33/64
Second Quarter.......... 11 13/16 8 1/32
Third Quarter........... 10 3/4 7 5/8
Fourth Quarter.......... 16 9/32 7 31/32
1999
First Quarter........... 20 7/8 16 1/4
Second Quarter.......... 28 5/8 20 9/32
Third Quarter........... 37 17/32 29 1/4
Fourth Quarter.......... 47 13/16 33 1/4
2000
First Quarter........... 86 13/16 40 13/16
Second Quarter.......... 97 15/16 55 3/4
Third Quarter........... 96 5/8 69 7/8
Fourth Quarter (through
November 7, 2000)..... 89 5/8 61 3/4
Historical prices have been adjusted for two 2
for 1 stock splits that became effective in
the first and fourth quarters of 1999.
Xilinx has not paid cash dividends on Xilinx
Stock to date. We make no representation as to
the amount of dividends, if any, that Xilinx
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 Xilinx Stock.
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our subsidiaries in connection
with hedging our
PS-18
<PAGE>
obligations under the Reset PERQS. See also
"Use of Proceeds" in the accompanying
prospectus.
On 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 Xilinx
Stock and other instruments. Purchase activity
could have potentially increased the price of
Xilinx Stock, and therefore effectively have
increased the level to which Xilinx Stock must
rise before you would receive at maturity an
amount of Xilinx 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 Xilinx Stock, option contracts on
Xilinx 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 Xilinx 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 of Distribution.. 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 $13.10409375 per Reset PERQS
and the underwriting discounts and commissions
will be $.00159375 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 98.25% 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 1.75% 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
PS-19
<PAGE>
adversely affected. See also "Plan of
Distribution" in the accompanying prospectus
supplement.
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 Xilinx Stock. Specifically, the Agent may
sell more Reset PERQS than it is obligated to
purchase in connection with the offering or
may sell Xilinx Stock it does not own,
creating a naked short position in the Reset
PERQS or the Xilinx Stock, respectively, for
its own account. The Agent must close out any
naked short position by purchasing the Reset
PERQS or Xilinx Stock in the open market. A
naked short position is more likely to be
created if the Agent is concerned that there
may be downward pressure on the price of the
Reset PERQS or the Xilinx Stock in the open
market after pricing that could adversely
affect investors who purchase in the offering.
As an additional means of facilitating the
offering, the Agent may bid for, and purchase,
Reset PERQS or Xilinx Stock in the open market
to stabilize the price of the Reset PERQS. Any
of these activities may raise or maintain the
market price of the Reset PERQS above
independent market levels or prevent or retard
a decline in the market price of the Reset
PERQS. The Agent is not required to engage in
these activities, and may end any of these
activities at any time. See "Use of Proceeds
and Hedging" above.
ERISA Matters for Pension
Plans Insurance Companies... Each fiduciary of a pension, profit-sharing or
other employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") (a "Plan"), should
consider the fiduciary standards of ERISA in
the context of the Plan's particular
circumstances before authorizing an investment
in the Reset PERQS. Accordingly, among other
factors, the fiduciary should consider whether
the investment would satisfy the prudence and
diversification requirements of ERISA and
would be consistent with the documents and
instruments governing the Plan.
In addition, we and certain of our
subsidiaries and affiliates, including MS &
Co. and Dean Witter Reynolds Inc. ("DWR"), are
each to be considered a "party in interest"
within the meaning of ERISA, or a
"disqualified person" within the meaning of
the Internal Revenue Code of 1986, as amended
(the "Code") with respect to many Plans.
Prohibited transactions within the meaning of
ERISA or the Code would likely arise, for
example, if the Reset PERQS are acquired by or
with the assets of a Plan with respect to
which MS & Co., DWR or any of their affiliates
is a service provider, unless the Reset PERQS
are acquired pursuant to an exemption from the
"prohibited transaction" rules. A violation of
these "prohibited transaction" rules may
result in an excise tax or other liabilities
under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is
available under an applicable statutory or
administrative exemption.
The U.S. Department of Labor has issued five
prohibited transaction class exemptions
("PTCEs") that may provide exemptive relief
for direct or indirect prohibited transactions
resulting from the purchase or holding of the
Reset PERQS. Those class exemptions are PTCE
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96-23 (for certain transactions determined by
in-house asset managers), PTCE 95-60 (for
certain transactions involving insurance
company general accounts), PTCE 91-38 (for
certain transactions involving bank collective
investment funds), PTCE 90-1 (for certain
transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain
transactions determined by independent
qualified asset managers).
