The information in this pricing supplement is not complete and may be changed.
We may not deliver these securities until a final pricing supplement is
delivered. This pricing supplement and the accompanying prospectus and
prospectus supplement do not constitute an offer to sell these securities and
we are not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Subject to Completion, Pricing Supplement dated December 12, 2000
PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 48 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated , 2000
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------
8% Reset PERQS due February 28, 2003
Mandatorily Exchangeable for American Depositary Receipts
Representing Ordinary Shares of
NOKIA CORPORATION
Reset Performance Equity-linked Redemption Quarterly-pay Securities(SM)
("Reset PERQS(SM)")
The Reset PERQS will pay 8% interest per year but do not guarantee any return
of principal at maturity. Instead the Reset PERQS will pay at maturity a
number of American Depositary Receipts representing ordinary shares of Nokia
Corporation, which we refer to as Nokia ADRs, based on the closing prices of
Nokia ADRs in February 2002 and at maturity, in each case subject to a cap
price.
o The principal amount and issue price of each Reset PERQS is $ ,
which is one-fifth of the closing price of Nokia ADRs on the day we offer
the Reset PERQS for initial sale to the public.
o We will pay 8% interest (equivalent to $ per year) on the $
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning February 28, 2001.
o At maturity you will receive a number of Nokia ADRs in exchange for each
Reset PERQS at an exchange ratio. The initial exchange ratio is one-fifth
of a Nokia ADR per Reset PERQS. However, if the price of Nokia ADRs
appreciates above the first year cap price for February 28, 2002 or the
second year cap price for February 26, 2003, the exchange ratio will be
adjusted downward, and you will receive a number of Nokia ADRs per Reset
PERQS that is less than one-fifth of a Nokia ADR.
o The first year cap price is $ , or % of the closing price of
Nokia ADRs on the day we offer the Reset PERQS for initial sale to the
public. If on February 28, 2002, the closing price of Nokia ADRs is higher
than the closing price of Nokia ADRs on the day we offer the Reset PERQS
for initial sale to the public, we will raise the cap price to % of the
closing price of Nokia ADRs on February 28, 2002. Otherwise the cap price
will remain unchanged in the second year. The maximum you can receive at
maturity is Nokia ADRs worth $ per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Nokia ADRs or
ordinary shares of Nokia Corporation.
o Nokia Corporation is not involved in this offering of Reset PERQS in any
way and will have no obligation of any kind with respect to the Reset
PERQS.
o We will apply to list the Reset PERQS to trade under the proposed symbol
"RPN" on the American Stock Exchange LLC.
You should read the more detailed description of the Reset PERQS in this
pricing supplement. In particular, you should review and understand the
descriptions in"Summary of Pricing Supplement" and "Description of Reset
PERQS."
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
--------------------
PRICE $ PER RESET PERQS
--------------------
Price to Agent's Proceeds to
Public(1) Commissions Company(1)
--------- ----------- ----------
Per Reset PERQS..... $ $ $
Total............... $ $ $
---------
(1) Plus accrued interest, if any, from the Original Issue Date.
If you purchase at least 100,000 Reset PERQS in any single transaction and you
comply with the holding period requirement described under "Supplemental
Information Concerning Plan of Distribution" in this pricing supplement, the
price will be $ per Reset PERQS (98.50% of the Issue Price). In that
case, the underwriting discounts and commissions will be $ per Reset
PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
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
the American Depositary Receipts representing ordinary shares of Nokia
Corporation, which we refer to as Nokia ADRs. The Reset PERQS also provide
fixed quarterly payments at an annual rate of 8% based on the principal amount
of each Reset PERQS. Unlike ordinary debt securities, Reset PERQS do not
guarantee the return of principal at maturity. Instead the Reset PERQS pay a
number of Nokia ADRs at maturity based on the performance of the Nokia ADRs,
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 8%
costs $ Reset Performance Equity-linked Redemption
Quarterly-pay Securities(SM) due February 28, 2003,
which we refer to as the Reset PERQS(SM), which are
exchangeable for Nokia ADRs. Each American Depositary
Receipt evidences the American Depositary shares of
Nokia Corporation, and represents one (1) ordinary
share, nominal value Euro 0.24, of Nokia
Corporation. The principal amount and issue price of
each Reset PERQS is $ , which is one-fifth of the
closing price of a Nokia ADR on the day we offer the
Reset PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS do
return of principal not guarantee any return of principal at maturity.
Instead the Reset PERQS will pay an amount of Nokia
ADRs based on the market price of Nokia ADRs, either
up or down, on February 28, 2002 and at maturity, in
each case subject to a cap price. Investing in Reset
PERQS is not equivalent to investing in Nokia ADRs.
8% interest on the We will pay interest on the Reset PERQS, at the rate
principal amount of 8% of the principal amount per year, quarterly on
each February 28, May 30, August 30 and November 30,
beginning February 28, 2001. The interest rate we pay
on the Reset PERQS is more than the current dividend
rate on Nokia ADRs. The Reset PERQS will mature on
February 28, 2003.
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 February 28, 2002 is $ , or % of the
closing price of Nokia ADRs on the day we offer the
Reset PERQS for initial sale to the public ("First
Year Cap Price"). The cap price thereafter until
maturity ("Second Year Cap Price") will be the higher
of % of the closing price of Nokia ADRs on February
28, 2002 and the First Year Cap Price. The maximum
you can receive at maturity is Nokia ADRs worth $
per Reset PERQS.
Payout at maturity At maturity, for each $ principal amount of Reset
PERQS you hold, we will give to you a number of Nokia
ADRs equal to the exchange ratio. The initial
exchange ratio is one-fifth of a Nokia ADR per Reset
PERQS and may be adjusted as follows:
First Year Adjustment
The exchange ratio will be adjusted downward if the
market price of Nokia ADRs exceeds the First Year Cap
Price on February 28, 2002.
The adjusted exchange ratio will be calculated as
follows:
New Exchange Initial Exchange First Year Cap Price
Ratio = Ratio x ------------------------
Nokia ADRs closing price
on February 28, 2002
PS-3
<PAGE>
If the market price of Nokia ADRs on February 28,
2002 is the same as or less than the First Year Cap
Price, we will not adjust the exchange ratio at that
time.
Second Year Adjustment
The exchange ratio may be adjusted downward again at
maturity, but only if the market price of Nokia ADRs
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 ---------------------
Nokia ADRs closing
price at maturity
If the market price of Nokia ADRs 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 Nokia ADRs 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 Nokia ADRs. 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 Nokia ADRs
that you will receive at maturity.
No affiliation with Nokia Corporation is not an affiliate of ours and is
Nokia Corporation not involved with this offering in any way. The
obligations represented by the Reset PERQS are
obligations of Morgan Stanley Dean Witter & Co. and
not of Nokia Corporation.
Where you can find more The Reset PERQS are senior notes issued as part of
information on the Reset our Series C medium-term note program. You can find a
PERQS 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 ADRs. 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 us at our principal executive offices
at 1585 Broadway, New York, New York 10036 (telephone
number (212) 761-4000).
PS-4
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS. The following assumptions were
made:
o Initial Price of Reset PERQS: $10.00
o Initial Nokia ADR Price: $50.00
o First Year Cap Price: 135% of the Initial Nokia ADR Price
o Second Year Cap Price: Greater of (x) 135.00% of the First Year
Closing Price at February 28, 2002 and (y)
First Year Cap Price
o Interest Rate: 8% per year
o Maturity: 27 months
<TABLE>
Initial Price Initial 02/28/02
Illustration of Reset Initial Nokia Exchange First Year First Year Exchange
Number PERQS ADR Price Ratio Cap Price Closing Price(1) Ratio
------------ ------------- ------------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
1 $10.00 $50.00 0.20 $67.50 $35.00 0.20000
2 $10.00 $50.00 0.20 $67.50 $35.00 0.20000
3 $10.00 $50.00 0.20 $67.50 $35.00 0.20000
4 $10.00 $50.00 0.20 $67.50 $60.00 0.20000
5 $10.00 $50.00 0.20 $67.50 $60.00 0.20000
6 $10.00 $50.00 0.20 $67.50 $60.00 0.20000
7 $10.00 $50.00 0.20 $67.50 $100.00 0.13500
8 $10.00 $50.00 0.20 $67.50 $100.00 0.13500
9 $10.00 $50.00 0.20 $67.50 $100.00 0.13500
10 $10.00 $50.00 0.20 $67.50 $67.50 0.20000
^
|
135.00%
of Initial
Nokia ADR
Price
(Table -- continued)
Exchange Payout at Maturity Payout at
Illustration Second Year Ratio Based on Nokia ADRs Maturity plus
Number Cap Price Maturity Price(1) at Maturity Price 8% Coupon
------------ ----------- -------------- ----------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
1 $67.5000 $20.0000 0.20000 $4.00 $5.74
2 $67.5000 $60.0000 0.20000 $12.00 $13.74
3 $67.5000 $90.0000 0.15000 $13.50 $15.24
4 $81.0000 $45.0000 0.20000 $9.00 $10.74
5 $81.0000 $70.0000 0.20000 $14.00 $15.74
6 $81.0000 $120.0000 0.13500 $16.20 $17.94
7 $135.0000 $45.0000 0.13500 $6.08 $7.82
8 $135.0000 $120.0000 0.13500 $16.20 $17.94
9 $135.0000 $160.0000 0.11391 $18.23 $19.97
10 $91.1250 $91.1250 0.20000 $18.23 $19.97
^ ^
| |
Greater of (x) Maturity Price times
135.00% 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 Nokia ADRs at
maturity, but will depend on the timing and magnitude of changes in the Nokia
ADR price. For example, in both the fourth and seventh illustrations shown
above, the Maturity Price is $45.00, but in the seventh illustration the Payout
at Maturity is $7.82 compared to $10.74 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 $19.97, but in the ninth illustration,
the Maturity Price had to equal or exceed $160.00 to produce that payout, while
in the tenth illustration, a Maturity Price of only $91.1250 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 Nokia ADRs.
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
Nokia ADRs, there is no guaranteed return of principal. Investing in Reset
PERQS is not equivalent to investing directly in Nokia ADRs. 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
Nokia ADRs based on the market price of Nokia
ADRs on February 28, 2002 and at maturity. If the
final market price of Nokia ADRs 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 February 28, 2002, we
will pay you an amount of Nokia ADRs with a value
less than the principal amount of the Reset
PERQS. See "Hypothetical Payouts on the Reset
PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS is
Potential Is Limited limited because of the cap prices. Even though
the $ issue price of one Reset PERQS is equal
to today's market price of a Nokia ADR multiplied
by the initial exchange ratio, you may receive a
lesser fractional amount of Nokia ADRs per Reset
PERQS at maturity if the initial exchange ratio
of one-fifth of a share has been adjusted
downwards. If the price of Nokia ADRs appreciates
above both the cap price for February 28, 2002
and the cap price for February 26, 2003, the
initial exchange ratio of one- fifth of a Nokia
ADR per Reset PERQS will be reduced twice.
The exchange ratio and the final market price of
Nokia ADRs at maturity will be determined on
February 26, 2003, which is two trading days
prior to maturity of the Reset PERQS. If the
price of Nokia ADRs is lower on the actual
maturity date than it was on February 26, 2003,
the value of any Nokia ADRs you receive will be
less. Under no circumstances will you receive an
amount of Nokia ADRs for each Reset PERQS worth
more than $ as of such second scheduled
trading day prior to maturity.
Secondary Trading There may be little or no secondary market for
May Be Limited the Reset PERQS. Although we will apply to list
the Reset PERQS on the American Stock Exchange
LLC, which we refer to as the AMEX, we may not
meet the requirements for listing. Even if there
is a secondary market, it may not provide
significant liquidity. MS & Co. currently intends
to act as a market maker for Reset PERQS but is
not required to do so.
Market Price of the Reset Several factors, many of which are beyond our
PERQS Influenced by Many control, will influence the value of the Reset
Unpredictable Factors PERQS. We expect that generally the market price
of Nokia ADRs and Nokia ordinary shares on any
day will affect the value of the Reset PERQS more
than any other factors. However, because
adjustments to the exchange ratio for the Reset
PERQS are tied to the closing prices of Nokia
ADRs on two specific days, the Reset PERQS may
trade differently from Nokia ADRs and Nokia
ordinary shares. Other factors that may influence
the value of the Reset PERQS include:
o the volatility (frequency and magnitude of
changes in price) of Nokia ADRs and Nokia
ordinary shares
PS-6
<PAGE>
o the dividend rate on Nokia ADRs and Nokia
ordinary shares
o economic, financial, political, regulatory or
judicial events that affect stock markets
generally and which may affect the market price
of Nokia ADRs
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 Nokia ADRs is at, below, or not
sufficiently above the initial market price.