Because we are considered a party in interest
with respect to many Plans, the Reset PERQS
may not be purchased or held by any Plan, any
entity whose underlying assets include "plan
assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any
person investing "plan assets" of any Plan,
unless such purchaser or holder is eligible
for exemptive relief, including relief
available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14 or such purchase and holding is
otherwise not prohibited. Any purchaser,
including any fiduciary purchasing on behalf
of a Plan, or holder of the Reset PERQS will
be deemed to have represented, in its
corporate and fiduciary capacity, by its
purchase and holding thereof that it either
(a) is not a Plan or a Plan Asset Entity and
is not purchasing such securities on behalf of
or with "plan assets" of any Plan or (b) is
eligible for exemptive relief or such purchase
or holding is not prohibited by ERISA or
Section 4975 of the Code.
Under ERISA, assets of a 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.
Accordingly, insurance company general
accounts that include assets of a Plan must
ensure that one of the foregoing exemptions is
available. Due to the complexity of these
rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited
transactions, it is particularly important
that fiduciaries or other persons considering
purchasing the Reset PERQS on behalf of or
with "plan assets" of any Plan consult with
their counsel regarding the availability of
exemptive relief under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14.
Purchasers of the Reset PERQS have exclusive
responsibility for ensuring that their
purchase and holding of the Reset PERQS do not
violate the prohibited transaction rules of
ERISA or the Code.
United States Federal
Income Taxation............. The following summary is based on the advice
of Davis Polk & Wardwell, our special tax
counsel ("Tax Counsel"), and is a general
discussion of the principal potential U.S.
federal income tax consequences to initial
holders of the Reset PERQS purchasing the
Reset PERQS at the Issue Price, who will hold
the Reset PERQS as capital assets within the
meaning of Section 1221 of the Code. This
summary is based on the Code, administrative
pronouncements, judicial decisions and
currently effective and proposed Treasury
Regulations, changes to any of which
subsequent to the date of this pricing
supplement may affect the tax consequences
described herein. This summary does not
address all aspects of the U.S. federal income
taxation that may be relevant to a particular
holder in light of its individual
circumstances or to certain types of holders
subject to special treatment under the U.S.
federal income tax laws (e.g., certain
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financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset PERQS
as a part of a hedging transaction, straddle,
conversion or other integrated transaction).
As the law applicable to the U.S. federal
income taxation of instruments such as the
Reset PERQS is technical and complex, the
discussion below necessarily represents only a
general summary. Moreover, the effect of any
applicable state, local or foreign tax laws is
not discussed.
General
Pursuant to the terms of the Reset PERQS, we
and every holder of a Reset PERQS agree (in
the absence of an administrative determination
or judicial ruling to the contrary) to
characterize a Reset PERQS for all tax
purposes as an investment unit consisting of
the following components (the "Components"):
(i) a contract (the "Forward Contract") that
requires the holder of the Reset PERQS to
purchase, and us to sell, for an amount equal
to $13.3375 (the "Forward Price"), Xilinx
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 Xilinx Stock
(the "Deposit"), which Deposit bears an annual
yield of 6.73% per annum, which yield is based
on our cost of borrowing. Under this
characterization, less than the full quarterly
payments on the Reset PERQS will be
attributable to the yield on the Deposit.
Accordingly, the excess of the quarterly
payments on the Reset PERQS over the portion
of those payments attributable to the yield on
the Deposit will represent payments
attributable to the holders' entry into the
Forward Contract (the "Contract Fees").
Furthermore, based on our determination of the
relative fair market values of the Components
at the time of issuance of the Reset PERQS, we
will allocate 100% of the Issue Price of the
Reset PERQS to the Deposit and none to the
Forward Contract. Our allocation of the Issue
Price among the Components will be binding on
a holder of the Reset PERQS, unless such
holder timely and explicitly discloses to the
IRS that its allocation is different from
ours. The treatment of the Reset PERQS
described above and our allocation are not,
however, binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS for
U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the Reset PERQS. Due to the absence
of authorities that directly address
instruments that are similar to the Reset
PERQS, Tax Counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Reset PERQS. As a
result, significant aspects of the U.S.
federal income tax consequences of an
investment in the Reset PERQS are not certain,
and no assurance can be given that the IRS or
the courts will agree with the
characterization described herein.