You cannot predict the future performance of
Nokia ADRs or Nokia ordinary shares based on
their historical performance. The price of Nokia
ADRs may decrease so that you will receive at
maturity shares of Nokia ADRs worth less than the
principal amount of the Reset PERQS. We cannot
guarantee that the price of Nokia ADRs will
increase so that you will receive at maturity an
amount in excess of the principal amount of the
Reset PERQS.
These Reset PERQS are also Fluctuations in the exchange rate between the
subject to currency exchange euro and the U.S. dollar may affect the U.S.
rate risk dollar equivalent of the euro price of Nokia
ordinary shares on the Helsinki Stock Exchange
and the other European stock exchanges where
Nokia ordinary shares trade and, as a result, may
affect the market price of the Nokia ADRs, which
may consequently affect the market value of the
Reset PERQS. See "Description of Notes--Currency
Exchange Rate Information" below.
The euro has been subject to declines and
fluctuations against the U.S. dollar since it
first became the single currency of participating
member states of the European Union on January 1,
1999 at the commencement of the third stage of
European Economic and Monetary Union, and may be
subject to significant fluctuations in the
future. Previous fluctuations or periods of
relative stability in the exchange rate of the
euro and the U.S. dollar are not necessarily
indicative of fluctuations or periods of relative
stability in those rates that may occur over the
term of the Reset PERQS.
The exchange rate between the euro and U.S.
dollars is the result of the supply of, and the
demand for, those currencies. Changes in the
exchange rates result over time from the
interaction of many factors directly or
indirectly affecting economic and political
conditions in Europe as a whole and the United
States of America, including economic and
political developments in other countries.
No Affiliation with We are not affiliated with Nokia Corporation or
Nokia Corporation the depositary for the Nokia ADRs. Although we do
not have any non-public information about Nokia
Corporation as of the date of this pricing
supplement, we or our subsidiaries may presently
or from time to time engage in business with
Nokia Corporation, including extending loans to,
or making equity investments in, Nokia
Corporation or providing advisory services to
Nokia Corporation, including merger and
acquisition advisory services. Moreover, we have
no ability to
PS-7
<PAGE>
control or predict the actions of Nokia
Corporation, including any corporate actions of
the type that would require the calculation agent
to adjust the payout to you at maturity. Nokia
Corporation 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
Nokia Corporation.
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 Nokia ADRs.
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 Nokia ADRs or Nokia ordinary shares,
Cover Every Corporate such as stock splits and stock dividends, and
Event that Can Affect Nokia certain other corporate actions involving Nokia
ADRs Corporation, such as mergers. However, the
calculation agent is not required to make an
adjustment for every corporate event that can
affect Nokia ADRs or Nokia ordinary shares. For
example, the calculation agent is not required to
make any adjustments if Nokia Corporation or
anyone else makes a partial tender or partial
exchange offer for Nokia ADRs or Nokia ordinary
shares. If an event occurs that does not require
the calculation agent to adjust the amount of
Nokia ADRs 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 the calculate the payout to you at maturity of 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 Nokia ADRs or Nokia ordinary shares as
well as in other instruments related to Nokia
ADRs or Nokia ordinary shares. MS & Co. and some
of our subsidiaries also trade Nokia ADRs or
Nokia ordinary shares and other financial
instruments related to Nokia ADRs or Nokia
ordinary shares on a regular basis as part of
their general broker-dealer businesses. Any of
these activities could influence MS & Co.'s
determination of adjustments made to the Reset
PERQS and any such trading activity could
potentially affect the price of Nokia ADRs or
Nokia ordinary shares and, accordingly, could
affect your payout on the Reset PERQS.
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
Nokia ADRs 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 Nokia ADRs
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 $ principal amount of our 8% Reset PERQS due February 28, 2003,
Mandatorily Exchangeable for ADRs of Nokia Corporation In this pricing
supplement, the terms "MSDW," "we," "us" and "our" refer to Morgan Stanley
Dean Witter & Co.
Principal Amount.............. $25,000,000
Maturity Date................. February 28, 2003
Interest Rate................. 8% per annum (equivalent to $ per annum per
Reset PERQS)
Interest Payment Dates........ Each February 28, May 30, August 30 and November
30, beginning February 28, 2001.
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................... $ per Reset PERQS
Initial Nokia ADR Price....... $
Original Issue Date
(Settlement Date) ............ December , 2000
CUSIP......................... 61744Y678
Denominations................. $ and integral multiples thereof
First Year Cap Price.......... $ ( % of the Initial Nokia ADR
Price)
First Year Determination Date. February 28, 2002 (or if such date is not an
Exchange Trading Day on which no Market
Disruption Event occurs, the immediately
succeeding Exchange 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 Nokia ADR and (ii)
the Exchange Factor, each determined as of the
First Year Determination Date.
Second Year Cap Price......... Second Year Cap Price means the greater of (x) %
of the First Year Closing Price and (y) the
First Year Cap Price. See "Exchange at Maturity"
below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one Nokia ADR and (ii) the
Exchange Factor, each determined as of the
second scheduled Exchange Trading Day
immediately prior to maturity.
Exchange at Maturity.......... At maturity, upon delivery of each Reset PERQS
to the Trustee, we will apply each $
principal amount of such Reset PERQS as payment
for a number of Nokia ADRs at the Exchange
Ratio. The
PS-9
<PAGE>
Exchange Ratio, initially set at 0.20, is
subject to adjustment on the First Year
Determination Date and at maturity in order to
cap the value of Nokia ADRs to be received upon
delivery of the Reset PERQS at $ per Reset
PERQS ( % of the Issue Price). Solely for
purposes of adjustment upon the occurrence of
certain corporate events, the number of Nokia
ADRs 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) % 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 Exchange Trading Day immediately prior to
maturity of the Reset PERQS, of the amount of
Nokia ADRs to be delivered with respect to each
$ principal amount of the Reset PERQS and
(ii) deliver such Nokia ADRs (and cash in
respect of interest and any fractional Nokia
ADRs) 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 ADRs............ 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 Nokia ADRs due with respect to all of such
Reset PERQS, as described above, but we will pay
cash in lieu of delivering any fractional Nokia
ADR in an amount equal to the corresponding
fractional Market Price of such fraction of a
Nokia ADR as determined by the Calculation Agent
as of the second scheduled Exchange 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
Nokia ADRs through and including the second
scheduled Exchange Trading Day immediately prior
to maturity. See "Antidilution Adjustments"
below.
Market Price.................. If Nokia ADRs (or any other security for which a
Market Price must be determined) are listed on a
national securities exchange, are securities of
the Nasdaq National Market or are 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 Nokia ADR (or one unit of
any such other security) on any Exchange 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 Nokia ADRs (or any
such other security) are 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 Nokia ADRs (or any such other security)
are 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 Exchange
Trading Day shall be the mean, as determined by
the Calculation Agent, of the bid prices for
Nokia ADRs (or any such other security) obtained
from as many dealers in such securities (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.
NYSE Trading Day.............. A day, as determined by the Calculation Agent,
on which trading is generally conducted on the
New York Stock Exchange, Inc. ("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.
PS-11
<PAGE>
Exchange Trading Day.......... Any NYSE Trading Day on which trading in equity
securities is also generally conducted on the
primary exchange for Nokia ordinary shares
(currently the Helsinki Stock Exchange), as
determined by the Calculation Agent.
Acceleration Event............ If on any date (i) the product of the Market
Price per Nokia ADR and the Exchange Factor is
less than $4.00, or (ii) the Nokia ADRs are not
listed on a United States national securities
exchange without having been substituted by
Nokia ordinary shares listed on a United States
national securities exchange, the maturity date
of the Reset PERQS will be deemed to be
accelerated to such date, and we will apply the
$ principal amount of each Reset PERQS as
payment for a number of Nokia ADRs at the then
current Exchange Ratio, as adjusted by the then
current Exchange Factor. See also "Antidilution
Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to the
Maturity Date.
Book Entry Note or
Certificated Note ............ Book Entry
Senior Note or Subordinated
Note ......................... Senior
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 the
Market Price of Nokia ADRs, the market price of
Nokia ordinary shares 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 Nokia ordinary shares are subject to a
stock split or reverse stock split, then once
such split has become effective, the Exchange
Factor will be proportionately adjusted;
provided, however that if (and to the extent
that) Nokia or the depositary for the Nokia ADRs
have adjusted the number of Nokia ordinary
shares represented by each Nokia ADR so that the
price of such Nokia ADR would not
PS-12
<PAGE>
be affected by such stock split or reverse stock
split, no adjustment of the Exchange Factor
shall be made, except to the extent that Nokia
ADRs are adjusted.
2. If Nokia ordinary shares are subject (i)
to a stock dividend (issuance of additional
Nokia ordinary shares) that is given ratably to
all holders of Nokia ordinary shares or (ii) to
a distribution of Nokia ordinary shares as a
result of the triggering of any provision of the
corporate charter of Nokia, then if and when the
dividend has become effective with regard to
Nokia ADRs and Nokia ADRs are trading ex-
dividend, the Exchange Factor will be
proportionately adjusted; provided, however that
if (and to the extent that) Nokia or the
depositary for the Nokia ADRs have adjusted the
number of Nokia ordinary shares represented by
each Nokia ADR so that the price of such Nokia
ADR would not be affected by such stock dividend
or stock distribution, no adjustment of the
Exchange Ratio shall be made.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends or
other distributions paid with respect to Nokia
ordinary shares other than distributions
described in clauses (i) and (v) of paragraph 5
below unless such cash dividends or other
distributions, when passed through to holders of
Nokia ADRs constitute Extraordinary ADR
Dividends as described below. A cash dividend or
other distribution with respect to Nokia ADRs
will be deemed to be an "Extraordinary ADR
Dividend" if such dividend or other distribution
exceeds the immediately preceding non-
Extraordinary Dividend for Nokia ADRs by an
amount equal to at least 10% of the Market Price
for Nokia ADRs (as adjusted for any subsequent
corporate event requiring an adjustment
hereunder, such as a stock split or reverse
stock split) on the NYSE Trading Day preceding
the ex-dividend date with respect to such ADRs
for the payment of such Extraordinary ADR
Dividend (the "ex-dividend date"). If an
Extraordinary ADR Dividend occurs with respect
to Nokia ADRs, the Exchange Factor will be
adjusted on the ex- dividend date with respect
to such Extraordinary ADR 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 for Nokia ADRs on the NYSE Trading Day
preceding the ex-dividend date, and the
denominator of which is the amount by which the
Market Price for Nokia ADRs on the NYSE Trading
Day preceding the ex-dividend date exceeds the
Extraordinary ADR Dividend Amount. The
"Extraordinary ADR Dividend Amount" with respect
to an Extraordinary ADR Dividend will equal (i)
in the case of cash dividends or other
distributions that constitute regular dividends,
the amount per Nokia ADR of such Extraordinary
ADR Dividend minus the amount per Nokia ADR of
the immediately preceding non-Extraordinary ADR
Dividend or (ii) in the case of cash dividends
or other distributions that do not constitute
regular dividends, the amount per Nokia ADR of
such Extraordinary ADR Dividend. To the extent
an Extraordinary ADR 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 Nokia ADRs described in
PS-13
<PAGE>
clause (i) or clause (v) of paragraph 5 below
that also constitutes an Extraordinary ADR
Dividend shall cause an adjustment to the
Exchange Factor pursuant only to clause (i) or
clause (v) of paragraph 5, as applicable.