Accordingly, you are urged to consult your tax
advisor regarding the U.S. federal income tax
consequences of an investment in the Reset
PERQS (including alternative characterizations
of the Reset PERQS) and with respect to any
tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise
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stated, the following discussion is based on
the treatment and the allocation described
above.
U.S. Holders
As used herein, the term "U.S. Holder" means
an owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the
laws of the United States or any political
subdivision thereof or (iii) an estate or
trust the income of which is subject to United
States federal income taxation regardless of
its source.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price as
set forth above, Tax Counsel believes that the
following U.S. federal income tax consequences
should result.
Quarterly Payments on the Reset PERQS. To the
extent attributable to the yield on the
Deposit, quarterly payments on the Reset PERQS
will generally be taxable to a U.S. Holder as
ordinary income at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes. As discussed above, any excess
of the quarterly payments over the portion
thereof attributable to the yield on the
Deposit will be treated as Contract Fees.
Although the federal income tax treatment of
Contract Fees is uncertain, we intend to take
the position that any Contract Fees with
respect to the Reset PERQS constitute taxable
income to a U.S. Holder at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes.
Tax Basis. Based on our determination set
forth above, the U.S. Holder's tax basis in
the Forward Contract will be zero, and the
U.S. Holder's tax basis in the Deposit will be
100% of the Issue Price.
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 Xilinx
Stock, and a U.S. Holder would not recognize
any gain or loss with respect to any Xilinx
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 Xilinx Stock received upon
maturity, the U.S. Holder would have an
adjusted tax basis in such Xilinx Stock equal
to the pro rata portion of the Forward Price
allocable thereto. The allocation of the
Forward Price between cash and Xilinx Stock
should be based on the amount of the cash
received and the relative fair market value,
as of the maturity, of Xilinx Stock. U.S.
Holders should note that the holding period of
any Xilinx Stock received would start on the
day after the maturity of the Reset PERQS.
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<PAGE>
U.S. Holders should note that while any
accrued but unpaid interest on the Deposit and
any Contract Fees would be taxable as ordinary
income, any gain or loss recognized upon the
final settlement of the Forward Contract
generally would be capital gain or loss. The
distinction between capital gain or loss and
ordinary gain or loss is potentially
significant in several respects. For example,
limitations apply to a U.S. Holder's ability
to offset capital losses against ordinary
income, and certain U.S. Holders may be
subject to lower U.S. federal income tax rates
with respect to long-term capital gain than
with respect to ordinary gain. U.S. Holders
should consult their tax advisors with respect
to the treatment of capital gain or loss on a
Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a
sale or exchange of a Reset PERQS prior to the
maturity of the Reset PERQS, a U.S. Holder
would recognize taxable gain or loss equal to
the difference between the amount realized on
such sale or exchange and such U.S. Holder's
tax basis in the Reset PERQS so sold or
exchanged. Any such gain or loss would
generally be capital gain or loss, as the case
may be. Such U.S. Holder's tax basis in the
Reset PERQS would generally equal the U.S.
Holder's tax basis in the Deposit. For these
purposes, the amount realized does not include
any amount attributable to accrued but unpaid
interest payments on the Deposit, which would
be taxed as described under "--Quarterly
Payments on the Reset PERQS" above. It is
uncertain whether the amount realized includes
any amount attributable to accrued but unpaid
Contract Fees. U.S. Holders should consult
their tax advisors regarding the treatment of
accrued but unpaid Contract Fees upon the sale
or exchange of a Reset PERQS.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court will
uphold, the characterization and tax treatment
described above. In particular, the IRS could
seek to analyze the U.S. federal income tax
consequences of owning a Reset PERQS under
Treasury regulations governing contingent
payment debt instruments (the "Contingent
Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price. In
addition, a U.S. Holder would recognize income
upon maturity of the Reset PERQS to the extent
that the value of Xilinx Stock and cash (if
any) received exceeds the adjusted issue
price. Furthermore, any gain realized with
respect to the Reset PERQS would generally be
treated as ordinary income.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other
alternative federal income tax
characterizations or treatments of the Reset
PERQS are also possible, and if applied could
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<PAGE>
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 Xilinx 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.
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MORGAN STANLEY DEAN WITTER & CO.