4. If (i) Nokia issues rights or warrants to
all holders of Nokia ordinary shares to
subscribe for or purchase Nokia ordinary shares
at an exercise price per share less than the
market price of Nokia ordinary shares on both
(a) the date the exercise price of such rights
or warrants is determined and (b) the expiration
date of such rights or warrants and (ii) if the
expiration date of such rights or warrants
precedes the maturity of the Reset PERQS, then
to the extent that such rights or warrants are
passed through to the holders of Nokia ADRs or
the holders of Nokia ADRs receive cash or other
property as a consequence of the issuance of
such rights or warrants, the Calculation Agent
will make a proportional adjustment to the
Exchange Factor; provided, however, that if (and
to the extent that) Nokia and the depositary for
the Nokia ADRs have adjusted the number of Nokia
ordinary shares represented by each Nokia ADR so
that the price of such Nokia ADR would not be
affected by the issuance of such rights or
warrants, no adjustment of the Exchange Factor
shall be made.
5. If (i) there occurs any reclassification
or change of Nokia ordinary shares, including,
without limitation, as a result of the issuance
of any tracking stock by Nokia, (ii) Nokia or
any surviving entity or subsequent surviving
entity of Nokia (a "Nokia Successor") has been
subject to a merger, combination or
consolidation and is not the surviving entity,
(iii) any statutory exchange of securities of
Nokia or any Nokia Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) Nokia is liquidated,
(v) Nokia issues to all of its shareholders
equity securities of an issuer other than Nokia
(other than in a transaction described in
clauses (ii), (iii) or (iv) above) (a "Spin-off
Event") or (vi) a tender or exchange offer or
going-private transaction is consummated for all
the outstanding Nokia ordinary shares (any such
event in clauses (i) through (vi) a
"Reorganization Event"), the method of
determining the amount payable upon exchange at
maturity for each Reset PERQS will be adjusted
to provide that each holder of Reset PERQS will
receive at maturity, in respect of each $
principal amount of each Reset PERQS,
securities, cash or any other assets distributed
to holders of Nokia ADRs in or as a result of
any such Reorganization Event, including, in the
case of the issuance of tracking stock and, in
the case of a Spin-off Event, the Nokia ADRs,
with respect to which the tracking stock or
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
Exchange 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
Ps-14
<PAGE>
Exchange Property received in any such
Reorganization Event by a holder of Nokia ADRs,
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 Nokia ADRs and holders will receive
in lieu of any Nokia ADRs 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 Exchange 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 by a holder
of Nokia ADRs in any such Reorganization Event,
the amount of cash received per Nokia ADR, as
adjusted by the Exchange Factor at the time of
such Reorganization Event, (ii) for any property
other than cash or securities received by a
holder of Nokia ADRs 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 Nokia
ADR, 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 of
such security, 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 Nokia ADR, 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.
In the event that Nokia or the depositary for
the Nokia ADRs elect, in the absence of any of
the events described in paragraph 1, 2 or 3
above, to change the number of ordinary shares
that are represented by each Nokia ADR, the
Exchange Factor on any NYSE Trading Day after
the change becomes effective will be
proportionately adjusted.
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
PS-15
<PAGE>
adjustments specified above will be rounded to
the nearest one hundred-thousandth with five
one-millionths being rounded upward.
The Calculation Agent is not required to make
any adjustments to the Exchange Factor or method
of calculating the Exchange Ratio other than
those specified above. The adjustments specified
above do not cover all events that could affect
the Market Price of Nokia ADRs. However, we may,
at our sole discretion, cause the Calculation
Agent to make additional changes to the Exchange
Factor or the method of calculating the Exchange
Ratio upon the occurrence of corporate or other
similar events that could potentially affect
market prices of, or shareholders' rights in,
the Nokia ADRs (or other Exchange Property) but
only to reflect such changes, and not with the
aim of changing relative investment risk.
Notwithstanding the foregoing, the amount
payable by us at maturity with respect to each
Reset PERQS, determined as of the second
scheduled Exchange Trading Day prior to
maturity, will not under any circumstances
exceed an amount of Nokia ADRs having a market
value of $ as of such second scheduled
Exchange Trading Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or method of calculating the Exchange
Ratio and of any related determinations and
calculations with respect to any distributions
of stock, other securities or other property or
assets (including cash) in connection with any
corporate event described in paragraph 5 above,
and its determinations and calculations with
respect thereto shall be conclusive in the
absence of manifest error.
The Calculation Agent will provide information
as to any adjustments to the Exchange Factor or
method of calculating the Exchange Ratio upon
written request by any holder of the Reset
PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect to
Nokia ADRs (or, if applicable, the Nokia
ordinary shares):
(i) a suspension, absence or material
limitation of trading of Nokia ADRs or
Nokia ordinary shares on the primary
market for Nokia ADRs or Nokia ordinary
shares 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 Nokia ADRs or Nokia ordinary
shares as a result of which the reported
trading prices for Nokia ADRs or Nokia
ordinary shares 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 Nokia ADRs or
Nokia ordinary shares, if available,
during the one-half hour period preceding
the close of the principal trading session
in the applicable market, in each case as
determined by the Calculation Agent in its
sole discretion; and
PS-16
<PAGE>
(ii) a determination by the Calculation
Agent in its sole discretion that any
event described in clause (i) above
materially interfered with the ability of
MSDW or any of its affiliates to unwind or
adjust all or a material portion of the
hedge with respect to the Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to NYSE Rule 80A (or any
applicable rule or regulation enacted or
promulgated by the NYSE, any other United
States self-regulatory organization, the
Securities and Exchange Commission, the
Helsinki Stock Exchange or other relevant
authority that is of similar scope to Rule
80A 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 Nokia ADRs or Nokia ordinary
shares 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, absence or material
limitation of trading in options contracts
related to Nokia ADRs or Nokia ordinary
shares and (5) a suspension, absence or
material limitation of trading on the primary
securities market on which options contracts
related to Nokia ADRs or Nokia ordinary
shares 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 Nokia ADRs
as of the date of such acceleration, (ii) the
then current Exchange Factor and (iii) the
then current Exchange Ratio, adjusted as if
such date were the second scheduled Exchange
Trading Day prior to maturity and, if such
date occurs prior to the First Year
Determination Date, the First Year
Determination Date.
Nokia ADRs; Public Information . Nokia Corporation is a mobile phone
manufacturer and a leading supplier of
digital mobile and fixed networks which also
supplies multimedia equipment, satellite and
cable receivers, computer monitors as well as
other telecommunications related products.
Nokia ADRs are 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
PS-17
<PAGE>
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 Nokia pursuant to
the Exchange Act can be located by reference to
Commission file number 1-13202. In addition,
information regarding Nokia may be obtained from
other sources including, but not limited to,
press releases, newspaper articles and other
publicly disseminated documents. We make no
representation or warranty as to the accuracy or
completeness of such information.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not relate
to Nokia ADRs, Nokia ordinary shares or other
securities of Nokia. We have derived all
disclosures contained in this pricing supplement
regarding Nokia from the publicly available
documents described in the preceding paragraph.
Neither we nor the Agent has participated in the
preparation of such documents or made any due
diligence inquiry with respect to Nokia in
connection with the offering of the Reset PERQS.
Neither we nor the Agent makes any
representation that such publicly available
documents are or any other publicly available
information regarding Nokia 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 Nokia ADRs (and therefore the Initial Nokia
ADR 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 Nokia 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
Nokia ADRs or Nokia ordinary shares.
We or our subsidiaries may presently or from
time to time engage in business with Nokia,
including extending loans to, or making equity
investments in, Nokia or providing advisory
services to Nokia, including merger and
acquisition advisory services. In the course of
such business, we or our subsidiaries may
acquire non-public information with respect to
Nokia and, in addition, one or more of our
affiliates may publish research reports with
respect to Nokia. The statement in the preceding
sentence is not intended to affect the rights
PS-18
<PAGE>
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 Nokia as in your judgment is
appropriate to make an informed decision with
respect to an investment in Nokia ADRs.
Historical Information........ The following table sets forth the published
high and low Market Prices during 1997, 1998,
1999 and 2000 through December 12, 2000. The
Market Price of Nokia ADRs on December 12,
2000 was $49 15/16. We obtained the market
prices listed below from Bloomberg Financial
Markets and we believe such information to be
accurate. You should not take the historical
prices of Nokia ADRs as an indication of future
performance. The price of Nokia ADRs may
decrease so that you will receive at maturity
shares of Nokia ADRs worth less than the
principal amount of the Reset PERQS. We cannot
give you any assurance that the price of Nokia
ADRs will increase so that at maturity you will
receive an amount in excess of the principal
amount of the Reset PERQS. Because your return
is linked to the Market Price of Nokia ADRs on
February 28, 2002 and February 26, 2003, there
is no guaranteed return of principal. To the
extent that the Maturity Price of Nokia ADRs is
less than the Initial Nokia ADR Price or not
sufficiently above the Initial Nokia ADR Price
to compensate for a downward adjustment of the
Exchange Ratio, if any, at February 28, 2002 and
the shortfall is not offset by the coupon paid
on the Reset PERQS, you will lose money on your
investment.
<TABLE>
Dividend
High Low (Net)
---- --- --------
<S> <C> <C> <C>
(CUSIP 654902204)
1997
First Quarter......$ 4 25/128 $ 3 17/32 $ --
Second Quarter..... 4 181/256 3 31/64 .042913
Third Quarter...... 5 221/256 4 35/64 --
Fourth Quarter..... 6 23/64 4 1/32 --
1998
First Quarter...... 6 3/4 4 33/128 --
Second Quarter..... 9 41/128 6 29/32 .0832
Third Quarter...... 11 1/2 8 45/128 --
Fourth Quarter..... 15 77/128 7 27/32 --
1999
First Quarter...... 19 35/64 15 15/16 --
Second Quarter..... 22 57/64 17 7/16 .129295
Third Quarter...... 24 17/32 19 11/16 --
Fourth Quarter..... 47 49/64 22 5/16 --
2000
First Quarter...... 57 1/2 38 1/4 --
Second Quarter..... 61 7/8 45.0 .19164
Third Quarter...... 56 3/8 38 1/8 --
Fourth Quarter
(through
December 12, 2000).51 3/8 29 7/16
</TABLE>
Historical prices have been adjusted for two
2-for-1 stock splits, which became effective in
the second quarter of 1998 and the second
quarter of 1999, respectively, and one 4-for-1
stock split, which became effective in the
fourth quarter of 2000.
We make no representation as to the amount of
dividends, if any, payable with respect to the
Nokia ADRs in the future. In any event,
PS-19
<PAGE>
as a holder of the Reset PERQS, you will not be
entitled to receive dividends, if any, that may
be payable on Nokia ADRs.
Currency Exchange Rate
Information .................. The following table sets forth the high, low and
period-ending exchange rate between the euro and
the U.S. dollar for the periods indicated since
January 1, 1999, the date on which the euro
became the single currency of participating
member states of the European Union at the
commencement of the third stage of the European
Economic and Monetary Union. We obtained the
exchange rates listed below from Bloomberg
Financial Markets and we believe such
information to be accurate.
<TABLE>
High Low Period-end
---- --- ----------
<S> <C> <C> <C>
1999
First Quarter Euro 1.1837 Euro 1.0732 Euro 1.0762
Second Quarter 1.0830 1.0308 1.0351
Third Quarter 1.0776 1.0136 1.0684
Fourth Quarter 1.0894 1.0013 1.0062
2000
First Quarter 1.0336 .9514 .9553
Second Quarter .9650 .8895 .9525
Third Quarter .9553 .8493 .8827
Fourth Quarter (through
December 12, 2000) .8919 .8272 .8794
</TABLE>
The information presented in this pricing
supplement relating to the exchange rate of the
U.S. dollar as compared to the euro is furnished
as a matter of information only. The euro has
been subject to declines and fluctuations in the
past and may be subject to significant
fluctuations in the future. The fluctuations or
periods of relative stability in the euro/U.S.
dollar exchange rate that have occurred in the
past are not necessarily indicative of
fluctuations or periods of relative stability in
that rate that may occur over the term of the
Reset PERQs.
The spot exchange rates between the euro and
U.S. dollar are at any moment a result of the
supply of and demand for the currencies being
compared, and changes in the exchange rates
result over time from the interaction of many
factors directly or indirectly affecting
economic and political developments in other
countries. Of particular importance are rates of
inflation, interest rate levels, the balance of
payments and the extent of governmental
surpluses of deficits in European Monetary Union
and the United States, all of which are in turn
sensitive to the monetary, fiscal and trade
policies pursued by the governments of the
participating member states of the European
Union, the United States and other jurisdictions
important to international trade and finance.
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.
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<PAGE>
On or prior to the date of this pricing
supplement, we, through our subsidiaries or
others, may hedge our anticipated exposure in
connection with the Reset PERQS by taking
positions in Nokia ADRs, in options contracts on
Nokia ADRs 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. In the event that
we pursue such a hedging strategy, the price at
which we are able to purchase such positions may
be a factor in determining the pricing of the
Reset PERQS. Purchase activity could potentially
increase the price of Nokia ADRs, and therefore
effectively increase the level to which Nokia
ADRs must rise before you would receive at
maturity an amount of Nokia ADRs worth as much
as or more than the principal amount of the
Reset PERQS. Although we have no reason to
believe that our hedging activity will have a
material impact on the price of Nokia ADRs, we
cannot give any assurance that we will not
affect such price as a result of our hedging
activities. Through our subsidiaries, we are
likely to modify our hedge position throughout
the life of the Reset PERQS, including on the
First Year Determination Date, by purchasing and
selling Nokia ADRs, option contracts on Nokia
ADRs 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.
Supplemental Information
Concerning Plan 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 $ per Reset PERQS and the underwriting
discounts and commissions will be $ per Reset
PERQS for purchasers of greater than or equal to
100,000 Reset PERQS in any single transaction,
subject to the holding period requirements
described below.
Delivery of approximately 98.50% of the Reset
PERQS to a purchaser of 100,000 or more Reset
PERQS at the reduced price (the "Delivered Reset
PERQS") will be made on the date of delivery of
the Reset PERQS referred to on the cover of this
pricing supplement. The balance of approximately
1.50% of the Reset PERQS (the "Escrowed Reset
PERQS") purchased by each such investor will be
held in escrow at MS & Co. for the benefit of
the investor and delivered to such investor if
the investor and any accounts in which the
investor may have deposited any of its Delivered
Reset PERQS have held all of the Delivered Reset
PERQS for 45 calendar days following the date of
the pricing supplement or any shorter period
deemed appropriate by the Agent. If an investor
or any account in which the investor has
deposited any of its Delivered Reset PERQS fails
to satisfy the holding period requirement, as
determined by the Agent, all of the investor's
Escrowed Reset PERQS will be forfeited by the
investor and not delivered to it. The Escrowed
Reset PERQS will instead be delivered to the
Agent for sale to investors. This forfeiture
will have the effect of increasing the purchase
price per Reset PERQS for such investors to 100%
of the principal amount of 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-21
<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 Nokia ADRs.
Specifically, the Agent may sell more Reset
PERQS than it is obligated to purchase in
connection with the offering or may sell Nokia
ADRs it does not own, creating a naked short
position in the Reset PERQS or Nokia ADRs,
respectively, for its own account. The Agent
must close out any naked short position by
purchasing the Reset PERQS or Nokia ADRs 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 Nokia ADRs 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 Nokia ADRs 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
96-23 (for certain transactions determined by
in-house asset managers), PTCE 95-60 (for
certain transactions involving insurance
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<PAGE>
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. In addition to considering
the consequences of holding the Reset PERQS,
employee benefit plans subject to ERISA (or
insurance companies deemed to be investing ERISA
plan assets) purchasing the Reset PERQS should
also consider the possible implications of
owning the Nokia ADRs. 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 and the Nokia
ADRs 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
PS-23
<PAGE>
individual circumstances or to certain types of
holders subject to special treatment under the
U.S. federal income tax laws (e.g., certain
financial institutions, tax-exempt
organizations, dealers in options or securities,
or persons who hold a Reset PERQS as a part of a
hedging transaction, straddle, conversion or
other integrated transaction). As the law
applicable to the U.S. federal income taxation
of instruments such as the Reset PERQS is
technical and complex, the discussion below
necessarily represents only a general summary.
Moreover, the effect of any applicable state,
local or foreign tax laws is not discussed.
General
Pursuant to the terms of the Reset PERQS, we and
every holder of a Reset PERQS agree (in the
absence of an administrative determination or
judicial ruling to the contrary) to characterize
a Reset PERQS for all tax purposes as an
investment unit consisting of the following
components (the "Components"): (i) a contract
(the "Forward Contract") that requires the
holder of the Reset PERQS to purchase, and us to
sell, for an amount equal to $ (the "Forward
Price"), Nokia ADRs 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
Nokia ADRs (the "Deposit"), which Deposit bears
an annual yield of % per annum, which yield is
based on our cost of borrowing. Under this
characterization, it is possible that less than
the full quarterly payments on the Reset PERQS
will be attributable to the yield on the
Deposit. If this is the case, the excess of the
quarterly payments on the Reset PERQS over the
portion of those payments attributable to the
yield on the Deposit would represent payments
attributable to the holders' entry into the
Forward 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
PS-24
<PAGE>
Reset PERQS) and with respect to any tax
consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following
discussion is based on the treatment and the
allocation described above.
U.S. Holders
As used herein, the term "U.S. Holder" means an
owner of a Reset PERQS that is, for U.S. federal
income tax purposes, (i) a citizen or resident
of the United States, (ii) a corporation created
or organized under the laws of the United States
or any political subdivision thereof or (iii) an
estate or trust the income of which is subject
to United States federal income taxation
regardless of its source.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset PERQS
and the allocation of the Issue Price as set
forth above, Tax Counsel believes that the
following U.S. federal income tax consequences
should result.
Quarterly Payments and Original Issue Discount
on the Reset PERQS. If the Forward Price exceeds
the Issue Price by at least 0.25% of the Forward
Price multiplied by the number of complete years
to maturity, the Deposit will be subject to the
"original issue discount" rules, and a U.S.
Holder will include "qualified stated interest"
equal to the stated interest on the Reset PERQS
in income in accordance with the U.S. Holder's
method of accounting for federal income tax
purposes. Additionally, each U.S. Holder,
including a taxpayer who otherwise uses the cash
method of accounting, will be required to
include original issue discount ("OID") on the
Deposit (in an aggregate amount equal to the
Forward Price less the Issue Price) in income as
it accrues, in accordance with a constant yield
method based on a compounding of interest. Under
these circumstances, the amount of income
recognized by a U.S. Holder will generally be
more than the stated interest paid to the U.S.
Holder and will increase during the term of the
Reset PERQS.
If the Forward Price of the Reset PERQS exceeds
the Issue Price by less than 0.25% of the
Forward Price multiplied by the number of
complete years to maturity, such excess will be
treated as de minimis OID, and will be taxable
to the holder at maturity as capital gain
(unless the holder elects to accrue such de
minimis OID on a current basis). Quarterly
payments on the Reset PERQS will generally be
taxable to a U.S. Holder as ordinary income at
the time accrued or received in accordance with
the U.S. Holder's method of accounting for U.S.
federal income tax purposes.
However, if the Forward Price does not exceed
the Issue Price, then to the extent attributable
to the yield on the Deposit, quarterly payments
on the Reset PERQS will generally be taxable to
a U.S. Holder as ordinary income at the time
accrued or received in accordance with the U.S.
Holder's method of accounting for U.S. federal
income tax purposes. As discussed above, any
excess of the quarterly payments over the
portion thereof attributable to the yield on the
Deposit will be treated as Contract Fees.
Although the federal income tax treatment of
Contract Fees is uncertain, we intend to take
the position that any Contract Fees with respect
to the Reset PERQS
PS-25
<PAGE>
constitute taxable income to a U.S. Holder at
the time accrued or received in accordance with
the U.S. Holder's method of accounting for U.S.
federal income tax purposes.
Tax Basis. Based on our determination set forth
above, the U.S. Holder's tax basis in the
Forward Contract will be zero, and the U.S.
Holder's tax basis in the Deposit will be 100%
of the Issue Price. The U.S. Holder's tax basis
in the Deposit will be subsequently increased by
any OID accrued with respect thereto.
Settlement of the Forward Contract. Upon the
maturity of the Forward Contract, a U.S. Holder
would, pursuant to the Forward Contract, be
deemed to have applied the Forward Price toward
the purchase of Nokia ADRs, and a U.S. Holder
would not recognize any gain or loss with
respect to any Nokia ADRs received thereon.
However, as stated above, any de minimis OID on
the Deposit that the holder has not previously
included in income will be taxable to the holder
at the maturity of the Deposit and the
concurrent settlement of the Forward Contract.
With respect to any cash received upon maturity,
a U.S. Holder would recognize gain or loss. The
amount of such gain or loss would be the extent
to which the amount of such cash received
differs from the pro rata portion of the Forward
Price allocable to the cash. Any such gain or
loss would generally be capital gain or loss, as
the case may be.
With respect to any Nokia ADRs received upon
maturity, the U.S. Holder would have an adjusted
tax basis in such Nokia ADRs equal to the pro
rata portion of the Forward Price allocable
thereto. The allocation of the Forward Price
between cash and Nokia ADRs should be based on
the amount of the cash received and the relative
fair market value, as of the maturity, of Nokia
ADRs. U.S. Holders should note that the holding
period of any Nokia ADRs received would start on
the day after the maturity of the Reset PERQS.
U.S. Holders should note that while any accrued
but unpaid interest on the Deposit and any
Contract Fees would be taxable as ordinary
income, any gain or loss recognized upon the
final settlement of the Forward Contract
generally would be capital gain or loss. The
distinction between capital gain or loss and
ordinary gain or loss is potentially significant
in several respects. For example, limitations
apply to a U.S. Holder's ability to offset
capital losses against ordinary income, and
certain U.S. Holders may be subject to lower
U.S. federal income tax rates with respect to
long-term capital gain than with respect to
ordinary gain. U.S. Holders should consult their
tax advisors with respect to the treatment of
capital gain or loss on a Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a sale
or exchange of a Reset PERQS prior to the
maturity of the Reset PERQS, a U.S. Holder would
recognize taxable gain or loss equal to the
difference between the amount realized on such
sale or exchange and such U.S. Holder's tax
basis in the Reset PERQS so sold or exchanged.
Any such gain or loss would generally be capital
gain or loss, as the case may be. Such U.S.
Holder's tax basis in the Reset PERQS would
generally equal the U.S. Holder's tax basis in
the Deposit. For these purposes, the amount
realized does not include any amount
PS-26
<PAGE>
attributable to accrued but unpaid interest
payments on the Deposit, which would be taxed as
described under "--Quarterly Payments and
Original Issue Discount on the Reset PERQS"
above. It is uncertain whether the amount
realized includes any amount attributable to
accrued but unpaid Contract Fees. U.S. Holders
should consult their tax advisors regarding the
treatment of accrued but unpaid Contract Fees
upon the sale or exchange of a Reset PERQS.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that directly
address the proper characterization of the Reset
PERQS, no assurance can be given that the IRS
will accept, or that a court will uphold, the
characterization and tax treatment described
above. In particular, the IRS could seek to
analyze the U.S. federal income tax consequences
of owning a Reset PERQS under Treasury
regulations governing contingent payment debt
instruments (the "Contingent Payment
Regulations").
If the IRS were successful in asserting that the
Contingent Payment Regulations applied to the
Reset PERQS, the timing and character of 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
Nokia ADRs and cash (if any) received exceeds
the adjusted issue price. Furthermore, any gain
realized with respect to the Reset PERQS would
generally be treated as ordinary income.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other alternative
federal income tax characterizations or
treatments of the Reset PERQS are also possible,
and if applied could also affect the timing and
the character of the income or loss with respect
to the Reset PERQS. It is possible, for example,
that a Reset PERQS could be treated as
constituting a prepaid forward contract. Other
alternative characterizations are also possible.
Accordingly, prospective purchasers are urged to
consult their tax advisors regarding the U.S.
federal income tax consequences of an investment
in the Reset PERQS.
Constructive Ownership
Section 1260 of the Code treats a taxpayer
owning certain types of derivative positions in
property as having "constructive ownership" in
that property, with the result that all or a
portion of the long term capital gain recognized
or deemed to be recognized (as described below)
by such taxpayer with respect to the derivative
position would be recharacterized as ordinary
income. Although Section 1260 in its current
form does not apply to the Reset PERQS, Section
1260 authorizes the Treasury Department to
promulgate regulations (possibly with
retroactive effect) to expand the application of
the "constructive ownership" regime. There is no
assurance that the Treasury Department will not
promulgate regulations to apply the
PS-27
<PAGE>
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
Nokia ADRs 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.
